PFM blog

Towards COVID-19 eradication in Africa: Calls for creativity amongst the international development community

26 March 2021
Front View Medical Control Covid19 Concept 23 2148777439

As in previous health crises, multilateral organisations and development banks have played a significant role in financing developing countries’ crisis response efforts. However other than financing channelled through COVAX, only the World Bank has issued funds specifically for the vaccine. While there may be potential to reallocate existing grants and loans to vaccine financing, there is, as yet no clear evidence that countries are reprioritising either COVID-19-related or pre-existing loans to secure vaccines.

In a previous blog, we emphasised the importance of mobilising domestic resources for the COVID-19 vaccine; however, the global nature of the pandemic implies it would be pragmatic, given limited fiscal space in developing countries, for developed countries to significantly ramp up their support for vaccine programmes in developing countries, and to consider ways to do this creatively. New facilities and processes are needed that can be called on quickly. So, in addition to mobilising traditional forms of development assistance, what can the international development community do?

Expediting disbursement of funds

While emergency pandemic funds have been disbursed with far more haste than traditional development financing, given that many of the major partners have not yet committed financing to cover countries’ direct vaccine procurement, there may be a need to expedite disbursement. One such tool is the UN’s Pledge Guarantee for Health which provides a loan guarantee for development partner funding when a commitment is made, and provides a letter of credit backed by the loan guarantee. This guarantee would allow the ministry of health or ministry of finance to purchase vaccines immediately, rather than waiting for commitments to be processed.

Bilateral donations

Bilateral donations of vaccines have allowed several developing countries to commence with their vaccination programmes. Seychelles was able to commence with its vaccination programme at the end of January thanks to donations from the UAE and India; the UAE donated 50,000 doses of the Sinopharm vaccine and India donated 100,000 doses of the AstraZeneca Covid-19 vaccine. South Sudan has also received vaccines from the UAE. Senegal, hardly flush in resources for the vaccine itself, donated 10 000 doses to neighbouring The Gambia and Guinea Bissau. While these donations, particularly those originating from Asia and the Middle East may be criticised as “vaccine diplomacy”, it is hoped that the Western world begins to follow suit.

COVID-19 vaccine bonds

COVID-19 vaccine bonds have already been issued by the International Finance Facility for Immunization (IFFIm) to support GAVI. The IFFIm, which was established in 2006, receives long-term pledges from donor countries and turns these pledges into bonds. The IFFIm website explains that “a sovereign donor pledges US$200 million paid in US$10 million tranches annually over 20 years. Without IFFIm, Gavi would be limited to spending only this US$10 million each year and would have to wait 20 years before seeing its full impact. But backed by these pledges, IFFIm issues its Vaccine Bonds on the international capital markets. Capital market investors buy these bonds for an attractive rate of return, which makes funds immediately available to IFFIm.”

Until this point, IFFIm has not issued bonds on behalf of a sovereign. Given the current fiscal constraints facing developing countries, which need doses of the vaccine beyond what pooled procurement mechanisms can provide, perhaps a case can be made for IFFIm to either issue bonds on their behalf or consider guaranteeing sovereign-issued vaccine bonds. An alternative would be for countries with close bilateral ties to consider allowing developing countries to borrow against a country with a stronger balance sheet. This would allow for rapid mobilisation of resources at a reasonable rate.

Microtaxes or levies

While this did not come into fruition, the South African Government announced that it was considering hiking taxes to cover the costs of its COVID-19 vaccination plan.[1] While not purely for vaccine financing, in July 2020, the Egyptian government announced plans to levy a one-year 1 percent “corona tax” on all public- and private-sector salaries to help fund efforts to contain the spread of the coronavirus. A separate 0.5 percent tax has been levied on state pensions (COVID-19 PF Response Monitor). Kenya announced it is considering imposing higher taxes on Kenya’s super-rich and high-income earners, in 2021/22 budget, as part of a broader strategy to raise revenues that have dropped amid the economic fallout from the COVID-19 pandemic.

While levying corona taxes may be neither feasible nor advisable in most African countries, developed countries may be in a position to consider contributing towards vaccine purchasing in developing countries, by levying a temporary microtax for global vaccine financing. There is precedent for this in UNITAID. UNITAID, which helps fund developing countries’ response to HIV/AIDS, tuberculosis, and malaria, receives 60 percent of its funding from airline ticket levies. Airlines have supported this levy as they recognised the negative impact they would suffer from a global health crisis. However, airlines which have suffered near irreparable damage over the past year, are not the only area in which a microtax or levy could be introduced. Introducing a microtax on sectors that have indirectly benefitted from the crisis, such as virtual communication services or pharmaceuticals, may be a more attractive option and likely to receive more political support than an allocation from developed countries’ national budgets.

Debt relief

As discussed in a forthcoming CABRI paper titled “It takes a pandemic: Debt relief in response to COVID-19”, African leaders, through the African Union, and international financial institutions like the IMF and World Bank have advocated for debt-relief measures to respond to the crisis. There have been suggestions to create linkages between debt relief and COVID-19 health spending by using innovative instruments such as debt-to-health swaps. While the G20 has provided debt relief, it would be pragmatic for bilateral creditors, serious about achieving global herd immunity to consider providing debt swaps for vaccines. This could include stipulations that the vaccine is purchased from a manufacturer based in the creditor country.

On 13-14 April 2021, we will bring together African health and finance ministries to consider how they can mobilise international support and domestic resources for vaccine procurement. Officials will also be given a platform to learn from their cross-country peers and experts about optimising their vaccine procurement and distribution strategies.

[1] In his 2021 Budget Speech, Minister Mboweni made it clear that the South African Government would not be increases taxes to pay for the vaccine programme.

Sign up to the CABRI Newsletter