As the world cautiously cheers news of potential vaccines against Covid 19, attention should turn towards ways in which countries can better prepare for the next pandemic.
Many of those outside Asia could hardly have been worse prepared, the consequences of which can be seen as the economic and healthcare tolls continue to rise in, for example, the US and UK.
What is to be done?
Considering the yawning budgetary deficits that all nations now face, one of the first things should be to figure out how to pay for those preparations in the first place.
The capital markets have already stepped up impressively in the funding of vaccine distribution for the International Finance Facility for Immunisation (IFFI), and they should be called on again when it comes to funding better defences against the next pandemic.
Funds
The IFFI tapped the market at the end of October with its first dollar-denominated syndication since 2017 in order to disburse funds to the vaccine alliance Gavi to help to support the development and procurement of Covid-19 vaccines.
The $500 million three-year deal attracted over $1 billion in indications of interest. This kind of appetite could be tapped to finance better preparedness too, through funding stockpiling of medical equipment and PPE, and coordinating any emergency response.
This is the thinking behind a new proposal to build effective and unified healthcare collaboration between EU member states and provide a decent financial cushion for future public health crises, which envisages an Emergency Health Financing Facility (EHFF) that integrates some existing EU emergency structures and adds a new layer for the most extreme situations.
The idea is that EHFF would be used to ramp up medical supplies, testing kits, build infrastructure, and to meet sudden increases in demand for personnel while complimenting existing structures such as rescEU and the Emergency Support Instrument.
It would be funded in the bond markets.
This proposal is not far from a catastrophe bond. It draws from cat bond technology
David Veredas, Vlerick Business School
“In spirit, this proposal is not far from a catastrophe bond. It draws from cat bond technology, which has been around for 30 years, and its market has grown ever since,” says David Veredas of the Vlerick Business School in Belgium.
Veredas is co-author of the new policy proposal with Simon Ashby and doctoral researcher, Dimitrios Kolokas. “Many financial innovations, such as the World Bank’s pandemic bond, have drawn from this technology.”
Veredas tells Euromoney: “The closest architectures are two facilities supported by the World Bank: the Pandemic Emergency Financing and the Asean Disaster Risk Insurance facilities.
“Their architecture would be applied to specifics of EU situation. Proceeds would be invested by EIB, which acts as a trustee, and cash for coupons and principal comes from national insurance pools and emergency support instruments.”
Scrutiny
Given the attention that the triggering mechanism of the World Bank’s pandemic bond attracted in the early days of the Covid-19 crisis, this is the part of the EHFF plan that is likely to attract the most scrutiny.
Veredas concedes this, but argues that the answer is to keep things simple.
“The problem with the pandemic bond was that the triggering criteria were too complex,” he explains. “This will be triggered on simple measures depending on the specific risks covered. One example on today’s pandemic would be hospital capacity – percentage of intensive-care unit beds occupied.”
The plan is not short on ambition, and the task of streamlining a pandemic response across the EU in an emergency is a mindboggling one.
But if there is one useful purpose to which the wall of money looking for a home in the bond markets could be put, this is surely it.
