Surprises and questions from the Global Fund replenishment

By Molly Anders 21 September 2016

Opening of the Global Fund Replenishment Conference in Montreal, Canada. Photo by: Vadim Daniel / The Global Fund

Donors got creative in their efforts to replenish the Global Fund to Fight Aids, Tuberculosis and Malaria with $12.9 billion last weekend in Montreal, Canada.

A range of public and private donors pledged to the Global Fund, including many for the first time. In addition to seeing new contributors, pledges came via a variety of new funding mechanisms and arrangements, part of an effort to secure longer-term donor buy-in and shake up the traditional pledging model.

“The Global Fund has been a unique and successful experiment,” James McIntyre Brown, head of health at Adam Smith International told Devex in an email. “Its key achievement has been the effective pooling of resources to focus on tackling the key drivers of the most threatening communicable diseases,” he said.

New on the scene

Global Fund sees new donors, persistent gaps

Despite reaching its funding goal at the replenishment conference in Montreal, Canada, the Global Fund's resources may still not be enough to reach those most in need.

For the first time in their national history, three countries pledged resources to the Global Fund’s 2017-2020 replenishment. Qatar promised $10 million, or 0.005 percent of its gross domestic product, Benin pledged $2 million which is 0.02 percent of its GDP and Togo pledged $1 million, or 0.04 percent of its GDP. For perspective, the U.S. total aid budget amounts to about 0.3 percent of GDP.

The private sector also doubled its buy-in compared to the previous three-year funding period to $250 million. New participants in the pledging conference included advocacy organization Comic Relief, which pledged $12.9 million, and David Sin, founder of Fullerton Health Foundation International, pledged $7.5 million.

Shaking up the traditional model

The way donors give the Global Fund — and the way the Global Fund spends those resources — is changing. This replenishment conference was abuzz with the United Kingdom’s decision to withhold 10 percent of its $1.4 billion contribution on the condition that the Global Fund meets 10 performance standards over the three-year period.

The U.K. also committed $200 million in matching funds after the Bill & Melinda Gates Foundation matched its call for $100 million. The U.K.’s matching scheme is designed to unlock more private sector resources for the Global Fund’s malaria interventions. The Gates Foundation also pledged $750 million through a promissory note, a relatively new financing mechanism that gives the Global Fund the flexibility and authority to distribute funds efficiently based on immediate needs, leading to greater impact.

The Global Fund’s use of country coordinating mechanisms also saw high praise from aid professionals in the run-up to the replenishment. As country-level, multistakeholder partnerships, CCMs coordinate bids for Global Fund grants, oversee implementation and ensure linkages with existing projects in the same sector. This tool, McIntyre said, has been ground-breaking in fostering national ownership and consequently sustainability.

Still, McIntyre pointed out, the Global Fund, which in its role as a financial instrument must rely on implementers to bid on and carry out projects, still has room for improvement, specifically in its supplier network.

“This mechanism has supported accountability, scrutiny and consequently generally delivered good value for money for donors and taxpayers in tackling killer diseases. There have of course been some problems when U.N. bodies have been given implementation responsibility, but these could be addressed in future by ensuring that a competitive process is used,” he said.

Currency fluctuation

Recently, the decision of the U.K. — one of the Global Fund’s top donors — to leave the European Union caused a 13 percent drop in the value of the British pound against the dollar.

Because the Global Fund community either pledges in U.S. dollars or their own national currency, the fund must cope with national and global financial crises that often lead to devaluation of currencies. As a result, some are questioning whether the U.K.’s 1.1 billion pound ($1.4 billion) pledge is really a 300 million pound increase over it’s 2012 pledge, or similarly, why Japan pledges in U.S. dollars instead of yen.

The truth is a little complicated, but in addition to new donors and mechanisms, the Global Fund is now doing more to secure its contributions from the whims of the global financial market.

“The U.K. pledge is a significant increase over the 800 million pounds that the U.K. contributed over 2014 thru 2016. The exchange rate of the British pound has shifted over the past year, when measured against the U.S. dollar,” Seth Faison, the Global Fund’s head of communications told Devex in an email.

“But that does not necessarily mean less buying power by that pledge. Exchange rates always fluctuate, and actual contributions are made over a three-year period, so measurements need to be reflected over the long term, not a daily exchange rate,” he said.

Faison explained that the exchange rate on the day of the pledge is not as important as the exchange rate on the day the funds are transferred, which can occur at multiple times over a three-year period. In other words, if the pound recovers, so will the relative value of the U.K.’s contribution if measured in US dollars.

He added that funds contributed in a source currency may not be subject to the exchange rate at all — as in the case of grants which reach recipient countries in the same source currency.

“Yet another factor is that the Global Fund employs a dynamic hedging strategy, to protect the value of those non-U.S. dollar contributions that are converted to U.S. dollars. Altogether, the Global Fund is taking several measures to limit — but not eliminate — potential losses from fluctuating currency rates,” he said.

In the case of Japan, the country has actually pledged in U.S. dollars for several replenishments. The country’s decision to pledge in U.S. dollars was an effort to protect its impact at the Global Fund from currency shifts, Faison explained: If measured in dollars, Japan’s $800 million contribution is equal to its pledge in 2012. If measured in yen, it represents a 48 percent increase.

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About the author

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Molly Andersmollyanders_dev

Molly is a global development reporter for Devex. Based in London, she covers U.K. foreign aid and trends in international development. She draws on her experience covering aid legislation and the USAID implementer community in Washington, D.C., as well as her time as a Fulbright Fellow and development practitioner in the Middle East to develop stories with insider analysis.


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