IFIs need a well-defined role in global health

Chatham House

08 May 2023

IFIs need a well-defined role in global health

The forthcoming spring meetings of the IMF and World Bank on 10-16 April will see a critically important debate on the future role of the International Financial Institutions (IFIs). 

The focus is primarily on how to rectify the $3.5 trillion per annum shortfall in the provision of finance for climate change mitigation and adaptation. However, reforms designed to make the IFIs more effective in addressing this will also affect their ability to support other critically important objectives, notably the existential threat from future pandemics. Indeed, some proposals are designed to address both challenges – and all ‘global commons’ financing needs – at the same time.

Existing architecture for global health funding

The architecture for public financing of international health priorities is complex, diverse and fragmented. It comprises: the World Health Organization (WHO), which provides the overarching framework for global health; a series of so-called ‘vertical funds’ and targeted initiatives, which gather funds from donors and then distribute these resources or products produced with the funds to address specific objectives in low- and middle-income countries; bilateral donors who provide aid or soft loans primarily to low-income economies; the bilateral development finance institutions (DFIs) and multilateral development banks (MDBs), who lend to all developing economies; and, most recently, the IMF, through its Resilience and Sustainability Trust (RST).

Among the MDBs, the World Bank has the greatest experience and expertise in health finance. It was the single largest funder of the global COVID-19 health response, committing $14 billion to over 100 countries. In the aftermath of the pandemic, it has warned that the increasing number of acute infectious diseases is combining with trends such as population ageing, chronic-disease burdens and climate change to raise the risk of ‘syndemics’ – events in which two or more diseases adversely interact with each other and with political and economic conditions of inequality and poverty.

The World Bank has the greatest experience and expertise in health finance. It was the single largest funder of the global COVID-19 health response, committing $14 billion to over 100 countries.

The system is constantly evolving in response to events and to address new requirements. The pandemic has stimulated a series of further additions to the structure.

Institutional changes in response to the pandemic

For example, the Pandemic Fund was created in summer 2022 to increase the priority given to national activities that are critical to pandemic prevention, preparedness and response (PPR).  It is structured as a World Bank Financial Intermediary Fund (i.e. a vehicle which collects funds from public and private donors and distributes them to recipient governments), has so far raised $1.6 billion, and has identified as likely priorities projects focused on zoonotic disease surveillance; laboratories; emergency communication, coordination and management; critical health workforce capacities; and community engagement.

Meanwhile, in October 2022, the IMF launched the Resilience and Sustainability Trust (RST), financed from unused Special Drawing Rights (SDRs) allocated to IMF members in 2021. The trust – to which $40 billion had been pledged (and $26 billion committed) by the end of 2022  –  will lend on a long-term basis to help low-income and vulnerable middle-income countries build resilience to external shocks, including those related to climate change and pandemics, and ensure sustainable growth, contributing to their longer-term balance of payments stability. While the source of funding may well have dictated that the IMF should host the RST, it has nonetheless taken the institution into new territory, with very long-term (20-year) development finance, which is traditionally the remit of the World Bank and MDBs.

Pandemic response has been a major focus of key vertical fund replenishments over the past 12 months, such as CEPI’s $3.5 billion replenishment in March 2022 and the Global Fund’s $14.25 billion replenishment in September 2022.  WHO member states are working on a new pandemic treaty with the goal of making the world more resilient against future health emergencies. Work is also underway in the G7 and G20 on assessing economic vulnerabilities and risks from pandemics, new mechanisms for surge financing in response to health emergencies, developing more robust and equitable R&D and manufacturing networks, and the idea of a global health security board.

Over time, this growing complexity makes it harder for countries to access financial support efficiently and harder for potential donors to understand and track how their funds are being used.

Considerable effort has been required on each of these individual initiatives. And in their own terms they make sense. But they inevitably add further to the complexity of the funding architecture for international health priorities and the framework within which it operates.

Over time, this growing complexity makes it harder for countries to access financial support efficiently and harder for potential donors to understand and track how their funds are being used and to assure themselves that they are being used in the most effective way.  Ultimately,  growing complexity undermines trust in the system as a whole.

Three goals on IFI health financing

It would be highly impractical for both political and administrative reasons to attempt a wholesale reform of the entire financing architecture, but the international community needs urgently to prioritize clarity, simplicity and transparency in its current and future reform efforts.

The upcoming IMF/World Bank spring meetings and the discussions around reform of the IFIs are an important opportunity to begin doing this, and policymakers should go into that discussion with three goals on health financing:

First, they need to ensure that the reforms developed to enhance IFI climate finance also work for international health. While there are similarities between the two objectives, there are also important differences: There is less consensus on priorities for international health; the shortfall in climate finance is considerably greater than the shortfall in international health finance; the economic returns from health investment, while very real, may be harder to measure and largely accrue at the national or global level, rather than project level; and a greater proportion of health finance is required for human capacity and institution building.

Second, and as a starting point for greater clarity in the system, they should seek to establish clearly defined roles for the MDBs and the IMF that are driven by their core missions. This has the benefit of creating a fixed point in the broader financing structure.

Third, they should use broader efforts to map the international health financing system to encourage greater clarity and simplicity. Thus, if a particular goal is underprioritized, one should, if at all possible, use existing institutions to respond, rather than simply adding another vertical fund or targeted initiative. One should also distinguish between institutions that should focus on provision of long-term finance to improve resilience and those whose role is to act as a shock absorber, providing emergency liquidity.

Breaking the trend of ever-increasing complexity in international health financing will not be easy, but unless the international community starts making tough decisions now, critical –  and even existential –  future needs may well not be met.