Contingent Innovative Finance for Economic Collapse from Disease Pandemics. Do we value unforeseen deaths more than those on our radar? by Mthuli Ncube
7 Jul 2016
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Contingent Innovative Finance for Economic Collapse from Disease Pandemics. Do we value unforeseen deaths more than those on our radar? by Mthuli Ncube
POST BY: RUSH Foundation

The recent launch of the Pandemic Emergency Financing Facility by the World Bank in partnership with World Health Organisation, Swiss Re and Munich Re, marks a timely and much-awaited milestone in innovative contingent funding for low-income economies impacted by infectious disease pandemics (Robin Harding, FT, 21 May 2016). The Ebola outbreak which impacted parts of West Africa wrecked the economies of Sierra Leone, Guinea and Liberia, costing $10 billion and 12,000 lives. The financial and epidemiological setbacks could have been minimised had such a World Bank-led fund existed to fast track the response. However, better late than never! The more recent Zika virus outbreak, which is threatening to expand into Africa, is a constant reminder of disease risks, particularly in low-income settings where health systems and infrastructure are ill-placed to meet the challenges posed by epidemic outbreaks. This fund will cover risks from diseases such as SARS and MERS, Ebola and Marburg, among others. The disbursement of funds in the case of a pandemic outbreak, takes place once measurable triggers have been met, and World Bank will pay premiums for accessing the insurance.

At $500m, the fund is tiny in the context of health shocks in low income settings, but it marks an important partnership between global development finance, health policy institutions and the private sector—a welcome development. It also establishes a precedent for pre-emptive investments in epidemics, making the economic case for front-loading spending to avert much greater future expenditure and loss of life.

When it comes to HIV, an epidemic that still claims more than 4,000 lives daily and wreaks economic havoc in a number of sub-Saharan African countries, the Global Fund has been designated as the dedicated fund for this pandemic. While it has been a formidable fund raising mechanism for a decade, contributions are plateauing and the Fund falls far short of the projected needs for keeping people alive. In sub-Saharan Africa, the estimated resources required for HIV prevention and treatment in 2015‐50 are large. They range from $110 billion to maintain current coverage levels for ART and prevention with eligibility for treatment initiation at CD4 count of <500/mm3, to $293 billion, if ART were to be extended to all HIV positive individuals and prevention scaled up, as UNAIDS recommends. The annual estimated costs from scaling up, for the scenario of ‘covering all’, the annual costs more than double from about $2 billion a year to more than $4 billion a year (See Atun et al (2016), BMJ). As HIV already claims two million new infections yearly, the Global Fund does not have the contingent character of the new fund. Thus the HIV epidemic has been somewhat ‘normalised’ as status quo. This is clearly unacceptable.

There is a pressing need for new contingent instruments to both avert or minimise new HIV infections and keep people alive, which leverage private and public contributions alike and reward accountable, sustainable management of the response. The current funding system is overly-reliant on US contributions (PEPFAR), which accounted for 70% in 2015 and hostage to short-term replenishment cycles dependant on political mood of donor countries rather than recipient needs.

This requires bold thinking at both donor and recipient level, and closer involvement of the multilateral development institutions for a start. The idea of borrowing for health, which has been a taboo, should be seriously considered, especially if a partial risk guarantee could be extended to the borrowing country by a multilateral development institution.

Various options could be envisaged: a new HIV infections fund could crowd-in the private sector like Swiss re and Munich re, where the Global Fund buys insurance from these firms and pays premiums, and is able to draw down on the insurance if a certain level of new infections are averted. Other types of public-private co-financing whereby a multinational commitment is matched with a market-based debt need exploring for lower income countries unable to borrow for needed health investments over decades.  The other approach could be countries themselves buying insurance for new infections in HIV and other disease outbreaks and integrating these into their National Health Insurance offering again, public-private solutions should be tailored to incentivise individual willingness to pay.

Moreover, in some settings, there are wider economic benefits from investing in HIV interventions, through increases in taxation. In Uganda, for instance, HIV Financing interventions could result in as much as a 1.8% increase in GDP growth per annum (see Kabajulizi and Ncube (2015)). Keeping people alive has the effect of increasing labour supply, maintaining labour productivity and generates positive consumption effects, among other economic benefits.

The funding of effective response plans can be complemented through such innovative funds with a view to minimising long-term liabilities. The capacity to respond in terms of adequate personnel, medicines, facilities, and general health systems, however, remains a big challenge in low-income countries that money alone can’t solve. Policy makers need to continue investing in capacity-building and focusing on efficient delivery of effective, locally-tailored responses.

Aid flows are flattening and the aid model is increasingly been found inadequate at meeting development needs. Could such contingent funds trigger more innovative financing and accountability for development in general, where access to private or public funds is conditional on certain triggers being breached?

Funding as usual will no longer do. Advocacy needs to focus on making the economic case, as well as the ethical one for making a generational investment in ending a decades-old scourge. Braver and fresher thinking is needed where everyone’s role is up for discussion. To allow incidence to stay at current levels or resurge would be an act of complete irresponsibility. The upfront costs are large, and meeting them will no doubt be a challenge, but as those close to the ground know, we can’t afford not to!

Written by Prof Mthuli Ncube, Professor of Public Policy, Blavatnik School of Government, University of Oxford & Leader of RethinkHIV