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Capital Markets

Pandemic bond trigger failure shows flaws of relying on reporting by poorest countries

The World Bank’s pandemic bond has failed to pay out to poor countries at its first opportunity, a predictable result of designing a structure dependent on the ability of those countries to report coronavirus cases.

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The World Bank’s pandemic bonds, issued in 2017 and designed to help poor countries deal with the effects of a disease pandemic earlier than traditional insurance schemes such as catastrophe bonds, have failed to hit their triggers at the first opportunity since the coronavirus outbreak began.

As Euromoney has previously reported, April 9 was the earliest point at which a determination as to whether the bonds would pay out could be made. On that date the independent calculation agent, AIR Worldwide, submitted its report that the outbreak had not met the precise requirements for the bonds to suffer a reduction in principal, which would have seen money made available to developing countries if they requested it.

The maximum payout from the $425 million bond and swap package within the World Bank’s Pandemic Emergency Facility (PEF) in the case of coronavirus is just $195.8 million, with bondholder losses limited to $132.5 million.

Those sums make the facility largely irrelevant when compared with the billions being mobilized elsewhere for developing countries in response to the outbreak – including by the World Bank itself.




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