World Bank pandemic bond instrument fails in COVID-19 response

7 April 2020

The ongoing coronavirus (COVID-19) outbreak is once again challenging the effectiveness of the World Bank’s Pandemic Emergency Financing Facility (PEF).

PEF, launched in 2017 after the 2014 Ebola outbreak in West Africa, was touted as an innovative mechanism to potentially “save millions of lives and entire economies,” by rapidly mobilising finance to low-income countries facing pandemics and placing some risk onto financial markets, rather than governments’ budgets.

However, PEF criteria have long been criticised for making the mechanism slow and complicated. The facility, which relies on a series of pay-out ‘triggers’, only releases funds once there have already been a certain number of cases, deaths and countries affected by an outbreak.

In an article in UK newspaper The Guardian, Bodo Ellmers, of US-based civil society organisation (CSO) Global Policy Forum, noted, “The scheme’s ‘fundamental flaw’ is that it was aimed at preventing a pandemic but would only pay out when a pandemic was already underway.” Olga Jonas, of Harvard School of Public Health, argued in a Business Insider article that the bonds’ triggers “are very late”, and that the Bank could have funded relief efforts without the “unnecessary, inappropriate, and ineffective risk-financing instruments.” A clear example is the Democratic Republic of Congo, where, a year after the second Ebola outbreak in 2018, which became the second-largest outbreak ever recorded according to Médecins Sans Frontièrs, funds were yet to be released as the disease had not spread across international borders, one of the requirements for PEF bonds to be triggered.

A 2017 paper by Clare Wenham of the London School of Economics highlighted that, out of 60 pandemic cases studied, PEF would only have been triggered on two occasions,  the outbreak of Rift Valley fever in 2006 and Ebola in 2014-16. Meanwhile, by mid-2019, it had paid $114.5 million to private investors as coupons, suggesting that it seems “to be serving private investor interests more than contributing to global health security.” At time of writing, no country has received PEF funds to prepare for the COVID-19 outbreak. While the funds are likely to be triggered soon with the COVID-19 crisis evolving very rapidly, the delayed response has already prevented PEF from enhancing developing countries’ ability to respond to the crisis.

The crisis comes in the context of IMF-imposed fiscal consolidation and the Bank’s use of public-private partnerships as one of the main policies to expand healthcare privatisation – linked to cuts in social spending and private sector involvement – weakening countries’ health systems. These have eroded states’ capacity to react to health crises such as COVID-19, as seen in Greece, among other countries, where the national health budget suffered a contraction of 36 per cent after exiting IMF loan programmes, as argued in a report produced by the Citizens for Financial Justice project in 2019 (see Observer Autumn 2018, Spring 2017, Winter 2015).

On 3 March the World Bank announced a first package of up to $14 billion to assist countries to immediately respond to the COVID-19 crisis. On 2 April it approved a “first set of emergency support operations for developing countries around the world, using a dedicated, fast-track facility for COVID-19 response.” The Bank also noted that it “is prepared to deploy up to $160 billion over the next 15 months to support COVID-19 measures that will help countries respond to immediate health consequences of the pandemic and bolster economic recovery.” The IMF released a statement on 4 March, announcing that it “is making available about $50 billion through its rapid-disbursing emergency financing facilities for low income and emerging market countries that could potentially seek support [in dealing with the COVID-19 outbreak].” The Fund is also looking to increase funding to its Catastrophe Containment and Relief fund, which provides up-front grants for relief on IMF debt service falling due, to $1 billion. It currently stands at $420 million, after nearly doubling in size with recent pledges from the UK and Japan, meaning it remains “significantly underfunded”.