Water crisis endangers 8% of GDP in high-income countries, report warns

Water scarcity has a price: It could cause high-income countries’ GDP to shrink by 8% on average by midcentury and a drop of up to 15% in poorer countries, according to a new analysis. It also finds that subsidies that encourage overuse are among the most consequential factors driving the crisis.
The report, released Wednesday by the Global Commission on the Economics of Water (GCEW), an international initiative tasked to improve water management, finds that nearly 3 billion people and more than half of the world’s food production are in areas experiencing a worsening water shortage. Regions with high population density — including southern Europe, northeastern China and northwestern India — are particularly vulnerable.
“This is pretty significant,” Ngozi Okonjo-Iweala, director-general at the World Trade Organization who co-chaired the GCEW, says of the findings.
The report comes ahead of the 2024 United Nations biodiversity summit, known as COP16, during which global leaders will meet in Colombia to discuss how to safeguard wildlife and natural habitats. Last year’s gathering led 195 nations to agree to protect and restore at least 30% of the Earth’s land and water by 2030. The new report’s findings add to the urgency of forest protection.
That’s because deforestation and other land-use changes could disrupt rainfall patterns, potentially exacerbating water scarcity. As the poorest 10% of the global population obtain more than 70% of their annual precipitation from land-based sources, they are also expected to be hit the hardest by deforestation, according to the report’s authors.
Besides the usual suspects such as deforestation and climate change, the authors also attribute the worsening water crisis to a lesser known problem: government subsidies that drive up water overuse.
“Water is often mismanaged due to perverse incentives and inappropriate policies,” the report notes. Subsidies to water-hungry crops such as cotton and sugarcane, for example, have encouraged their cultivation in South Asia and the Middle East, both among the world’s most arid areas. Globally, at least $550 billion of environmentally harmful subsidies are spent on agriculture every year, and the sector is at risk of losing up to 13.2 cubic kilometers of groundwater — for comparison, U.S. agriculture use roughly 1 cubic kilometer of water annually — annually due to distorting subsidies, according to the report.
“Today’s massive subsidies that contribute to water’s overuse in many sectors and environmental degradation should be redirected towards water-saving solutions, protecting and restoring freshwater ecosystems, and ensuring access to clean water for vulnerable communities,” the researchers say. Rethinking water pricing could also help ease some of the risks on the horizon.
While the world is “not anywhere near ready to talk about a global water price, every country should move towards realistic pricing that takes into account local water scarcity,” says Singapore President Tharman Shanmugaratnam, another co-chair of GCEW.
A 2022 study from the World Meteorological Organization warns that the global hydrological cycle is spinning out of balance, driven by climate change and other human activities. The researchers from GCEW stressed the need to change course.
“Every community is going to be affected,” Shanmugaratnam says.