The ACT-A Agenda: The financialization of a pandemic?
Originally published February 12th, 2021 on Geneva Health Files.
Bonds, loans, debt-swaps and taxes
The ACT A plan to ride out the pandemic
The European Commission-backed ACT Accelerator [ACT A] which has the private sector at the table, has drawn up extensive plans to address the acute scarcity of resources to fund the response to pandemic. Measures include issuing social bonds, grants, a sovereign insurance pool, and even includes the consideration of a “global transaction tax”. These plans were first made public at a meeting of the ACT Accelerator Facilitation Council earlier this week.
The ACT A needs more than US$27 billion to effectively address the pandemic globally. This is a fraction of the stimulus packages rolled out by countries around the world. Consider that the new Biden administration has set aside US$400 billion to address the pandemic in the U.S. alone. (Of the US$1.9 trillion stimulus package, the COVID-19 plan stands at $400 billion)
Compared to the early days of the pandemic response there now appears to be a recognition that there are limits to the use of funds from the Official Development Assistance. Discussions are now focusing on getting ACT A funding by tapping into treasuries in order to have access to these big stimulus plans of countries.
The ACT A boasts of lining up more than more than 2 billion vaccine doses in 190 countries, making available Rapid Diagnostics (RDTs) with access to more than 375 million low-cost tests for LMICs and 2.9 million courses of Dexamethasone, the first and only proven therapy for severe COVID-19. But clearly this has simply not been enough. With more than 2 million lives lost as a result of COVID-19 and 100 million plus confirmed cases, the ACT A is under pressure to shore up financing and change strategy.
Three shifts will inform this change in strategy, according to officials: “the era of COVID-19 vaccines”, the challenges posed by the variants of SARS-CoV-2 and the recognition that “international collaboration is increasingly fragmented & underinvesting in global solutions”.
INVESTMENT OVERHEADS
It has been proposed that investments will need to be deployed by addressing “both speed & equity in the development and delivery of both scarce & widely available essential tools”.
The overheads of investments identified include R&D and Product Assessment; Market Shaping & Manufacturing; Procurement and Demand Generation & In-Country Delivery.
Investments have been categorised into three types:
- Investments to ensure speed would need to be primarily HIC/UMIC-financed (those that generate global public goods): $2.9 billion
- Investments to ensure equity of scarce products for LICs would need to be HIC/UMIC-financed: $16.3 billion
- Investments for common products available at fair prices could potentially be LIC-financed: $8.1 billion
Therefore more than $19 billion has come from HICs and UMICs, according to ACT A plans. Despite the acknowledged limitations of the ODA, a majority of this amount is expected to be raised from ODA and “exceptional ODA”, documents show.
It is also important to note that bulk of the $6 billion towards the ACT A, has come from some of the HIC/UMICs so far. (These figures do not take into account $4 billion that has been committed by the U.S.)
FINANCING MECHANISMS
Further, three different categories of financing mechanisms have been suggested.
Mechanism for LICs/LMICs: financing options from World Bank, International Monetary Fund, Debt-Swaps, Loan buy-down, Sovereign insurance pool, new issuance of Special Drawing Rights among others
Mechanisms for HICs/UMICs: Social bonds, direct grants and vaccine bonds from the International Finance Facility for Immunization (IFFIm)
New Public Revenue Streams for LICs, LMICs, UMICs and HICs: Global Transaction Tax, Carbon tax and Sector tax (such as on airline tickets).
Image credit: A Financial Framework for ACT Accelerator, February 9, 2021
SOCIAL BONDS
Officials who briefed the meeting suggested that social bonds along the lines of existing vaccine bonds could be issued. By pledging future commitments now, social bonds can be issued that will enable frontloading investments. The goal is to “have cash now, pay into the future”, an official representing the finance working group of the ACT A said at the meeting.
(Essentially public authorities can issue bonds in order to raise money. Investors in these bonds give a loan to the authorities so to speak — with the agreement that the face value of the bond is paid back, in addition to earning interest. Funds so raised can be immediately deployed, in this case, towards pandemic response.)
Gavi’s IFFIm uses long-term donor pledges from sovereign donors, by issuing vaccine bonds in capital markets. By signing the grant agreements, countries agree to pay these obligations in a specified schedule of payments, according to Gavi. This results in frontloading funding for Gavi’s vaccine programmes by issuing vaccine bonds based on the entire amount of long-term donor pledges.
It is not clear to what extent countries will be enthusiastic to lap up social bonds. Plans suggest that there is a target of up to $3 billion to be raised by issuing social bonds.
Whether these kinds of innovative financing mechanisms will help address a crisis, is unclear.
RELIANCE ON WB AND IMF
There seems to a be a fair amount of reliance on multilateral development banks in the ACT A plans to meet funding requirements for the pandemic response in the developing world. Specifically, these include mechanisms and trust facilities from the World Bank and the IMF. Documents show that up to $3 billion can be raised from these banks to meet the funding gap of the ACT A.
The World Bank explains instruments such as the MPA as: “the Multiphase Programmatic Approach (MPA) allows countries the flexibility to implement an approach to achieve development objectives in stages when: the development challenge is complex; it would take a longer time to achieve the objectives; it would take a longer time to prepare one large project; the solution needs a broader and comprehensive approach; or when a stop-and-go approach is not feasible. Projects under an MPA program may be financed by Investment Project Financing; or Program-for-Results Financing, or their combination.”
IMF grants CCRT & PRGT: “The Catastrophe Containment and Relief Trust (CCRT) allows the IMF to provide grants for debt relief for the poorest and most vulnerable countries hit by catastrophic natural disasters or public health disasters. The relief on debt service payments frees up additional resources to meet exceptional balance of payments needs created by the disaster and for containment and recovery. Established in February 2015 during the Ebola outbreak and modified in March 2020 in response to the COVID-19 pandemic, CCRT grants complement donor financing and IMF concessional lending through the Poverty Reduction and Growth Trust (PRGT).”
A BURDEN SHARING MODEL?
In order to meet the costs of the pandemic response, the emphasis now will be to get more countries to pay for a global solution to the crisis, officials said. The goal is to broaden the number of countries who must pay their share for a global solution.
Ways are being devised to engage with finance ministries in order to refine a burden sharing model that will be a function of a country’s income and its integration into the world economy.
Such a model will mean that richer countries will have to pay a higher proportion of their income. In addition, the model will also take into account to address those who cannot pay.
Contribution = R x GDP
R = f (GDP per Capita , Openness)
[Openness as defined by the IMF].
(See Capital Account Openness Index 2016)
WHO IS FUNDING ACT A?
The founding donors of the ACT A are Canada, France, Germany, Italy, Japan, Norway, Saudi Arabia Spain, United Kingdom. The following countries have been classified as “market shapers” — Brazil, China India, Indonesia, Republic of Korea, Russia, South Africa and USA.
The non-government partners are Bill & Melinda Gates Foundation, Wellcome Trust and World Economic Forum.
Meeting financial requirements for the ACT A might actively contribute to the further financialization of global health critics fear. In addition, concerns are also being raised on the dilution of the Framework of Engagement with Non-State Actors (FENSA).
TAILPIECE:
WHO Special Envoy for the ACT Accelerator Ngozi Okonjo-Iweala delivered the keynote address at the meeting (See the Health Policy Watch story on her address) The significance was lost on no one. And not only because she is at the cusp of assuming her role as the Director-General of the WTO. Okonjo-Iweala concluded her term as Chair of the Board at Gavi — The Vaccine Alliance in December 2020. She also brings decades of experience from her stint at the World Bank.
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