June 30—Developing countries that find themselves facing a major disease outbreak like Ebola, can now draw quick money from the World Bank’s new $500 million emergency fund while other financing is being raised.
This is to avoid the situation that occurred in West Africa two years ago, when the stricken countries had to wait an extended period before financial help was made available and more people who could have been saved, eventually died.
The bank went to the international financial markets and raised $425 million in ‘pandemic bonds’ and derivatives. Due to the World Bank’s very high credit rating the bonds were oversubscribed by 200%. The Pandemic Emergency Financing Facility (PEF) is open to the World Bank’s International Development Association member countries. These are the least developing countries of which Uganda is a member.
World Bank Group President Jim Yong Kim told a news conference, “With this new facility, we have taken a momentous step that has the potential to save millions of lives and entire economies from one of the greatest systemic threats we face. We are moving away from the cycle of panic and neglect that has characterized so much of our approach to pandemics,” he said.
He said, “We are leveraging our capital market expertise, our deep understanding of the health sector, our experience overcoming development challenges, and our strong relationships with donors and the insurance industry to serve the world’s poorest people. This creates an entirely new market for pandemic risk insurance. Drawing on lessons from the Ebola Outbreak in West Africa, the Facility will help improve health security for everyone. I especially want to thank the World Health Organization and the governments of Japan and Germany for their support in launching this new mechanism.”
The World Bank announced the creation of the PEF in May 2016 at the G7 Finance Ministers and Central Governors meeting in Sendai, Japan. The PEF will quickly channel funding to countries facing a major disease outbreak with pandemic potential. Its unique financing structure combines funding from the bonds issued today with over-the-counter derivatives that transfer pandemic outbreak risk to derivative counterparties. The structure was designed to attract a wider, more diverse set of investors.
The PEF has two windows. The first is an ‘insurance’ window with premiums funded by Japan and Germany, consisting of bonds and swaps including those executed today. The second is a ‘cash’ window, for which Germany provided initial funding of Euro 50 million. The cash window will be available from 2018 for the containment of diseases that may not be eligible for funding under the insurance window.