Ebola debt relief – Implications and next steps

Sponsors:  Jubilee USA, International Monetary Fund

Panelists: Corinne Delechat (Deputy Division Chief, Africa Department, IMF), Chris Lane (Division Chief, Strategy, Policy, and Review Department, IMF), Mark Thomas (Practice Manager, Macroeconomics and Fiscal Management Global Practice, World Bank), Eric LeCompte (Executive Director, Jubilee USA Network)

The session discussed important questions arising from International Monetary Fund’s commitment of debt relief for Ebola-impacted countries, and the call for additional donations from bi-lateral creditors and the creation of a new debt relief trust fund to benefit poor countries impacted by health crises or natural disasters. The session’s discussion explored the future implications of this new fund on poverty and sovereign indebtedness; additional steps needed to combat Ebola in future and build the long-term infrastructure to protect citizens

Corinne Delechat, IMF Mission Chief for Liberia

Economic impact and context of the Ebola crisis

• Broad and far-reaching socio-economic impact, including direct and indirect effects
• Real GDP growth declined from 2.3% in Guinea in a year
• Sierra Leone from 20% to -8%
• Government revenue contracted in all three countries
• Households had tremendous impact, especially for those whose income was determined by day to day activities, such as agriculture and market trading
• This is a different kind of shock to a climate shock, instead it unfolds over time and initially it was misread and its ability to spread further afield was only understood.
• Thus there was a need to intervene quickly to stop much worse outcomes.

The outbreak is not over, in fact it’s time to provide more support as grants and debt relief will become more important.

President Ellen Johnson Sirleaf put it best when saying that the region needs a Marshall Plan

Note much of the money is not additional, it serves to cover existing payments, so it is not necessarily coming in. We then examine what is the additional spending related to the crisis, whether it be health services, or in agriculture, or extra costs of reopening schools and these can be identified and allows us to examine how the budget is executed.

IMF & responsibility for social spending levels and vulnerability to Ebola

In my experience, when social floors are not met they are often questions of capacity

• We discuss this with our country partners about the social spending “softer” targets, and we keep insisting on more spending on the social side, and by and large the targets are met.

We have consistently pushed for that since this policy was developed.

The crisis has shown that there is a global public health component of having sound health systems even in poor countries.

Chris Lane; Strategy, Policy Review Department

Focus on two questions: why debt relief, and what more could be done?

• Our usual first line of response to a country experiencing economic shock is to provide new financing, or concessional financing. It’s not to cancel or delay payments – though we do have an instrument providing debt relief for catastrophic natural disasters
• This disaster spread differently
• The other factor was that these countries were not in a position of relatively high indebtedness.
• Thus our normal logic to provide debt relief is unsustainability – hence this was inappropriate.
• Hence the innovative approach we took was to prevent international spillovers – because the international community benefitted from anything that the countries did to contain the epidemic in their countries and prevent a pandemic.
• Hence we sought to find a way to compensate them for their efforts which created gains for other countries, hence there was a good argument to not provide more debt but grants to offset the costs of the borrowing.
• However the IMF is not a development agency and does not provide such financing
• The only relevant precedent was debt relief through previous programmes such as HPIC
• Hence the new instrument, the Catastrophe, Containment, Relief Trust to provide relief to countries suffering epidemics which are fast-growing, but could wrap in also the facility to offset e.g. storms
• So how to make sure this would be a pot sufficient to cover potential needs of future crises – our fundraising strategy is well-developed.
• This includes bilateral fundraising – including from UK, Germany, and today Mexico, Portugal, Austria pledged support.

Could more be done?

Yesterday the leaders called for complete cancellation?

• One lesson is that the international community needs to invest in more preventative measures
• WE note the leaders’ request for complete cancellation, and the short-term benefits it would bring.
• However the relatively low levels of indebtedness complicates these factors – and we need to consider whether the types of new creditors, e.g. China, would be willing to continue to provide financing in future if asked repeatedly

What are the qualifying events in the new facility?

• We are not health experts, and should not seek to be – given that there are hundreds of epidemics every year we need a reliable structure to distinguish events of significant threat to the countries concerned and internationally.
• We came to similar conclusions as the Bank, and identified the WHO’s independent committee which assess reports of epidemics, which then issues a specific notice of which the Ebola case was only the third.
• We needed such a qualifying event, and then to identify how the balance of payments and economy would be affected, hence we set thresholds to act as triggers to qualify as an epidemic in which we would intervene. Determining the correct level took us the time of several months that people saw.

IMF & responsibility for social spending levels and vulnerability to Ebola

•  We have analysed this, and have begun to examine whether social spending floors which we began to require from 2010 were met, and they weren’t’ always met, it is true, and we need to examine why that is.

Mark Thomas, World Bank – Practice Manager in macroeconomics

Managing teams in the three countries affected by Ebola

The Bank’s response has to focus on human, not economic, elements, and this remains first and foremost a health response within a larger, complex intervention

Donors to date have committed close to $5.7 billion to the three countries, in many directions, but principally three types:

1) immediate health response

2) budget response

3) thinking ahead to post-Ebola recovery

The WB Group has committed approx. $1.6 billion as our institutional Ebola response, including our private sector engagements through the IFC.

We have also played a coordination and leadership role – including for the $5.7 bn of donor finance. We felt it was our role to be present in international fundraising efforts.

Many of the interventions enabled by the increased funding goes to UN agencies who act on the ground, and a large part of the funds (perhaps the larger part of emergency resources) went through the UN system

A component of the emergency response was to facilitate health workers to receive pay, and hazard pay.

Causes:

What happened here was a failure of systems, institutional shortcomings including knowledge.

A large part of our current thinking is to now prepare the region better, and not just institution-building, including pan-national health capacity building for regional or even global systems to be able to cope. Therefore it’s not all about money, but about how we mobilise it and how we tie it to knowledge and thoughtfulness about institutions.

Eric LeCompte, Jubilee USA

We have continually come back to the Fund to thank them for their support, and we’ve always asked to see the facility created for Haiti to be expanded and used elsewhere

We approached the White House, having identified the catastrophe trust as having money to act on Ebola, and the White House took this to the G20, and eventually the relief facility was created and expanded

For the first time a global social safety net has been created for some of the poorest – for when they face shocks, natural disasters or epidemics, with very clear rules to enable the IMF to act. The important aspect of this is the transparency of the facility, including listing the 38 states that could benefit from this facility were they to face a crisis relevant to the facility.

We see that other countries could and should benefit from this, e.g. small island states often considered middle income despite suffering very high level of poverty, e.g. Vanuatu (though it has no debt to the Fund)