How the Global Fund is Dealing with More Demand than Supply

At the Global Fund’s 20th board meeting this month in Addis Ababa, Ethiopia, the board made funding decisions for Round 9, and for the first ‘learning wave’ of their new National Strategy Applications (NSA). The NSA is an application channel where countries request funding to support strong existing national HIV/AIDS, TB, and/or Malaria strategies. There is a lot of interesting news coming out of the recent board meeting and the funding decisions, which the HIV/AIDS monitor will try to cover in a series of blogs over the coming weeks.To start, one of the big issues that is sure to be on everyone’s minds is how and where the Global Fund has made cuts to address the funding gap between what is being requested in proposals and what is being provided by donors (what the Global Fund quaintly calls the tension between supply and demand). Basically, the board has ‘in-theory’ approved US$2.21 billion for round 9 proposals and US$0.43 billion in support of NSAs. This would cover the first two years of funding for approved grants. Unfortunately the Global Fund does not have the money needed to cover US$2.6 billion over the next two years, so the secretariat has come up with some creative ways to address the funding gap. Here are some of those steps:Efficiency cuts:The board has requested that recipients of the Round 9 and NSA grants trim an average of 10% from their budgets as efficiency gains. They also ask for countries to cut 25% on average from their phase 2 budgets (years 3-5 of the grant). It will be interesting to see how long the Global Fund can continue to implement these ‘efficiency cuts’ before countries start padding their budgets, if they haven’t already… These same steps were taken to trim the budgets of round 8 grants.Uncertainty cuts:Above and beyond the 10% efficiency cuts, the Global Fund will only commit to paying for 90% of the approved (and efficient) budgets for the first 2 years. They hope they will be able to fill-in the additional 10% if and when new funding comes in. Perhaps the Global Fund is certain this money will become available, but this seems to send mixed messages regarding the predictability of Global Fund financing.Delays:It is common practice for the Board to do a delayed approval of grants on the margin of approval. These grants are ranked based on an index of poverty and disease burden, and then the grants are strengthened and funded in order of the ranking. One of the conditions of approval is funding availability. I don’t know of an analysis of how many of these grants ultimately get funding after what period of time. However, the funding gap facing the Global Fund will certainly constrain the number of these grants that will get signed. For that reason we will say that these 31 grants, worth US$ 583 million (US$ 720 million -10% -10%) are at risk.In sum, we see the Global Fund potentially cutting over US$ 1 billion from the approved round 9 and NSA budgets:

100% of approved grant request = US$ 2.64 billion-10% for efficiency cuts = US$ 2.38 billion-10% for uncertainty cuts = US$ 2.14 billion-583 million at risk in delayed approvals = US$ 1.56 billionIn addition to delayed approvals, the Global Fund has been gradually delaying their grant rounds, both for round 9 and now for round 10. It will be interesting to see how these delays affect what the Global Fund calls the supply/demand tensions in their balance sheets. Less frequent funding rounds may lessen the amount the Global Fund grants out without threatening the quality of the grants. However, this approach may only address the supply side of the equation, not the demand.To be sure, the Global Fund has been facing very tough funding decisions. Behind each strategy for cuts are inherent judgments about program value and decisions about the Global Fund model. For instance, efficiency cuts assume that countries are asking for more than they need or that they could do more with less. According to resources needs estimates by folks like UNAIDS and Roll Back Malaria, many developing countries need far more than what they are asking for. Claiming these cuts will help poor countries “trim the fat” might be viewed as condescending. Whether they can do more with less is probably a moot point. The fact is that there IS less and the enormity of the task remains the same.Over the next few weeks many will be unpacking the details of the decisions from the Addis Ababa Board Meeting. While much of the focus will be on how the GFATM is planning to manage a significant funding gap, there are many other interesting developments coming out of the Addis meeting. Stay tuned for the next few blogs from the HIV/AIDS monitor, where we will examine what some of the other key decisions in Addis mean for GFATM programs and recipients of this funding.