Money in the Bank: What’s Behind Slow Demand for MDB Financing for Vaccines?

Judging from last week’s speeches at the IMF-World Bank Spring Meetings, timely delivery of COVID-19 vaccines is now high up the list of organizational priorities. As IMF Managing Director Kristalina Georgieva has put it: vaccine policy is now economic policy. For the first time, World Bank Group (WGB) President David Malpass gave equal billing to vaccines alongside debt transparency and sustainability.   

Yet despite an early October 2020 commitment of $12 billion in available financing for vaccines and vaccination, the World Bank Group last week reported that only 8 projects totaling $1.3 billion (11%) had been approved up to March 18, 2021, with an additional $3 billion in the pipeline (36%). Similarly, the Asian Development Bank, which was an early mover in offering $9 billion to its borrowing member countries has also approved only 10% of this amount, mainly to Indonesia and the Philippines.

Notwithstanding the slower than expected pace of approvals, the need for higher levels of vaccination in low- and middle-income countries (LMICs) is clear (and beautifully illustrated by Phillip Schellekens on his personal webpage The pandemic by World Bank income classification (pandem-ic.com).

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So what is behind the limited demand for multilateral development bank (MDB) financing for vaccine procurement and vaccination so far? I look at five possibilities and conclude that there is much more to do to reduce obstacles to broader use of these lowest-cost resources in LMICs.

Have high-income countries bought all the available vaccine production capacity, leaving nothing left for LMICs to buy? While it is true that high-income countries have pre-purchased many doses, in the aggregate, there are sufficient doses on track for manufacture in 2021, according to a recent paper from Agarwal and Reed – enough to cover the entire world population. The issue is that some countries have not contracted to pre-purchase or obtain these available doses under any arrangement (their own resources, COVAX, WBG, etc.), with countries in sub-Saharan Africa, Central America, and the Middle East least likely to have contracts in place. That said, when taking African Union pre-purchases and donations into account, countries in sub-Saharan Africa had already obtained doses sufficient to reach 50% coverage, according to Agarwal and Reed.

Are countries short of the fiscal space needed to borrow and therefore contract for doses?  The pandemic has had deleterious effects on all countries, and governments have had to step in to keep economies alive through huge increases in spending.  But tax revenues have fallen along with economic activity, and so the hike in spending needs to be financed through borrowing. The rich economies have access to financing but LMICs on the other hand must borrow on international markets to get the hard currency they need to purchase from abroad, and that financing is much more expensive. And many of them are at the point where service on current debt threatens to overwhelm other spending. So ministers of finance in MICs and LICs face difficult choices given the imperative to ramp up spending to spur economic activity in the face of dwindling revenues and constrained borrowing possibilities, while also keeping their ongoing investment and spending going. Some relief has been given to LICs through the G20’s Debt Service Suspension Initiative or DSSI, but it is a drop in the bucket. So MDB financing (or indeed, further debt service suspension) should be enormously relevant – by providing cheaper financing than the market and other sources, especially for vaccines that require foreign exchange to purchase. As ministers of finance recognize the critical nature of vaccines to keeping their economies alive, the MDBs would normally be the first port of call -- it is worth assessing why this is not happening more rapidly.

Are MDB procurement requirements affecting the willingness of companies to accept MDB financing for purchases? Some companies are not willing to agree to World Bank and other MDB procurement requirements, particularly the guidelines on preventing and combating fraud and corruption. The reasoning for the unwillingness may be varied, but the main objection seems to be the lack of familiarity with MDB procurement and level of potential hassle involved given the sellers’ market. There are also country concerns related to losing their place in the vaccine procurement queue by changing the source of financing. These operational issues might be addressed through more direct consultation. Other companies are comforted by the presence of MDB financing in the background.

Are the stringent vaccine regulatory approvals required by the World Bank playing a role in limiting demand?  In a previous piece, my co-authors and I noted that the Bank’s uniquely demanding multi-part standard was inconsistent with the practice of its member countries as well as COVAX and made little sense; the current policy requires in-country regulatory authorization and either (i) WHO prequalification and approval by one Stringent Regulatory Authority (SRA) or (ii) approval by three SRA in three regions. I now worry that this policy might be limiting the use of the Bank’s resources altogether as it effectively prohibits countries from obtaining most of the vaccine doses that are available for purchase this year, e.g. AstraZeneca, Gamaleya, Sinovac, Sinopharm (see figure c1 in Agarwal and Reed 2021). In addition, even harmonizing with COVAX is a requirement more stringent than the regulatory measures used by most country governments that would enable procurement simply via WHO Emergency Use Listing or other national regulatory emergency authorization (and a reason that IMF financing might be preferred to WB financing even with harmonized restrictions). While of course assuring safety and efficacy is vital, the data in the public domain and widespread use suggest that most of the vaccines on the market today are better than none given the spread of the disease and its consequences.  The press release from last week’s World Bank Development Committee suggested that the issue was under review, and the Board reportedly met last week to consider a review of the policy. Watch this space.

Do LMIC finance ministers underestimate needs? There is also the possibility that LMIC finance ministers underappreciate the significance of vaccination for the return to normalcy; until recently, many countries--including India--believed that high levels of seroprevalence would on their own confer herd immunity and protect against further spread of disease and death. This hope has now been dashed with the explosion of cases in recent weeks; vaccines are now the main strategy available to co-exist functionally with endemic COVID-19.  Some have hypothesized that low levels of vaccine distribution readiness--recently spelled out in a World Bank report--might also be playing a role in the modest demand to date; why should more be procured if existing doses are not being administered? Finally, demand for vaccination is potentially low – some media reports suggest that there is already excess supply of vaccine in Nigeria, for example. But whatever the reason, major investment is likely needed to build trust and deliver vaccines. 

The MDBs should work to analyze these issues to determine where the financing offer is falling short. World Bank financing is a lower cost to LMIC governments than many of the sources being used to finance vaccine procurement today (for example, the Africa Export-Import Bank’s backing of the AU purchase). It is possible that between existing pre-purchasing, donations, and high seroprevalence rates, less vaccine might be needed. Or perhaps -as real-world supply constraints ease- it is just a matter of time until countries demand more of the vaccine financing on offer.

As we see new proposals for increased vaccine financing via the IFI (see: Vaccine Financing: How a Redesigned IMF Instrument Can Provide a Shot in the Arm for the Global Pandemic Response | Center For Global Development (cgdev.org); One for All: An Action Plan for Financing Global Vaccination and Sustainable Growth - The Rockefeller Foundation ; Why international public finance should step up its game for global vaccination | odi.org; among others), we need to understand why the existing MDB offer is not fully utilized.