Is the Glass Half Empty or Half full?

THE largest reservoir system ser-ving São Paulo, Brazil, is nearing depletion. A combination of pop-ulation growth, deforestation, polluted rivers, and the worst drought in southeast Brazil in nearly a century has forced many residents to endure sporadic ser-vice interruptions. Some have gone days without water. Reside-nts have resorted to drilling priv-ate wells or hoarding water to wash clothes and flush toilets.

Thousands of miles to the north, parts of the United States are also experiencing severe water shor-tages, driven by decades of unsu-stainable consumption combined with drought conditions. A “bat-htub ring” lines Lake Mead, the largest reservoir in the United States, marking the level water once reached. In April 2015, Cali-fornia state regulators passed si-gnificant mandatory cuts to wat-er use, beyond the already strict limits on watering and landscapi-ng, with heavy fines imposed on violators. Farmers foresee leav-ing up to 1 million acres of farm-land uncultivated, almost twice as much as last year.

In January 2015, the most devast-ating floods in living memory ra-vaged Malawi, a densely popula-ted low-income country whose people survive on subsistence fa-rming. The floods displaced near-ly a quarter of a million people and destroyed crops, villages, and livestock. Malawian Preside-nt Peter Mutharika declared half the country a disaster zone.

These are just some of the water challenges plaguing countries across the globe. People through-out the world face rising constra-ints on their ability to obtain water in a usable form, when and where it is needed. Globally, 1.2 billion people, or one in six, live in areas with an inadequate water supply, approximately one in nine lacks access to safe drink-ing water, and every minute a child dies of a water-related dise-ase.

Water challenges can have large adverse economic, social, and environmental consequences. Since water is a crucial input for agriculture and a host of other industries, shortages and supply variability can lead to food inse-curity, push up production costs, and constrain productivity growth. For example, water related shocks may have reduced Mozambique’s GDP growth by as much as 1.1 percentage points a year during 1981-2004, according to the World Bank (2007).

Lack of access to safe drinking water and improved sanitation inhibits development in a variety of other ways too, including by raising the prevalence of disease, worsening health and nutrition outcomes, and lowering the part-icipation of women – who are ty-pically tasked with collecting and hauling water for household use -in education and income – gener-ating activities. Degradation of water can also dry up activity in sectors such as tourism that dep-end on environmental quality.

But sound policies and instituti-ons have helped even countries with low endowments of water successfully manage this scarce natural resources, according to a new IMF study. Underpricing often leads to overuse and unde-rsupply, the study finds. By setti-ng the right incentives, govern-ments can effectively cope with these challanges and, at the same time, provide for the water needs of poor.

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