3

Pandemic Emergency Funds¹

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¹The title of this chapter has been updated since the initial release of this report.

Speakers in the next session discussed different ways to make money available for pandemic preparedness and response, with particular attention to the tools available to multilateral agencies, insurance tools, and innovative financing.

Peters Sands, formerly of Standard Chartered Bank, moderated the first session on the WHO, World Bank, and IMF pandemic financing tools. He invited Katherine DeLand of WHO to start the discussion, asking why the WHO contingency fund was needed and what it would be used for. DeLand explained that the $100 million fund was a flexible pot of money that could be rapidly drawn down during the first 3 months of an outbreak or emergency with health or humanitarian consequences. The fund would be accessed at the discretion of the Director-General to scale up WHO’s response on the ground. Analysts calculated the $100 million value of the fund based on the amount WHO has spent on emergency response over the past 10 years, especially the amount necessary in the first months of the response. She explained that this is a departure from how WHO funds emergencies now, usually through the overall program budget or an emergency voluntary appeal. Although the organization has enjoyed some success with emergency appeals, she mentioned a concern that the amounts raised in these campaigns are largely earmarked. In the Ebola response, for example, there was tremendous interest in funding the purchase of personal protective equipment, but much less will to support the ordinary administrative aspects of response.

The fund was put in place in May 2015; its operating procedures are still in development. As of the workshop, WHO member states had indicated that the fund should be supported by voluntary contributions. The members also indicated that it should be a revolving fund, but the replenishment process and the algorithm to support the Director-General’s decision to access the funds are still in development. DeLand mentioned the different amounts that might be drawn from the fund, and that the threshold for release of a $5,000 request should be lower than for a $50,000 or $10 million one. A recent assessment panel suggested that WHO recognize different levels of public health emergency, which would allow for a more gradated response.

The auditing procedure for the fund is also still being assessed, but DeLand saw promise in the World Food Programme’s pre-audit system, which assigns significant authority to people in the field. After the emergency, they run a post-audit as soon as possible to follow up on the disbursed funds.

Like many large development organizations, WHO relies on voluntary contributions from donors, and this complicates support for operating expenses, DeLand explained. The organization has a biennial budget of $4.4 billion, 25 percent of which comes from sliding-scale membership dues. The remaining three-quarters come from other contributions, and the earmarking on these contributions is variable. She described the contingency fund as something that would ensure flexibility in the use of funds during an outbreak or emergency response.

Next, Christopher Lane of the IMF discussed his organization’s Catastrophe Containment and Relief Trust. Although the IMF has long worked with countries facing natural disasters, its involvement with health emergencies is more recent. The organization has financial reserves that it can lend to a country’s central bank after a disaster to support the exchange rate or external payments, or to the budget to close the financial gap the disaster is creating. He also mentioned his organization’s role as a stabilizing presence in an emergency because of the safeguards on how they lend; when the IMF is willing to contribute to a budget, it can encourage other financiers to do the same.

Low-income countries, Lane explained, do not have the option of borrowing from capital markets during an emergency, as Mexico did during the 2009 H1N1 outbreak. During the summer of 2014, the IMF provided zero-interest loans to Guinea, Liberia, and Sierra Leone. The first disbursement was on September 17, and they continued in January and February as the severity of the outbreaks became more clear. The total amount lent was about $300 million, but Lane identified a troubling situation where the cost of dealing with the outbreak fell on the poor countries, rather than the international community benefitting from containment. The IMF’s

post-catastrophe debt relief trust was introduced after the 2010 Haiti earthquake. But while the post-catastrophe fund provided debt relief in catastrophic natural disasters, it needed to be modified to encompass epidemics.

The IMF set up the Catastrophe Containment and Relief Trust to cover a group of low-income countries and fragile states. The fund was supported with $150 million from the 2010 debt relief trust and some other monies left over from the debt relief operations of the past decade. An additional $150 million was requested at the G20 meeting in Brisbane in November 2014. Lane explained that the debt relief trust was approved in February 2015 and disbursed debt relief to the three Ebola-affected countries. While emergency lending is available to all 188 IMF member countries, emergency debt relief is available to 37 countries whose incomes are below 80 percent of the World Bank International Development Association (IDA) threshold.

When asked about the conditions on the loans, Lane explained that IMF emergency financing has no ex post conditions. It only requires that the recipient states take steps to address the economic and financing imbalances that the organization is helping to cover. He also admitted that, by the IMF standards, the amount of money in the Catastrophe Containment and Relief Trust is relatively limited, and, if it were more, ex post conditions might be necessary.

Next Priya Basu of the World Bank described the Pandemic Emergency Finance Facility, which her organization is developing in collaboration with WHO and private-sector partners. At the G20 Summit in November 2014, the World Bank and IMF were encouraged to develop more flexible financing tools for pandemics; the G7 Elmau Summit provided a further endorsement for the World Bank to develop the facility. At the time of the workshop, the World Bank had not started fundraising for the facility yet, but Basu explained the goals of the program as increasing investment in public health systems, improving global coordination for epidemic preparedness and response, and creating a new financing mechanism that can deploy money quickly for health disasters. The World Bank intends for the Pandemic Emergency Finance Facility to complement WHO’s contingency fund and other pandemic financing mechanisms.

The fund will be different from the World Bank IDA funding, which deploys money only to governments in the poorest countries. Basu explained that the facility will be able to fund governments as well as other multilateral and nongovernmental organizations that need to be involved in a crisis response. The World Bank will host the fund and collect the money, but then pass it on to suitable response organizations during a crisis.

The new facility will work though buying private-sector insurance coverage for developing countries, but the payouts will fund the crisis response, not losses. Donors will pay the insurance premiums for the poorest countries; middle-income countries will also be welcome to participate but will

have to pay their own premiums. Payouts will be disbursed in response to a trigger, perhaps something that could be identified earlier than WHO’s public health emergency of international concern. Basu acknowledged that the parametric trigger for payout is still being developed, as are the cost of the premium and the diseases to be covered. The World Bank’s partners and the donors to the facility will have the opportunity to comment on these matters.

Sands pointed out that emergency financing carries inherent trade-offs between giving countries incentives for preparedness and putting up reasonable barriers to using the money. When asked about these trade-offs, Basu explained that the new facility is only a part of the solution. It is not helpful, for example, to push money on countries that lack the absorptive capacity for it. She explained that the funding can motivate prospective recipient countries and donors to develop crisis response plans. The World Bank has worked with governments and other stakeholders to develop such plans for natural disasters. Similarly, the facility would have a prenegotiated plan with countries to define how payouts would be spent.

In the subsequent discussion, the session moderator asked the panelists about the funding their organizations might make available for preventative measures and health systems strengthening. Basu replied that, while the World Bank’s existing financial mechanisms can support health systems strengthening, countries do not necessarily prioritize surveillance and preparedness for an outbreak in their spending; the Ebola crisis highlighted the need for greater investment in this area. DeLand continued on this point, describing the 2015 WHO meeting in Cape Town, where member states discussed the IHR, a legally binding instrument aimed at helping the international community prevent and respond to acute public health threats. Even self-assessments have indicated only about 30 percent of WHO member states comply with these regulations. At the Cape Town meeting, the representatives discussed how to make compliance with the IHR a priority in these countries. DeLand reminded the audience that real change is a slow process, requiring considerable capacity building and changing attitudes; this is different from emergency response, which is necessarily a fast process. Lane agreed, observing that there are competing priorities in poor countries and fragile states, a problem complicated by unusually low tax revenues as a proportion of income. Better tax collection could help governments in these countries expand their budgetary envelope, thereby making more investments an option. Simply having more revenue cannot solve the problem without commensurate assistance in public financial management. Much of financial management depends on transparency and public audit. If the audit function in a country is weak, Lane reasoned, a culture of waste and impunity will develop.

When asked how the three multilateral funds complement each other,

the speakers pointed to the relative merits of each instrument. The IMF fund, for example, goes to support exchange rates or to the central bank, so it relieves fiscal space without being tied to any one piece of the outbreak response. The WHO fund has a unique advantage of being available not exclusively for outbreaks, but also for response to natural disasters and humanitarian emergencies. The World Bank facility could then provide surge financing, especially in the event that the WHO fund runs low on time or money. Basu pointed out that, while insurance may not be an inexpensive option, its value goes beyond the financial; such mechanisms can bring greater discipline to crisis preparedness.