The continued shortfall in funding for the international COVID-19 response raises the question of whether alternative forms of financing should be explored. Ann Danaiya Usher reports.
The Access to COVID-19 Tools Accelerator (ACT-A) is facing a daunting funding crisis. Set up in April, 2020, by the European Commission, France, and the Bill & Melinda Gates Foundation, and coordinated by WHO, it aims to accelerate the development, production, and equitable access to COVID-19 tests, treatments, and vaccines. However, as of May 28, 2021, ACT-A is US$18 billion short of its $33 billion budget for 2021. Moreover, most of the money provided so far has paid for vaccines; tests, medical oxygen, and protective equipment for health workers are badly underfunded. The inability to raise the required funds from donors is raising the question of whether alternative forms of financing can fill the gap.
For months, UN Secretary-General António Guterres has argued against using scarce official development assistance (ODA) to finance the pandemic response. Donor countries have not heeded these warnings, relying on their aid budgets to finance ACT-A. “We will never find this money in traditional ODA budgets”, Guterres warned last September. “Without an exceptional mobilisation of resources, the amounts [needed] will never be reached.”
Global ODA increased slightly to $161 billion in 2020. But humanitarian requirements reported by the UN skyrocketed to an unprecedented $40 billion last year, with donors financing only 50%, the lowest proportion in a decade. How to generate billions of dollars for ACT-A fast without crippling ODA has become a pressing question. One alternative to help raise the missing billions is an expansion in the International Finance Facility for Immunisation (IFFIm). IFFIm raises funds on international capital markets by issuing vaccine bonds against long-term, legally binding grant agreements from sovereign donors. This mobilises cash in real time, which donors then pay back out of future aid budgets, a “give now, pay later” scheme, as Desmond McNeill at the University of Oslo, Oslo, Norway, describes it. Australia, Norway, Sweden, and the UK, have already used IFFIm to finance their contributions to ACT-A. The UK has drawn most heavily on the facility, covering 60% of its $1·13 billion contribution through IFFIm bonds.
Former UK Prime Minister Gordon Brown advocates extending IFFIm as a way of “making our aid money go further”. He says $2 billion in guarantees plus a small amount of grant financing would generate $8 billion that could be used on the pandemic response. However, because IFFIm borrows from future aid budgets, it may crowd out other needs many years ahead.
Another option, originally proposed by the G20, is an extraordinary allocation of $650 billion in special drawing rights (SDRs) by the International Monetary Fund (IMF). This would provide approximately $21 billion worth of SDRs in direct liquidity support to low-income countries, according to the US Treasury. A new IMF report states that the fund is “exploring options to channel SDRs from [high-income] countries...to support global public policy goals” such as vaccines and other COVID-19-related tools. This could take the form of guidelines for channelling excess SDRs to low-income countries. The allocation proposal is likely to be put before the IMF board of governors in August, 2021.
The Financial Working Group of the ACT-A Facilitation Council, chaired by Norway and South Africa, has considered both IFFIm and the SDR allocation in scenarios for generating resources to fully finance the pandemic response. The working group has devised a formula for fair burden sharing of the ACT-A budget, where the USA would contribute approximately a quarter of the bill, EU 23%, the UK and Japan 5–6%, and so on. Norway and South Africa have carried out an unprecedented diplomatic effort to move the funding discussion out of the development ministries and into the finance ministries, “where it belongs”, as one diplomat put it. Norwegian Prime Minister Erna Solberg and South African President Cyril Ramaphosa have sent letters to 89 countries, including the G20, urging them to give their fair share.
Although great hopes were pinned on the G20 Global Health Summit on May 21, 2020, the G20 as a whole did not deliver funding on anywhere near the scale that is needed. WHO figures show that $1·3 billion were pledged by three countries—France, Italy, and Switzerland—some of this was earmarked for 2022.
Addressing the gathering, Kristalina Georgieva, managing director of the IMF, argued for much more ambition from donors to end the pandemic faster, reduce loss of life, and accelerate the global economic recovery. She said $13 billion in grant financing from donors (in addition to a fully funded ACT-A) and $15 billion in concessional funding would help low-income and middle-income countries reach 60% vaccine coverage by July, 2022. This “requires not just commitments but upfront financing, upfront vaccine donations, and upfront at-risk precautionary investments. It is essential that all necessary financing is available as soon as possible”, she said. Hopes for big pledges are now turning to the G7 summit on June 11, 2021.