- No money paid out from pandemic insurance scheme because Ebola has not crossed into a second country
- Scheme is the latest to use public money to fund private sector profits rather than ensure there are grant funds to respond to crises and disasters
A World Bank created scheme to provide funds to countries to deal with pandemics has yet to pay out one cent despite the ongoing Ebola crisis in the Democratic Republic of Congo. Over 1,900 people have died so far in the outbreak. While Congo has not received any money from the scheme, private speculators are earning returns of over 13%. This is just the tip of the iceberg, so called ‘innovative’ finance schemes and a failure to implement proper debt relief mean that when crisis hits the worlds least economically well-off countries are least able to cope.
The pandemic ‘bonds’ scandal
In 2017, with ‘aid’ money from Japan and Germany, the World Bank created a scheme labelled ‘pandemic bonds’. The scheme is a type of insurance where private speculators lent the World Bank $320 million. In return, the speculators receive an interest rate of 11.1% plus the current LIBOR rate (at the moment just over 2%). The interest is paid using aid money from Japan and Germany, and donors to the World Bank.
If a pandemic is declared, the intention is that some of the money from the bonds is not repaid, and instead the money is used to help tackle the pandemic. However, the definition of a pandemic was set in detailed contract negotiations with the private sector. This included a condition that the pandemic has to cross borders before any money is paid out. Because in this outbreak Ebola has stayed in the Democratic Republic of Congo, so far nothing has been paid.
If the outbreak does spread to a second country, between $90 and $150 million will be taken from the money the speculators lent and used to tackle the crisis. In the two years since the bonds were created, almost $90 million will already have been given from World Bank, Japanese and German aid as interest to the speculators. Rather than funding profits for the private sector, this money could have gone into a fund which actually paid out when the Ebola crisis first emerged in DRC and helped in efforts to prevent it spreading.
Public money for private profit
The scandal of the World Bank ‘pandemic bonds’ is the latest in a proliferation of schemes which are promoted as innovative ways to raise finance for development but are actually schemes to transfer public money to private sector profits. Last year, Jubilee Debt Campaign exposed the scandal of a climate disaster insurance scheme in the Caribbean, which, despite many climate disasters in the region, has received $293 million in premium payments and grants from the public sector, paid out just $131 million in claims, with $105 million going as profit to global insurers.
The willingness of governments to hand over public funds to expensive private insurance stand in contrast to their failure to do the same to create public funds to respond to pandemics or disasters. This means that when such crises arise, there is no grant finance already set aside, ready to be disbursed rapidly. This leaves countries having to fundraise for pledges and grants, which often never arrive. And when they don’t, countries affected by crises have to resort to borrowing.
Loans in response to disasters
Last month the World Bank announced it is providing $300 million in loans and grants to DRC in response to Ebola (it has not specified the proportion of each). In April, following the devastation from two huge cyclones, Mozambique had to borrow $118 million from the emergency loan fund of the International Monetary Fund, again because the international community has not created an emergency grant fund.
The aftermath of giving loans in response to crises is now being seen in Sierra Leone. In 2014, the Ebola outbreak in Sierra Leone killed 4,000 people and devastated the economy. Following a call by Jubilee Debt Campaign, , the IMF agreed to cancel $29 million of debt payments coming due by Sierra Leone (as well as similar amounts for the other affected countries Liberia and Guinea). However, at the same time the IMF also lent more money, totalling $254 million between 2015 and 2017. Jubilee Debt Campaign warned that lending more money in response to the Ebola crisis would lead to a future debt crisis, and called for all international assistance to be given as debt relief and grants instead.
That debt crisis has now arrived. The IMF has said Sierra Leone is now at high risk of defaulting on its debt. Sierra Leone’s government external debt payments are increasing from 6% of government revenue in 2016, to 13% in 2019 and 19% by 2022. 40% of these payments are to the IMF itself. As a result, the Sierra Leone government is cutting public spending per person by 15% by 2019 (on 2016 levels).
The limited debt relief we won for Sierra Leone was given through the creation of a scheme by the IMF to cancel debts in response to health pandemics. DRC is paying $77 million in 2019 and $50 million in 2020 to the IMF. Yet, despite the Ebola outbreak, it is not getting these debt payments cancelled because under the IMF scheme the disease also has to cross borders.
In response to disasters such as the Ebola outbreak or caused by the climate emergency the world needs proper public grant funds and debt relief schemes to be able to react rapidly. It does not need to be throwing money away on complex schemes to make more profit for the private sector.