By David Loyn
The UNDP wants another $4bn (£2bn) a year spent, and says that water has not received the attention it deserves.
Water-borne diseases such as diarrhoea kill far more people than HIV/Aids and malaria combined, it said.
And the difference is particularly stark for children: water-borne diseases kill five times as many children as HIV/Aids.
The report says that water is a key part of human development - and warns that, in particular, sub-Saharan Africa is lagging behind the rest of the world in the provision of basic services.
The report says that 2.4 billion people in the world do not have access to safe sanitation.
But Kevin Watkins, the report's author, says that the world needs to think on a much bigger scale than this.
He says a similar initiative is needed as that carried out 100 years ago in major European cities, including London, to provide water and sewage treatment.
Back then, diseases such as cholera, carried in dirty water, were affecting the rich as well as the poor.
In the modern world of what Mr Watkins calls "water apartheid", the rich do not suffer in the same way, and the incentives for government to act are less.
"You can't help wondering - if the children of the wealthy were suffering the same fate as the children of the poor regarding water and sanitation, if high income women were also walking four hours a day to collect water - whether something would have been done about it."
"I think something would have happened a long time ago."
The report finds that the big arguments about privatisation in recent years miss the point.
There have been some high-profile failures where western companies have not been able to deliver their promises in developing countries.
But slum dwellers in places including Nairobi in Kenya already pay for private water supplies, delivered by truck.
The amounts they pay are huge and this water is more expensive per litre than in London or New York.
The poorest people in Latin America can pay up to 10% of their household income for water.
As well as the loss of life and the cost of disease, the time spent collecting water has other economic effects.
The report calculates that the cost to Africa is equivalent to about 5% of the continent's economic growth, about the same amount of growth as is generated by money received in aid.
Mr Watkins says: "This is one of the biggest potential setbacks to human development in Africa for a century."
But he says that water has been left out of recent announcements on development by the richest countries in the world.
The report does not believe that water represents a major security threat, and the prospect of 'water wars' is not as serious as others have predicted.
But it does warn of severe consequences if there is not a major strategic plan for water use across country borders, especially as climate change reduces the capacity of the poorest countries to grow food for themselves.
The report highlights the growing gap between rich and poor, not only in income, but also in the provision of basic services.
And it shows the glaring gaps not just between rich and poor countries, but between the rich and poor within developing countries.
Children in Indonesia, for example, are four times as likely to die before their fifth birthday if they are born into the poorest 20% of the population instead of the richest 20%.
And the combined income of the richest 500 people in the world exceeds that of the poorest 416 million.
The report says that one of the central challenges of human development is to "diminish tolerance for the extreme inequalities that have characterised globalisation since the 1990s."
"Globalisation has given rise to a protracted debate over trends in global income distribution, but we sometimes lose sight of the sheer depth of inequality, and how greater equity could dramatically accelerate poverty reduction," Mr Watkins said.
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