Five Steps MDBs Can Take Now to Unlock Pandemic Financing

Much of the delay in COVID-19 vaccine deliveries to low- and middle-income countries (LMICs) resulted from their signing purchase agreements later than high-income countries (HICs). These lags in part reflect the restrictive lending criteria the multilateral development banks (MDBs) adopted for vaccine financing, which precluded countries from using MDB funds to purchase vaccines before they were approved by national regulators or by the World Health Organization (WHO) for emergency use.

In contrast, the US, UK, and other (mainly HICs) made prepayments to candidate vaccine manufactures “at-risk” i.e., before the vaccine had received regulatory approval. They provided prepayments and committed to legally binding contracts to procure vaccines conditional on regulatory approval, enabling firms to put in place manufacturing capacity and procure inputs. Buyers would lose the prepayment if the vaccine was not approved—this is the at-risk element. This early financing enabled firms to expand manufacturing capacity and procure inputs prior to regulatory approval. In return for taking on some of the risk of vaccine candidates failing, these countries secured early access to vaccine doses. Estimates suggest that Operation Warp Speed, which had spent $13 billion by December 2020, would have paid for itself had it reduced the length of the pandemic in the US by just 12 hours. These early payments not only benefited their citizens, but also helped accelerate global vaccine production as firms expanded production in response. The benefits of vaccine capacity built during COVID-19 were in the trillions.

This blog outlines five steps that MDBs, using their standard country-based model, can take to make it possible for countries to use their loan envelopes to purchase vaccines and other medical countermeasures at-risk in the way HICs did. Crucially, these steps do not require immediate additional financing from donors or international health agencies. These “quick wins” could be taken on immediately, and need not stand in the way of, nor wait for more ambitious proposals—such as pooled procurement where MDBs buy vaccines on their own balance before member countries have formally requested them—that would require more substantial changes to standard MDB operating procedures.

1. Relax restrictive procurement rules and processes that blocked at-risk financing

During COVID-19 the World Bank’s initial criteria for using their resources for vaccine purchases required in-country regulatory authorization and either (i) WHO pre-qualification (PQ) and approval by one Stringent Regulatory Authority (SRA); or (ii) approval by three SRAs in three regions.

More recently Gavi’s First Response Fund was unable to purchase mpox vaccines because the rules only permit procurement of vaccines that have received WHO emergency use listing—even though mpox vaccines had already been authorized by regulators in the Democratic Republic of the Congo, the site of the major outbreak, and by the US Food and Drug Administration, a recognized SRA.

MDBs need to change their procurement rules to explicitly allow countries to access MDB financing to make prepayments for vaccines and other medical countermeasures before they have been approved or authorized for emergency use. This change would not mean that vaccines are administered before they are determined safe and effective; countries could still wait for a decision from their own health agency, or an SRA of their choice. The point of allowing early investment is to help provide demand certainty to manufacturers and incentivize them to kick-start production earlier, so that adequate supply is available for rapid deployment.

MDB action is vital because the amount of money LMICs can borrow through MDBs is likely to be much larger than donors will be able to provide in grants. And during pandemics, when risk premia are elevated, they can be the only available source of affordable financing. MDBs should also coordinate with other international institutions (e.g., Gavi) to ensure countries that take early action are not penalized if and when free vaccines are provided. Access to MDB finance will be even more relevant in future pandemics, as large lower-middle-income countries like Kenya, Pakistan, and Nigeria are expected to graduate from eligibility for free vaccines from Gavi.

2. Establish an expert panel to evaluate the case for investing in pre-approval medical countermeasures

MDBs will understandably have concerns about their loans being used to invest in candidate medical countermeasures that are bad bets and do not offer value for money.

This concern could be addressed by establishing a standing panel of health and economics experts to evaluate candidate measures and judge whether they represent value for money, balancing risk and reward. During a crisis, the panel would provide a list of endorsed candidates which countries would be permitted to use MDB financing to purchase. The panel should be established now so it can be called upon quickly when an outbreak hits—the triggers for a qualifying outbreak and for the panel to be summoned could be based on a WHO declaration or pre-agreed number of deaths.

The panel’s role is not to provide regulatory approval for use. Rather, it is to judge whether investing in a candidate is a good bet. The panel would have some similarities to the roles played by the UK Vaccine Task Force, the team behind Operation Warp Speed, and the Accelerating Health Technologies group. Explicitly, the panel would assess if the probability a candidate countermeasure will be successful, multiplied by the health and economic benefits of accelerating access, is worth the cost.

During COVID-19, analysis suggested high expected returns for middle-income countries even if the chance of individual vaccine success was as low as 20 percent. Diversification across candidates and platforms will increase the probability of success. While it will typically be appropriate for HICs to invest in a larger portfolio, during COVID-19 it was optimal for even middle-income countries to invest in multiple candidates. Countries could invest in portfolios, not just individual candidates.

Given the high returns, investing in vaccines which may well fail, often makes good economic sense. Nevertheless, officials in LMICs may be concerned about their political and legal liabilities in the event of technological failure (e.g., a candidate vaccine does not turn out to be efficacious). Endorsement from an international panel of health and economic experts could help alleviate that concern by signaling this is a bet worth taking.

3. Agree on a model loan template for at-risk purchases through the MDBs

In addition to affording countries the ability to buy medical countermeasures at-risk through MDB loans, efficiency can be further streamlined by working out a model loan agreement for at-risk purchases in advance. There are many details that go into MDB lending agreements and it can be hard to work through a novel agreement during the pressure of a pandemic. MBDs need to add tools to their suite of financing instruments now so they can act quickly during an outbreak. They should develop a model template loan agreement that member countries could use to access lending in the first stages of a pandemic or epidemic to place early orders for vaccines or other medical countermeasures, after they’ve been evaluated by the expert panel, prior to their regulatory approval or authorization for emergency use.

4. Develop draft purchasing agreements with manufacturers including indemnity and liability provisions

Vaccine purchases by LMICs during COVID-19 were slowed down by discussions about terms, including indemnity clauses. Small countries felt they had little choice but to accept vaccine firms’ conditions, while firms felt overwhelmed by the need to negotiate with multiple countries. MDBs could play an important role by working in advance with potential manufacturers to draft purchasing agreements and establish common clauses to be used by multiple countries. Agencies that regularly carry out global procurement could share existing agreements as a public good. Countries could opt into using draft purchasing templates as part of their agreements with sellers of countermeasures. Given MDBs would potentially fund many countries to make these purchases through their loans, it would be efficient for manufacturing firms to agree on a single template, rather than negotiate with multiple countries. The MDBs have some purchasing power to establish standardized purchase agreements because this mechanism could speed up the process of sourcing demand from several countries. Standardized contracts could also enable small countries that would otherwise be neglected by firms to participate.

MDB involvement in establishing a framework agreement of this kind would help ensure contracts provide positive externalities to other countries, rather than simply seek to take someone else's spot in line. Contracts for vaccines should require firms to build new capacity initially dedicated to the buyer, rather than simply specifying the number of doses. Otherwise, firms may not have sufficiently strong incentives to accelerate production. By investing in expanded capacity, contracts can not only reduce wait times for the buyer but also accelerate global access.

We can build on experience from COVID-19. The Inter-American Development Bank approved an initiative to “help both countries and vaccine makers resolve indemnity obligations.” COVAX developed a template indemnity agreement. 

While the sellers of future countermeasures are unknown, the templates covering the main points could be negotiated in advance with large potential providers. Contract terms should be designed to incentivize providers to use early financing to expand manufacturing capacity. Greater capacity during the COVID-19 outbreak would have been worth trillions and would have allowed the world to be vaccinated a year earlier during COVID-19.

5. Develop an optional guarantee mechanism

MDBs should develop a mechanism now to enable HICs to commit to partially or fully repay loans taken by low- or lower middle-income countries (e.g., IDA-eligible countries) if they use their loans to buy medical countermeasures at-risk and the countermeasure fails to get regulatory approval. While purchasing countermeasures at-risk has a high expected value, low-income countries might hesitate to pay for a novel technology that might not work. Since investing in countermeasures benefits not just an individual country but the whole world, it is appropriate for high-income donor countries to take the risk on to their balance sheets when it comes to low- and lower middle-income countries.

If the guarantee is called on, high-income donor countries would pay back the loan slowly, as MDB loans typically have long payback periods. As the loan is now the responsibility of a HIC, it should not count against the borrowing country’s envelope. This guarantee only covers technological risk (the risk the candidate countermeasure does not obtain regulatory approval), not default risk (the risk the country defaults on its loan even if vaccine is approved).

Establishing a mechanism now would not commit HICs to provide such guarantees, but would provide them with the opportunity to do so during the next outbreak, should they wish. This type of guarantee may well represent a high-return use of their aid budgets. High-income donor countries have often guaranteed MDB lending. For example, the UK provided a bilateral guarantee for the World Bank’s lending to Jordan.

Conclusion

Experts estimate global losses from future pandemics to be, on average, over $700 billion each year. We need to take actions now to mitigate potential losses—there will not be time to develop new mechanisms when an outbreak hits. The recent briefing request from the World Bank board and stakeholder consultation suggests there is renewed interest in ideas enabling at-risk financing within MDBs. The above steps set out modest, but high impact, changes that the MDBs can make now and then build on. We have not yet fully taken on board lessons from the COVID-19 pandemic to ensure that there is rapid supply of, and equitable access to, medical countermeasures in the next pandemic—but millions of lives and billions of dollars depend on it.

This piece benefited from excellent comments from Javier Guzman, Janeen Madan Keller, Clemence Landers, Claire McMahon, Tristan Reed, Arthur Baker, and Sara Viglione. The authors are responsible for any errors and omissions.