There Will Be a Next Pandemic. Innovative Finance Can Help Us Prepare.

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About the author: Ingrid van Wees is a member of the board of the International Finance Facility for Immunization, and the former vice president for finance and risk management of the Asian Development Bank.

Covid-19 has been the worst pandemic in 100 years. But the next global health emergency, which could involve a more transmissible or virulent virus, could be much worse. As many had predicted, the world was not prepared to prevent or respond to this crisis. And, despite all we’ve learned since 2020, we are not yet fully prepared for the next one.

Even as many societies are shifting back to the normality of prepandemic life, we must remain on guard. That means acting now on the lessons the pandemic has taught us over the last two-and-half years.

One of those lessons: We must find a solution to raise substantial funds to fight this fast-moving and unpredictable challenge at scale and speed. And we must do so before the next emergency.

To start, give priority to at least two essentials for an international financing toolkit that will help us cope with the current pandemic and respond boldly to the next one.

First, using innovative finance tools that amplify, ascertain and fast track the impact of a country’s official development assistance, or ODA.

These donations reached record levels in 2021, when countries provided more than $179 billion to fight the pandemic. But even allocations like that can’t do it all in an emergency. Some of these donor countries are now facing post-pandemic budget burdens triggered by devastating global reverberations from the conflict in Ukraine, climate change, rising interest rates and currency fluctuations.

In times like these—and even between crises—innovative finance rises to the occasion, sustaining the impact of development and humanitarian assistance, even as payments wane or are delayed. Think of innovative finance as a flexible and predictable instrument or solution  that mitigates the inevitable uncertainties of working in an inherently unpredictable environment.

The International Finance Facility for Immunization is the first global-health financing tool of its kind and is an exemplar of innovation. In the last 16 years IFFIm has raised vast amounts of funding on capital markets—$8 billion—through sales of its vaccine bonds based on long-term pledges by sovereign donors.

By obtaining cash from the market before the sovereign payments are received, or “frontloading” money, IFFIm has provided Gavi, the Vaccine Alliance, with the immediate cash to accelerate its immunization programs. IFFIm was designed to be fast and flexible—an ideal tool to address pandemics. And it has worked: In addition to $5.1 billion it has provided over the years to fund child vaccination programs in low-income countries and other Global South nations, IFFIm has so far raised $975 million for the COVAX Facility, which aims to help lower-resourced countries get the COVID-19 vaccines they need to combat the disease.

New financing instruments like IFFIm’s vaccine bonds make ODA more effective by taking time pressure off donor countries. Private “impact investors” make IFFIm’s impact bonds viable by putting their capital to work for global health at a low, AA, credit risk. Application of this mechanism for environmental conservation, climate adaptation, education, poverty and other humanitarian causes can fast track and enable development and impact.  

As a pioneer in this sector, IFFIm assisted in building enthusiasm for impact investments since its emergence in 2006. The question is, can this excitement entice even more money off the sidelines—that is, from other private pools of capital—to work for the betterment of our world?

Let’s hope so. There’s a lot of private capital that can be put to good use for important public needs. Consider that, by the end of 2021, there were more than $112.5 trillion in investment assets under management, up from more than $100 trillion in 2020. (Some estimates put this wealth at many times that amount.) Even in today’s more volatile market environment, impact investments like vaccine bonds, which have strong credit ratings and provide returns that compete with conventional investments, offer high-quality opportunities to get private capital off the bench and working for public benefits.

A second priority is to establish a stream of contingent financing that can be tapped quickly to keep up with fast-moving future crises. The pandemic taught us this necessity the hard way.

As the pandemic began to unfold in 2020, Gavi, the World Health Organization and the Coalition for Epidemic Preparedness Innovations launched COVAX without any money or dedicated staffing. By the time COVAX was able to raise enough funding from donors to secure vaccine doses, wealthier countries had already locked in most of the prospective supply. This delay was one major factor straining COVAX’s ability to get enough doses for most of the lower-income countries it served in the early and acute stages of the pandemic. COVAX eventually recovered  and has delivered more than 1.7 billion doses to date.

In response, global players, including Gavi, are creating a Pandemic Vaccine Pool, which will be funded by direct contributions of pledges made through regular and upcoming contingent financing facilities. In a contingent facility, donors would have the option to make pledges that can be called and activated by trigger events, such as the emergence of a dangerous COVID variant, or another, equally menacing new pathogen.

There is ample precedent for contingent financing. When global leaders set up the World Bank in 1944, they asked participating countries to contribute 20% of an overall capital commitment. The remaining 80% was “callable,” should the Bank be unable to make interest payments. Various multilateral institutions are providing contingent facilities to governments.

We’ve learned from the Covid experience that the world needs to improve its preparation for health crises and invest proactively. It’s time to put the right global financial toolkit in place to ready ourselves for disease outbreaks that are evolutionarily certain to occur in the years to come. With experience and vehicles in place, the most important question now is whether we can muster the will of governments, multilaterals, and private sector investors to make that happen.

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