Relationship Between Macro-economic Policies & Water Allocation Among Sectors, Water Management and Uses Professor Dr. El-Sayeda I. Moustafa Chairperson of the Economic Department University of Alexandria 1

Macro-economic policies can have significant influence on demand for water resource (uses), water supply and allocation, and,hence, water management. Other policies include: Transboundary water policies, Environmental policies, Sectoral policies, Agricultural and irrigation polices, Population policy, Industrialization policy, Food self-sufficiency policy, etc. 2

What are the macro-economic policies that may affect various Water aspects? Fiscal policy (taxes, subsidies and government spending schemes) Monetary policy (interest rates and availability of credit) Trade policies (openess vs. restrictions through tariffs, quotas, etc.) Foreign direct investment (FDI) policy. Foreign exchange rate policy 3

Fiscal policy and water aspects Subsidies Highly subsidized (free) irrigation water affects water allocation to other sectors in the economy. Input subsidies (cheap fertilizers, pesticides, energy, ) motivate farmers to raise output of water-intensive products and reduce farmers incentives to improve input use efficiency. Crop price support (cotton, for instance). 4

General under-pricing of water provision in the household and industrial sectors. Unsanctioned illegal connections. Output taxes do not directly target water consumption Government spending on capital investment may be divorced from management of water resources. 5

Monetary policy and water aspects Subsidized credit to certain crops may influence the allocative efficiency of water. Lack of cheap credit to invest in new water saving facilities. The problem of land fragmentation and inability of small farmers to acquire adequate finance for any facility improvement. Specialized banks do not play a significant role (due to lack of interest or ignorance of the water problem). 6

Trade policies and water aspects Trade liberalization: may induce a strong positive investment in new irrigation system and a reallocation of water and land resources to the production of less water intensive agricultural products (fruits and vegetables) in which the country may have a strong comparative advantage. had a partial role in reducing cotton cultivation in Egypt lately. 7

May motivate the country to increase its imports of several water intensive products instead of producing it domestically (the idea of virtual water). 8

FDI policy and water aspects A country that saves no efforts to achieve a significant increase in (FDI) – to increase employment and economic growth- may ignore or relax restrictions related to some vital issues such as water use and sustainability. For instance, FDI may be allowed in dirty industries or sectors that contribute to the increase in deterioration of water quality, water shortage, or further mis- allocation of water resources.. 9