The report, titled The Economics of Water Scarcity in MENA: Institutional Solutions, notes that by the end of this decade, the amount of water available per capita annually will fall below the absolute water scarcity threshold of 500 cubic meters per person, per year. It also estimates that by 2050, an additional 25 billion cubic meters of water a year will be needed to meet the region’s needs. That is equivalent to building 65 desalination plants the size of Ras Al Khair plant in Saudi Arabia, which is currently the largest in the world.

Institutions that currently manage the allocation of water across competing needs – particularly between agriculture and cities – are often highly centralized and technocratic. This limits their ability to resolve tradeoffs in water use at the local level. The report argues that devolving greater powers over water allocation decisions to locally representative governments, within a national water strategy, could lend legitimacy to difficult trade-offs in the use of water compared to top-down directives from ministries.

"Water shortages pose a serious challenge to both lives and livelihoods as farmers and cities compete for this precious natural resource and stretch water systems," said Ferid Belhaj, World Bank Vice President for the MENA region. "A new approach is needed to tackle this challenge, including delegating more control to local authorities on how water is allocated and managed," added Belhaj, who joined an event in Rabat to launch the new report.

In the past, countries across MENA have invested heavily in new infrastructure, such as dam storage, found ways to tap into large ground water resources and increased virtual water imports by bringing in water-demanding grains and other products from outside the region. This approach has increased agricultural production and access to water supply and sanitation services in cities, but the report argues that this expansionist approach to water development now faces limits which will require countries to make difficult tradeoffs.

Opportunities to expand water storage capacity have plateaued, groundwater is being over-exploited with negative consequences on water quality and importing virtual water has left countries open to global shocks. Compared to past investment in dam storage and groundwater, the costs of investing in non-conventional water sources – such as sea water desalination and wastewater reuse – is much higher, which will put yet further strain on the finances of countries, the report says.

To maximize opportunities for both climate finance and global financial markets, the report says that countries across MENA will need to build institutions that convince those markets that countries can raise revenues to service debt.

"Giving greater autonomy to utilities to reach out to customers regarding tariff changes could also win greater compliance with tariff structures, lowering the risk of protests and public unrest over water," said Roberta Gatti, World Bank Chief Economist for the MENA region. "These kinds of reforms could help governments to renegotiate the social contract with the people of MENA and build greater trust in the state to manage water scarcity," she added.

For institutional reforms to succeed, the report encourages clear communications around water scarcity and national water strategies, explaining to communities why certain decisions are taken. This approach had helped in countries like Brazil and South Africa where strategic communications efforts complemented reforms to reduce water use during times of great scarcity.