The World Bank Group yesterday launched the Pandemic Emergency Financing Facility (PEF), an innovative, fast-disbursing global financing mechanism designed to protect the world against deadly pandemics, which will create the first-ever insurance market for pandemic risk.
Japan, which holds the G7 Presidency, committed the first US $50 million in funding toward the new initiative.
“Pandemics pose some of the biggest threats in the world to people’s lives and to economies, and for the first time we will have a system that can move funding and teams of experts to the sites of outbreaks before they spin out of control,” said Jim Yong Kim, President of the World Bank Group.
“This facility addresses a long, collective failure in dealing with pandemics. The Ebola crisis in Guinea, Liberia and Sierra Leone taught all of us that we must be much more vigilant to outbreaks and respond immediately to save lives and also to protect economic growth.”
The announcement came a week ahead of the May 26-27 Summit of Group of Seven Leaders in Ise-Shima, Japan. G7 leaders had urged the World Bank Group to develop the initiative during their May 2015 summit in Schloss-Elmau, Germany.
“Japan is proud to support the Pandemic Emergency Financing Facility, which prevents pandemics from undermining important development achievements”,” said Deputy Prime Minister and Minister of Finance of Japan Taro Aso.
“Innovative financing for crisis responses by the PEF, together with financing for preparedness and prevention in peacetime including through IDA, are important to mitigate human and social losses and to help quickly recover in the event of a crisis. It is cost-effective and should be emphasized at all stages of economic development.”
The new facility will accelerate both global and national responses to future outbreaks with pandemic potential. It was built and designed in collaboration with the World Health Organization and the private sector, introducing a new level of rigor into both the financing and the response.
“Recent years have seen a dramatic resurgence of the threat from emerging and re-emerging infectious diseases,” said Margaret Chan, Director-General of the World Health Organization. “WHO fully supports the Pandemic Emergency Financing Facility as a critical contribution to global health security and a crucial line of defence against high-threat pathogens.”
The PEF includes an insurance window, which combines funding from the reinsurance markets with the proceeds of World Bank-issued pandemic (catastrophe, or Cat) bonds, as well as a complementary cash window. This will be the first time World Bank Cat Bonds have been used to combat infectious diseases. In the event of an outbreak, the PEF will release funds quickly to countries and qualified international responding agencies.
The insurance window will provide coverage up to US $500 million for an initial period of three years for outbreaks of infectious diseases most likely to cause major epidemics, including new Orthomyxo viruses (e.g. new influenza pandemic virus A, B and C), Coronaviridae (e.g. SARS, MERS), Filoviridae (e.g. Ebola, Marburg) and other zoonotic diseases (e.g. Crimean Congo, Rift Valley, Lassa fever). Parametric triggers designed with publicly available data will determine when the money would be released, based on the size, severity and spread of the outbreak.
The complementary cash window will provide more flexible funding to address a larger set of emerging pathogens, which may not yet meet the activation criteria for the insurance window.
All 77 countries eligible for financing from the International Development Association, the World Bank Group’s fund for the poorest countries, will be eligible to receive coverage from the PEF. The PEF is expected to be operational later this year.
Recent economic analysis suggests that the annual global cost of moderately severe to severe pandemics is roughly $570 billion, or 0.7 percent of global GDP. A very severe pandemic like the 1918 Spanish flu could cost as much as 5 percent of global GDP, or nearly $4 trillion.
During the past two years alone, pandemic threats have included the devastating Ebola crisis in West Africa—which crippled the economies of Guinea, Liberia and Sierra Leone, and cost them an estimated US $2.8 billion in GDP losses (US $600 million in Guinea, US $300 million in Liberia and US $1.9 billion in Sierra Leone); the MERS outbreak, which took a toll on the South Korean economy; and the Zika virus that is spreading in the Americas and putting thousands of unborn children at risk.