Is a new fund really the answer to the next pandemic?

If another huge outbreak happens tomorrow, one of the biggest questions the world will grapple with is who will fund what. The Pandemic Fund was set up in 2022 with a broad mandate, but it’s not designed to provide rapid response funding. The ongoing discussions in Geneva on the pandemic treaty also include discussions around setting up a new financing mechanism that can provide additional resources to help countries strengthen their capacities for pandemic prevention, preparedness, and response, and “as necessary” for surge response. The Group of Seven major economies has also expressed interest in setting up a surge financing framework — upfront funding that would be activated in case of another pandemic. But these have yet to be finalized. The World Bank’s Pandemic Emergency Financing Facility, known as PEF, was designed to provide countries with additional resources to respond to large-scale outbreaks. However, it received a lot of criticism for releasing funds slowly during the COVID-19 global emergency, and the bank decided to close it in 2021. This leaves a huge gap in the global system for prearranged finance for outbreak response, said Cristina Stefan, a pandemic finance expert at the U.K.-based Centre for Disaster Protection. But she said there are existing mechanisms that could be expanded and scaled up. The key is to look for efficiency in the current systems already in place. “If I'm to use what the World Bank is saying these days through Ajay Banga, it's build a better system before you build a bigger system,” Stefan told Devex. “We shouldn't be reinventing the wheel at all costs. There'll be things that we can still keep from the existing system and that are actually worth improving, instead of just bringing a new shiny silver bullet for the next pandemic,” she said. “Funds are not unlimited. … At the end of the day, the same budget lines are competing,” she added. The ‘Cinderella’ of disaster risk finance Despite enormous needs in the health sector, health is underrepresented in disaster risk finance, leading experts to call it the “Cinderella” of the disaster risk finance space, Stefan said. One potential reason is the need isn’t as visible. And when an outbreak is contained early — before it reaches a massive death toll — there isn’t enough attention placed on the successes and the role preparedness played in that achievement. “If we look towards behavioral science … you tend to protect yourself against the things you see most and most frequently, and the kinds of outbreaks that we want to protect ourselves against, they don't come every year, right? We don't have a COVID, and luckily so, every year. But it's just a matter of time until we have the second one or the third one,” she said. Add to that are other crises competing for resources and attention, such as conflict and wars, economic and debt distress, and climate change. An insight paper published by the Centre for Disaster Protection last year on the financing landscape for outbreak response showed several but smaller scale financing facilities and instruments channeled predominantly through multilateral institutions, such as development banks or the U.N. system. Most of the funding is issued post-event, such as in response to a funding appeal, instead of being prearranged in advance. Funds are also channeled largely to instruments not specifically set up for epidemic or pandemic response. Stefan said this needs to change to provide more predictability in the system. Expanding existing mechanisms One way to improve the current system and provide more predictability is by expanding and scaling up several existing financing mechanisms, such as contingent loans from development banks and sovereign risk pools. Contingent loans are a form of prearranged financing that banks offer governments in the form of budget support in response to shocks. Stefan said many of these instruments are already existing, launched years back, but were used in response to climate-related disasters. However during COVID-19 they became a major source of finance for governments. For the World Bank, the loan terms already included health events, but for other regional development banks the terms were adjusted to make a pandemic event eligible for disbursement, Stefan said. At the World Bank, this type of contingent loan is called the Catastrophe Deferred Drawdown Option, or Cat DDO. “There'll be things that we can still keep from the existing system and that are actually worth improving, instead of just bringing a new shiny silver bullet for the next pandemic.” --— Cristina Stefan, pandemic finance expert, Centre for Disaster Protection But Stefan said such mechanisms are heavily concentrated in countries with strong macroeconomic conditions, making them far less likely to be accessible to low-income, conflict-affected, or very fragile countries where the need can be greatest. “Ideally, these instruments — the contingent loans of development banks — will be made available by design to also these lower-income countries more easily, so that it's appealing for them to get more [prearranged] funding,” she said. There are some “positive signals” banks are responding to the need, Stefan said. Early this month, for example, the World Bank announced an expanded crisis toolkit to help low- and middle-income countries better respond to crises and be prepared for future shocks. The toolkit includes an option for countries to repurpose a portion of their unused bank financing to address emergency needs and access prearranged financing for emergency response. But the real test will be when the need arises and more low-income countries are accessing this kind of finance in response to an epidemic outbreak. Other financing mechanisms that could be scaled up are risk pools, which Stefan described as mutual regional insurance companies that are established and supported by the international community, and multilateral development banks that play a crucial role in development insurance for low- and middle-income countries. Examples of these are the Caribbean Catastrophe Risk Insurance Facility and the African Risk Capacity. According to Stefan, these risk pools have historically provided technical assistance and risk coverage in response to climate shocks, such as droughts or tropical cyclones. But there’s an opportunity for these risk pools to expand their offerings to include pandemic risk financing. The African Risk Capacity has already done this. In December 2022, it offered Senegal outbreak and epidemics insurance coverage. “It has been bought by Senegal, with … premium support from institutional donors … it's not an off-the-shelf product. It has been done for the country and with the country,” Stefan said. This successful model provides valuable lessons for replication and scaling up in other regions, promoting locally owned solutions, she said. Such products come with plans that lay out how countries will respond to particular events, which she said is “extremely valuable to have.” “When a disaster happens, it's not just about the money that comes in … but it's also about how you actually spend the money. And that's even harder than we would think,” she said. The G7 proposal Another potential source of prearranged financing in response to pandemics is the surge financing framework that the G7 and larger Group of 20 are exploring. In their communique in 2023, G7 health ministers committed to work with the G20 Joint Finance-Health Taskforce and other international partners to assess how existing financing sources can be used in pandemic response and explore a surge financing framework. Their proposal includes a three-layer approach, with the first layer of response coming from domestic resources, the second from existing multilateral and financing instruments, and the third a new dedicated financing framework in which donors can precommit future disbursements in the event of a health emergency. The goal for this third layer of response is to “deploy necessary funds quickly and efficiently in response to outbreaks without accumulating idle cash.” It’s unclear at this stage how this will work in practice, but Stefan said it should have at least three components or principles to avoid it running into the same failings as its predecessors. One, it needs to be activated very early in an outbreak, anywhere from day zero to six months of an event happening. Second, it needs the evidence to show that early funding is crucial. Third, there needs to be structures in place in countries to ensure efficient absorption of the disbursed money. Stefan said there’s ongoing work to build evidence and define the criteria for activating such surge financing — such as through the pandemic treaty and the International Health Regulations negotiations. Work on how the money will be used needs to happen through partnerships with countries to match local contexts, she said. A key role that the G7 of the G20 can play is to coordinate and get the different existing financing mechanisms to “talk” to each other and figure out how to be efficient in disbursing resources. “There's no single instrument or a single silver bullet to fight a pandemic,” Stefan said.