The World Bank’s blueprint for a financial mechanism capable of releasing the quick funds needed to counter a pandemic has just been unveiled ahead of the G7 summit. Adam Pitt finds out what form the facility will take and questions how effective it can be in practice
From tomorrow, the leaders of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States will meet at the G7 Summit in Japan to discuss the state of the world’s economic policy framework. One of the topics that is likely to feature on the agenda is the Pandemic Emergency Facility, which the World Bank launched this week.
The bank estimates the economic costs caused by the spread of Ebola in 2015 in Guinea, Sierra Leone and Liberia at a staggering US$2.5 billion in GDP losses for the three countries. In Sierra Leone the mining industry has all but collapsed and large fiscal deficits are predicted due to spiralling healthcare expenses. According to the World Bank, economic analysis suggests that the annual global cost of moderately severe to severe pandemics is roughly US$570 billion, or 0.7 percent of global GDP.
Beyond the economic cost comes the human tragedy of not being able to act quickly enough—more than 11,300 people lost their lives during the Ebola crisis, pushing national and global development leaders to seek out new ways to get funds rapidly to pre-approved, accredited responders to try and contain another outbreak.
The Emergency Facility has been put together in collaboration with the World Health Organisation and the private sector. However, while details about President Kim’s brainchild have been published (see box), what is not certain is what the world can expect from the Facility, and whether global health experts will be any better prepared than they were a year ago.
How will the Pandemic Emergency Facility work?
- The Facility will have three financial pillars:
- Insurance. The Facility will cover the risks of an outbreak by purchasing insurance from the private sector and emergency funds would then be disbursed to meet an emergency outbreak like Ebola when pre-agreed conditions were triggered for a pay-out. Such insurance has been used already to provide relief for farmers suffering drought in Africa under the African Risk Capacity tool (see the Development Finance article from October 2015).
- Bond issues. There will also be a capital markets element to the insurance with investors in such bonds receiving a coupon (interest payment) if no outbreak or emergency occurs during the lifetime of the bond. If there is an outbreak, the capital contributed by the investor on purchasing the bond is not repaid and is used to channel funds to the country or countries where the emergency occurs. These bonds are modelled on catastrophe bonds, which have been used to cover the risk of hurricanes and other natural disasters, and would have the same triggers as the insurance mechanism above.
- Cash and long-term pledges. The World Bank will frontload funds in case of an emergency against the pledges made by its development partners. Having this cash component on top of the insurance mechanism, means that the Facility can respond even more quickly to the need for funds.
The right type of preparation
One thing that appears certain is that the bureaucratic nature of the international community is not going to speed up, according to Dudley Tarlton, Health and Development Programme Specialist at the United Nations Development Programme and an observer at several meetings on ‘financing preparedness’ held in Geneva in February.
“These funding mechanisms are being set up on the assumption that the international community will be too slow to react,” said Tarlton. “But the aim should be to ensure that you don’t have a gap between identification of an outbreak and declaration of a global health emergency.
“This is what we are seeing with the response to Zika, where the response has been quicker than people would have imagined, and highlights the fact that you don’t have to wait for perfect evidence before declaring a public health emergency of international concern.”
Indeed, the link between microcephaly and the spread of the Zika virus has not even been confirmed and yet it has already been declared as a public health emergency. But while an emergency without any travel bans may have sent mixed messages, Tarlton questions whether the Zika outbreak would even trigger a pay-out from the proposed facility.
“The interesting thing about Zika is that based on my understanding of how the Pandemic Emergency Facility will work, current interventions would still not qualify for any pay-out,” said Tarlton. “This raises the question as to what kind of pathogens qualify and what do we do about diseases and viruses that we perhaps don’t even know about yet.”
The World Bank provided some detail on this in this week’s announcement. The insurance window (private insurance and cat bonds) will provide coverage up to US$500 million for an initial period of three years for outbreaks of infectious diseases most likely to cause major epidemics, including new Orthomyxoviruses (e.g. new influenza pandemic virus A, B and C), Coronaviridae (e.g. SARS, MERS), Filoviridae (e.g. Ebola, Marburg) and other zoonotic diseases (e.g. Crimean Congo, Rift Valley, Lassa fever). Parametric triggers designed with publicly available data will determine when the money would be released, based on the size, severity and spread of the outbreak.
The complementary cash window will provide more flexible funding to address a larger set of emerging pathogens, which may not yet meet the activation criteria for the insurance window. Tarlton’s example of Zika would fall into this category.
Another important consideration with the new facility is how to encourage the private sector to buy into an idea that could potentially leave them feeling short-changed in the event that multipliers are miscalculated and risk overestimated, as was the case with early projections for Ebola.
The World Bank believes however that the Pandemic Emergency Facility will attract investors because for the first time the market will put a price tag on pandemic risk and since investment is to be sought from groups that are already known to the World Bank, some grasp of the liability is anticipated.
“What we are also looking at is creating a market for risk transfer and risk management, and encouraging that market to model and price pandemic risk, which it is not doing currently,” said Susan McAdams, Director of Multilateral and Innovative Financing at the World Bank.
The new facility will tap both the insurance markets, which will pay out if an outbreak occurs as well as the bond markets where the capital provided by investors to buy catastrophe bonds will be channelled to the location of an emergency in the event of an outbreak. Pay-outs will be triggered in both cases by the same set of conditions.
“With insurance and reinsurance, you are not sitting on the money here, like we are with a bond, but the contracts for insurance, reinsurance, and the pandemic cat [catastrophe]bond will have the same activation criteria, be used for the same purpose, and will be very clear,” added McAdams.
Not everyone believes it is very clear. “Everyone agrees that the global public sector hasn’t exactly covered itself in glory with our response to Ebola but the bit that gets confusing is that cat bonds look a lot like a kind of insurance,” said Theodore Talbot, Senior Policy Analyst at the Centre for Global Development.
Confusing or not, investors will be sought to front the US$50 million a year cost of the insurance premiums for the 77 countries that are eligible for International Development Assistance. The World Bank will act as a trustee for all funds managed under the Facility and with clear agreements in place, the possibility that insurance companies might be able to dispute a claim would appear to have been negated.
Other countries will be allowed to join providing they foot the bill for their own premiums, adding a further incentive for investors to sign up. Of course the funds provided by investors will not be channelled to developing countries unless a claim is required, but long-term development finance will not suddenly cease and the Pandemic Emergency Facility will encourage countries and development partners to build better core public health facilities for disease surveillance.
Japan, which is hosting the G7 meeting in Ise-Shima, has committed the first US$50 million in funding towards the new initiative. The World Bank Group estimates that if the Pandemic Emergency Facility had existed in mid-2014 as the Ebola outbreak was spreading rapidly in West Africa, it could have mobilised an initial US$100 million as early as July to severely limit the spread and severity of the epidemic. Instead, money at that scale did not begin to flow until three months later and during that period, the number of Ebola cases increased tenfold.
There are still questions over how the Facility will be applied but with four deaths from Ebola having been recorded in March in Guinea, some three months after the country was declared free of the disease, world leaders at the G7 may well be advised to put this at the top of their agenda.