Waste management and financing models in low- and middle-income countries

For waste management at a fair environmental, economic, and social cost: building viable financing models in low- and middle-income countries

A Costly Lack of Awareness About Waste

In many low- and middle-income countries, waste management suffers from a double blind spot: one regarding public perception, and one regarding institutional knowledge. For households, waste services are often seen as secondary or informal. In the context of limited incomes, water and electricity are regarded as essential services, while waste is perceived as a worthless leftover. However, this view neglects very real impacts: air, soil, and groundwater pollution, the spread of diseases, and hidden but significant environmental and health costs. Due to a lack of awareness, waste management is often seen as a passive right, even though it is a public service challenge as vital as water or energy.

But the blind spot is also institutional. Very few municipalities have a clear understanding of the actual costs associated with sustainable and efficient waste management. Expenditures are scattered across pre-collection, transport, and treatment, often without dedicated accounting or monitoring and quality control indicators. This lack of clarity makes any strategic planning, rationalization efforts, and above all, credible resource mobilization, extremely difficult. How can a fair tariff be set if the real cost is unknown? As a result, financing is largely misaligned with the real needs of sustainable management: municipalities must either rely on the State, borrow from international banks, or simply reduce the quality or coverage of the service. As GIZ points out, accurately identifying the management system in place and reconstructing its costs is a basic prerequisite for designing sustainable financing.

What are the sources of financing?

Waste management relies on a combination of several sources of financing. In most low- and middle-income countries, revenue sources include: local taxation, national subsidies, international aid, and sometimes contributions from the private or informal sector. Municipalities can also mobilize various tools: local taxes (such as TEOM), user fees (such as REOM), targeted subsidies, integration into bundled utility bills (such as electricity bills in Maputo), or revenues from recycling or treatment (AFD, 2018). These economic instruments not only help fund the service, but also guide user behavior (GIZ, 2015). Proper calibration allows a balance between financial sustainability and incentivizing effects, while strengthening the budgetary visibility of local authorities.

Figure 1: Range of financing mechanisms mobilized in the waste sector

While funding sources are multiple, their actual activation varies widely depending on the context. Some local authorities manage to build a stronger local funding base, while others remain largely dependent on the State or international donors. The table below illustrates this diversity through examples from low- and middle-income countries:

Despite the possible diversity of funding sources, most waste management systems in low- and middle-income countries are still based on fragile foundations, marked by four major limitations:

• Unpredictable public subsidies: State funding remains central, but varies significantly from year to year and is not aligned with actual costs, resulting in unstable budget planning.
• Strong dependence on external funding: Donors and NGOs provide essential support, but their funding is time-limited, geographically targeted, and hard to integrate into long-term local budgets.
• Weak cost recovery mechanisms: Fees are often underpaid, poorly targeted, and lack monitoring systems. Low recovery rates are explained by limited acceptance and the absence of a clear link between payment and the service provided.
• Insufficient institutional structuring: The roles of stakeholders are not well defined or coordinated. Actors often lack technical skills and awareness, which hinders planning, management, and cost monitoring. Few local authorities have a clear accounting framework for service evaluation.

How can an adapted and sustainable financing model be built?

Knowing your system to finance it better

Before even defining a financing strategy, it is essential to know the actual costs of waste services and their origins. This step requires a detailed description of the system in place: which services are provided, at what level of quality and efficiency, in which areas, for which user groups (households, businesses, institutions), what is the users’ perception of the service, what volume of waste is generated by each user category, and what are the intervention methods (primary collection, secondary collection, treatment, etc.). This operational mapping must then be combined with a cost reconstruction exercise, including both investment (CAPEX) and operating (OPEX) expenses. This is an essential prerequisite for credibly mobilizing funding, proposing fair pricing, and moving away from approximate management where costs are diluted across other budget lines.

A hybrid, flexible, and sustainable model

Once costs are known, they must be covered sustainably. Models relying on a single source of funding are rarely viable. Hybrid models, combining resources from users, local taxation, revenues from valorization, and external support mechanisms (subsidies, donors, results-based financing), are generally preferred. Financial modeling—including tailored financing studies and tariff analysis—is a key tool for testing different combinations, adapting them to the territory’s social realities, and adjusting efforts over time. This can mean allocating part of an existing tax, creating targeted user fees, gradually introducing household tariffs, or activating indirect revenues (such as taxes on communications or tourism activities). In short, the more diversified the funding mix, the more robust it is—provided it remains transparent, socially acceptable, and well managed over time.

Towards progressive financing and a circular approach

Building sustainable financing does not mean imposing a fixed model, but rather putting in place a progressive approach, adapted to each territory. Not all economic instruments can be applied in the same way everywhere, as each territory has its own specificities: local taxation, payment capacity, user behavior, the way the State functions, or the importance of the informal economy. These differences must be considered to design an economic model adapted to the local context and establish a durable, resilient financing framework. This progressivity can build on existing mechanisms: for example, by reallocating or improving a local tax already collected (such as TEOM in Senegal), or by broadening the tax base through better identification of waste producers or the most polluting waste streams. It also means starting small but structured: simple, targeted, flat-rate fees, then evolving according to contribution capacity or waste volumes. All of this should be accompanied by enhanced local capacity, effective collection tools, national institutional and regulatory support (legal framework, co-financing, training), and user awareness campaigns.

🔎 Focus: Innovative financing mechanisms

Some alternative mechanisms are enriching the landscape of waste financing:

• • Carbon markets: Enable the valorization of emission reductions (e.g., methane) through composting projects or controlled landfills.
  • Green bonds: Debt instruments to finance sustainable treatment infrastructure.
  • Extended Producer Responsibility (EPR): Requires producers to contribute to the management of waste generated by their products.

These tools, although not widely used yet, are promising for certain segments (valorization, infrastructure), but require a solid regulatory framework, transparency, and clear governance (Ezeudu, 2024).

Moving towards a sustainable model also means changing the logic: moving away from crisis management focused on budget survival to embedding waste management in a true sustainable and circular economy strategy. Economic instruments, beyond funding the service, can steer behavior, encourage waste reduction, and incentivize businesses to invest in recycling, valorization, or cleaner technologies. However, these incentives must be supported by a coherent framework: a national strategy or local master plan, dedicated waste management funds and transparency in the use of funds, citizen participation, accountability mechanisms, service quality, and secure public-private partnerships. Financing then becomes a lever for transformation, capable not only of ensuring the continuity of service, but also of structuring productive value chains and supporting countries’ climate commitments. In summary: well-structured, progressive financing aligned with environmental objectives can turn waste into a driver of social, environmental, economic, and regulatory development.

Espelia's references

Bibliographic Resources

• GIZ (2015). Economic instruments in solid waste management.
• AFD (2018). Waste, how much does it cost? Development Issues, No. 40.
• Matheson, T. (2019). Disposal is not free: fiscal instruments to internalize the environmental costs of solid waste. IMF.
• Becker, V. (2022). Financial models of solid waste management in most developed countries. Journal of Ecology and Environmental Sciences.
• World Bank (2014). Results-based financing for municipal solid waste. Urban Development Series Knowledge Papers.
• Delarue, J. et al. (2012). Sustainable development of household waste management and carbon financing: conditions for joint implementation in developing countries.
• Ezeudu, O.B., Bristow, D. (2024). Financing methods for solid waste management: a review of typology, classifications and circular economy implications.