Global Fund relaunches debt-to-health swaps after six-year hiatus

BARCELONA — The Global Fund on Wednesday announced its first debt-to-health, or D2H, swap since 2011, kicking off a strategy that aims to engage up to five new creditor countries in 2018.

“Over the next five years, I aim for at least 10 new D2H agreements that can really complement the resources of the Global Fund,” Christoph Benn, director of external relations at the Global Fund, told Devex after announcing a triple swap. Spain will waive debts owed by Ethiopia, the Democratic Republic of Congo, and Cameroon in exchange for investments in domestic health programs supported by the Global Fund.

The D2H swaps, which were originally launched with a pilot phase in 2007, see a donor cancel publicly held debt if the recipient government transfers some of the resources to the Global Fund to invest in domestic health programs. Previously, only Germany and Australia had taken part in the initiative and there had been no new announcements since 2011, after the effects of the 2008 global financial crisis made it hard to convince governments to join the initiative, Benn said.

Under the new deal, Spain will cancel outstanding debts amounting to a total of 36 million euros ($42.6 million), which will allow Cameroon to invest 9.3 million euros ($11 million) in programs to fight HIV; the DRC to invest $3.4 million in projects to fight malaria; and Ethiopia to invest 3.2 million euros ($3.8 million) in initiatives to strengthen its health system. The implementation of these projects is expected to start in early 2018.

New partners

With a view to harness a “new momentum among donors,” the Global Fund is working to engage new partners in the D2H initiative, including emerging economies and development banks.

“We have [had] conversations with oil-rich countries in the Gulf. Many countries still have significant outstanding debt to counterparts in Africa and Asia, and we want to leverage that and turn it into resources for health,” said Benn.

The Netherlands agreed to join the initiative at the Global Fund’s replenishment conference in 2016, where Germany also pledged an additional 100 million euros ($118 million) to the initiative, although the deals are yet to happen.

Beyond that, the Global Fund is also working to seal deals with multilateral development banks.

“We are in advanced discussion with the Islamic Development Bank,” said Benn, who last week also discussed debt swap arrangements with the New Development Bank in China.

The Global Fund’s efforts are zeroed in on converting debt held by governments and regional entities. “There is a lot of commercial debt, but this is more difficult for us to convert because we are lacking the direct counterpart with whom to talk to,” Benn said.

Export Credit Agencies, for instance, are estimated to account for almost 80 percent of poor countries’ debt to European governments.

A win-win-win situation?

When it comes to converting bilateral debts, the key to reaching D2H agreements is convincing the ministries of finance, Benn said.

“Development is not their core mandate, so the challenge is to make them understand that the agreement will be a win-win-win situation.”

He said the innovative finance instrument speaks to efforts to increase domestic funding and the sustainability of global health programs. The resources flow from the ministry of finance of a recipient country to its own ministry of health, so they are included in the budget.

“This is not money coming from the outside, but the responsibility of the country itself, so it will be much more sustainable than a grant from a donor country,” he said.

According to Benn, the role of the Global Fund is to bring together the ministries of finance of creditor and debtor countries. After an agreement, the latter become donors of the Global Fund.

“We explain the potential benefits of D2H, and we now also have experience on the technical and legal details these agreements must address before the money can flow,” he said.

Read more Devex coverage on the Global Fund.