WATER RESOURCES RESEARCH, VOL. 29, NO. 7, PAGES 1895-1906, JULY 1993 Water Resources Planning in a Strategic Context' Linking the Water Sector to the National Economy PETER ROGERS Division of Applied Sciences, Harvard University, Cambridge, Massachusetts CHRISTOPHER HURST European Investment Bank, Luxembourg NAGARAJA HARSHADEEP Division of AppliedSciences, Harvard University, Cambridge, Massachusetts In many parts of thedeveloping world investment in water resources takes a large proportion of the available public investment funds. As the conflicts for funds between the waterand othersectors become more severe,the traditional ways of analyzing and planning water investments has to move away from project-by-project (or evena river basin-by-river basin) approaches to include the relationships of waterinvestments to other sectors andto overall national development policies. Current approaches towater resources investments are too narrow. There isaneed forways toexpand the strategic thinking of watersector managers. Thispaper develops a water resources planning methodology withtheprimary objective of giving insights into thelinking of water sector investments and macroeconomic policies. The model optimizes the present value of investments for water resources development, while embedding a macroeconomic model into the framework to allow foran examination of the interactions between waterinvestments, the growth in the agricultural sector, and the performance ofthe overall economy. A case study ofBangladesh ispresented which shows how strategic thinking could leadto widely differing implications for water investments thanwould conventional water resources systems planning models. 1. INTRODUCTION It is a paradox thatalthough water resources have proba- bly received moreanalytic attention thanany other kindof public investment, there has been little attention paid to relating the water sector to strategic macroeconomic deci- sions. This lack of analysis is of great concern in many countries, such as Brazil, where as much as 30% of public investment is in the water sector. There is no direct way of showing the strategic consequences of such large allocations in one sector. Other resource sectors, such as energy, have well- developed methodologies relating sectoral plans to strategic sector-wide economic decisions.Most of these approaches were developed in response to the oil crises of the early 1970s. It is now possible for energy planners to show the macroeconomic consequences of regulation of andinvest- ments invarious energy sources, and, in theother direction, to estimate the consequence of shifts in macro policyon demands andsupplies for energy by various sectors. The development of reliable planning methodology to relate water sector plans to the overall development of a country is a generic problem that is of major significance to guiding investments by domestic, bilateral, and multilateral funding agencies. In this paper we show how strategic and sector concerns can be accounted for in a simple and direct way.To do this we havebuilt a economy-wide model for Copyright 1993 by theAmerican Geophysical Union. Paper number 92WR02990. 0043-1397/93/92 WR-02990505.00 Bangladesh which incorporated a detailed watersector and its macroeconomic linkages. While thisparticular model has never been used in making a plan, it is based upon two models of the water sectorand the macroeconomic planning which have been usedin planning[Master Plan Organiza- tion, 1986].We believethat it does serve as a useful framework within which we can show that quite different policy implications forthe water sector arise when strategic concerns areexplicitly considered andhence, the value of thestrategic thinking. Themodel used should not beconsid- eredasthelastword onmethodology in thisareabut, rather, a firststep toward building reliable methods for strategic planning. Ever since thefirstcomputer wasconceived of, engineers, economists and other social tinkerers have dreamed of making computable models of the entireeconomy. The belief was that data could be gathered for a correctly specified model of theentire economy. Armed withsuch models theplanners andpolicy makers could make better decisions than before. With the increasing capabilities of computers during the 1960s and 1970s, everincreasingly complex mathematical programming models have been used to aid decision making in many areas of policyanalysis. Water resources planning is no exception to this trend toward large-scale modeling, and particularly for applica- tions in riverbasin planning in developing countries where waterplaysan important role in the agricultural sector, which itself plays a major role in thenational economy, there havebeen several complex planning models constructed. Samples of agricultural models involving irrigation, or of 1895