Pandemic Emergency Financing Facility: Frequently Asked Questions

What is the Pandemic Emergency Financing Facility (PEF) and why is it needed?

• The Pandemic Emergency Financing Facility (PEF) – a financing mechanism housed at the World Bank – is designed to provide an additional source of financing to help the world’s poorest countries respond to cross-border, large-scale outbreaks.  

• Launched in July 2017, the PEF is based on the experience of the devastating, cross-border 2014-15 West Africa Ebola outbreak, which claimed more than 11,000 lives. At the time, the world lacked the appropriate financial mechanisms to drive resources for outbreaks that were quickly escalating.

• It was developed by a global team of experts in epidemiology, public health and finance so that countries could get the support they need to fight deadly, cross-border pandemics. 

• The PEF complements the much larger role that IDA, the World Bank’s fund for the poorest countries, and other international organizations and donors play in financing outbreak response.

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Who is covered under the PEF, for what, and how much funding has it provided so far?

• The PEF is designed to provide an additional source of financing to help the world’s poorest countries respond to outbreaks.     

·         The PEF provides financing through two windows: a cash window and an insurance window. The insurance and cash windows are triggered in very different ways and are specifically designed to complement each other. To date, the PEF has paid out US$61.4 million from its cash window to fight Ebola in DRC, including $50 million for the current 10^th outbreak.

• The insurance window provides coverage of up to $425 million to all IDA-eligible countries for diseases that are listed by WHO as likely to cause major epidemics if contagion spreads across national borders. These include new pandemic influenza, SARS, MERS, Ebola, Marburg and Crimean Congo hemorrhagic fever, Rift Valley fever, and Lassa fever.

What is the cash window of the PEF and how does it work?

• The cash window is triggered by expert advice based on the pathogen type and epidemiological thresholds with a final decision by the PEF steering body which oversees PEF operations.

• Funds from the cash window can be transferred within days of approval by the steering body which is composed of donors, international organizations (including the WHO, UNICEF, and the World Bank), and two IDA-eligible countries (Liberia and Haiti). WHO and the World Bank serve as non-voting members. 

• PEF grants can go directly to governments and to qualified responding agencies, such as WHO and UNICEF.

• The PEF cash window has been triggered three times, for the 9th and 10th Ebola outbreaks in the DRC providing $61.4 million to fight the outbreaks ($11.4m in 2018 for the 9th outbreak and $50m in 2019 for the 10th outbreak).

What is the insurance window of the PEF and how does it work?

• The insurance window is triggered once the parametric triggers, such as outbreak size, growth rate and spread across borders, are met.

• The PEF’s insurance window works like any other insurance: it pays a premium to buy protection against a worst-case scenario of a cross-border pandemic.

• The insurance window has purchased $425 million aggregate insurance at an annualized premium cost of $36.2 million (or equivalent to 8.5%).

• The payment for bond coupons is covered in part by the PEF and in part by the World Bank. The portion paid by PEF is funded by the donor governments.

• Dividing the annual cost of the insurance by the population of the countries it covers, PEF insurance costs 2.1 cents per person per year.

What is the governance structure of the PEF?

• Operations of the PEF are overseen by a steering body composed of donors (Japan, Germany, and Australia), international organizations (including the World Health Organization, UNICEF, and the World Bank), and two IDA-eligible countries (Liberia and Haiti). Voting members of the steering body include Japan and Germany; WHO and the World Bank serve as non-voting members. 

• The PEF Coordinator actively monitors disease outbreaks and is in constant communication with affected countries and international responding agencies, such as the WHO and UNICEF. 

• So far, health events that the PEF Coordinator's office has monitored include the Marburg virus in Uganda, plague in Madagascar, and two Ebola outbreaks in DRC. 

• Event Eligibility Notices were issued in the case of the 2018 Lassa fever outbreak in Nigeria and the 10^th Ebola outbreak in DRC.  These notices initiate formal monitoring of an outbreak to determine potential eligibility of payment from the insurance window. 

Is the PEF the only crisis support instrument of the World Bank Group?

• The PEF is one element of the World Bank Group’s Global Crisis Management Platform, which brings together a range of crisis support instruments to IDA-eligible countries that face an outbreak.

• Overall, the World Bank, has committed $350 million from IDA in response to the 10th outbreak of Ebola in DRC (plus the additional US$50 million disbursed from the PEF). The funds enable responders to step up the frontline health response, deliver cash-for-work programs to support the local economy, strengthen resilience in the affected communities, and contain the spread of this deadly virus.

Last Updated: Nov 01, 2019, by the World Bank.

DW:  Investors flee from controversial pandemic bonds with coronavirus set to trigger payout

https://www./en/investors-flee-from-controversial-pandemic-bonds-with-coronavirus-set-to-trigger-payout/a-52539926

The idea behind the bonds (PEF) was to place some of the risk for low-income countries of a pandemic onto the financial markets, rather than their own governments' budgets. Investors who bought the bonds would only lose money if certain trigger conditions relating to a pandemic were met.

If those conditions are triggered, the bonds are not repaid in full and the money is used instead to help tackle the crisis in developing countries.

Stringent conditions

Since the scheme was initiated almost three years ago, the conditions for payout to countries afflicted by pandemics have not yet been met, but the new COVID-19 coronavirus outbreak looks like it will do so.

The less risky tranche of the bonds will not be paid back to investors if there are more than 2,500 deaths in developing countries as a result of a pandemic. Although China has recorded more than this number of deaths, the World Bank does not designate it a developing  country.

By far the riskier of the two bonds is "Class B," which sold $95 million in bonds (compared to $225 million for the less risky "Class A," explained above). For Class B, if the disease crosses an international border and if there are at least 20 deaths in that second country, the investors' money will be paid to developing countries dealing with the outbreak.

Although no second country has recorded 20 deaths at the time of writing, Iran, Italy and South Korea have all recorded more than 10with the numbers rising steadily in recent days. Other conditions for this bond include that there are 250 deaths in the origin country (already long since passed in China) and that 12 weeks have passed since the original outbreak (a condition which will be met on March 23).

In the terms of both bonds, it is stipulated that coronavirus outbreaks count as one of the diseases covered.

Controversial instruments of aid

Despite the fact that the PEF  look set to result in a payout to developing countries, critics have said the conditions are too stringent and that investors have already made money on them due to the regular coupon payments they have received on the back of the initial purchase.

Bodo Ellmers, the director of the Global Policy Forum's sustainable development finance program told the Financial Times the instrument was "useless."

"You obviously want to prevent a pandemic but it only pays out when it becomes a pandemic," he said.

Olga Jonas, who worked as an economist at the World Bank for three decades, said it was absurd that discussions for a second round of bonds for what is known officially as the Pandemic Emergency Financing Facility (PEF) had begun, as they were effectively "designed to fail."

"Early action against outbreaks is imperative, because it is both more effective and less costly. But making the bonds attractive to investors meant designing them to reduce the probability of payout," she wrote last year in the scientific journal Nature, several months before the novel coronavirus outbreak begun.

Many critics have also pointed to the fact that the severe attack of Ebola that hit the Democratic Republic of Congo in 2018 did not meet                                                           the conditions to trigger payment of the pandemic bonds despite the fact that almost 500 people died and that it was one of the largest outbreaks ever recorded.

Many critics have also pointed to the fact that the severe attack of Ebola that hit the Democratic Republic of Congo in 2018 did not meet                                                           the conditions to trigger payment of the pandemic bonds

The World Bank's bond sale was 200% oversubscribed, meaning investors saw moneymaking opportunities with the high-yield returns on offer. Most buyers came from Europe, and included specialized catastrophe bond investors as well as asset managers and pension funds.

According to Bloomberg, asset managers including Bailie Gifford, Amundi and Stone Ridge Asset Management are among those who hold the riskier Class B bonds.

The interest and coupon payments made to investors have been funded largely by the donor nations Japan and Germany.  The Class A                                                           bonds feature an interest rate of 7% while the Class B bonds' rate is 11%.

According to the PEF, around $75.5 million had been paid to bondholders in the form of premiums as of August 2019. The full amount paid in interest and coupons has not been disclosed. The bonds are set to mature in July 2020.

Haves and have-nots

Even if some developing nations do end up receiving pandemic bond money, it will be a relatively trivial sum when compared with some estimates of the economic damage a sustained coronavirus pandemic would do to developed and developing economies alike.

The World Bank (headquarters pictured above) said in 2017 the bonds were 'a momentous step that has the potential to save millions of lives and entire economies from one of the greatest systemic threats we face'

The Oxford Economics think tank estimated last week that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1 trillion in lost income.

Yet one stark illustration of the different capacities rich and poor nations have to cope with the crisis came with the news that the Hong Kong government would give HK$10,000 ($1,280) to permanent residents of the territory whose finances have been hit by the spread of the virus.

That would amount to $10 billion in cash handouts, far in excess of the amount of money developing countries would receive as a result of pandemic bond payouts.

And so, this may be it. With rates at (or near) record lows and balance sheets still bloated, 2020 may be central banks’ last stand. One last push to rescue the world before the armory is truly empty.