Pandemic Financing Demystified: Essential Takeaways from Our New Paper

The COVID-19 pandemic was a wake-up call to the world, revealing vulnerabilities in our global health systems and, perhaps most critically, in how we finance the prevention, preparedness, response, and recovery (PPRR) efforts needed to combat pandemics. As we confront the mpox public health emergency while sifting through the lessons learned from COVID-19, a pressing question emerges: How do we ensure that we can finance the next global health crisis? The latest CGD policy paper, jointly released as a Disease Control Priorities (DCP) working paper as part of the forthcoming fourth edition of the DCP volume on pandemics, tackles this question, offering a detailed exploration of the financial mechanisms that can help us build a more resilient global health infrastructure. This blog aims to provide a concise yet comprehensive summary of the chapter, highlighting a few essential insights and recommendations. Two key recommendations emerge. The first is that preparedness and response are tightly linked to each other. The second, and perhaps more important recommendation, is a pandemic surge financing mechanism remains a significant gap in the global aid architecture.

Why pandemic financing matters

Pandemics are not just health crises; they are economic and social catastrophes that can set back development gains by years, if not decades. The economic toll of pandemics like SARS, Ebola, and COVID-19 has been staggering, with global losses running into trillions of dollars. Yet the investment required to prevent or mitigate these pandemics is relatively small in comparison. Failing to adequately invest in pandemics has huge costs of inaction.

The paper estimated that between 2020 and 2023, US$91.6 billion was spent on COVID-19 health assistance, primarily for response financing, based on the IHME 2024 Financing Global Health database (Figure 3), often with significant disbursement delays. While the pandemic’s economic impact ran into trillions of dollars, investments in pandemic preparedness were on the order of US$10 billion annually.

Defining pandemic financing

Understanding what we mean by “pandemic financing” is crucial to any discussion about preparedness and response. The chapter defines pandemic financing broadly, encompassing three key areas: (domestic) health financing, official development finance (ODF), and non-flow financial instruments. Health financing refers to the funds raised, pooled, and spent on health, typically under the remit of national health ministries. Official development finance includes both concessional (e.g., grants and soft loans) and non-concessional flows from donor countries, aimed at supporting pandemic-related efforts. Non-flow financial instruments, such as insurance mechanisms and advance market commitments, offer innovative ways to manage the financial risks associated with pandemics.

This broad definition reflects the multifaceted nature of pandemic financing. The paper emphasizes having the right types of financial instruments that can be deployed at the right time, whether it’s to fund immediate emergency responses or to support long-term recovery efforts. We also dug through the need for a diverse toolkit of financial instruments, each designed to address different phases of the pandemic cycle.

Key economic principles

• Global public goods: The prevention and containment of pandemics are considered global public goods because their benefits transcend national borders, requiring coordinated international investment and cooperation. To ensure that all countries benefit, adequate funding for these global public goods demands proportional contributions from every nation.
• Time preference: Time preference refers to the tendency of individuals and countries to prioritize immediate rewards over future benefits, which often results in underinvestment in pandemic preparedness. This issue is particularly pronounced in countries where immediate needs overshadow the need to prepare for long-term risks.
• Incentives: Incentives shape governmental behavior and financial decision-making. For example, financial instruments like insurance mechanisms offer incentives for countries to act now, by offering lower premiums for countries to those that invest in preventive measures. Any discussion of pandemic financing should consider how funding flows and associated agreements and contracts have incentives in shaping behavior, particularly at the governmental level. Incentives for preparedness and separately for response should be considered together.

Financing across the pandemic cycle

The chapter provides a comprehensive analysis of how pandemic financing should be structured across the different phases of the pandemic cycle: prevention, preparedness, response, and recovery (see Figure 1).

• Prevention and preparedness: Prevention and preparedness are global public goods that require sustained investment. We call for a mix of national funding, international grants, and concessional loans to build and maintain the necessary capacity for early detection and rapid response to potential pandemics. The chapter argues for the establishment of clear, transparent indicators that define a minimum acceptable level of pandemic preparedness, which can be independently evaluated, for the purpose of financing.
• Early response: Once an outbreak occurs, time is of the essence. The chapter calls for the establishment of clear triggers for early response financing, ensuring that funds can be rapidly deployed to contain outbreaks before they escalate into pandemics. This phase is critical for preventing local outbreaks from becoming global crises.
• Late response and recovery: If containment fails and a pandemic ensues, the focus shifts to mitigating the impact and facilitating recovery. The chapter recommends the development of contingent financing mechanisms, such as pandemic insurance or pre-arranged contingent loans, to support countries in managing the long-term economic and social impacts of pandemics. These mechanisms should be designed to be flexible and scalable, adapting to the severity of the crisis.

Instruments for pandemic financing

Various instruments are available for external pandemic financing, each serving different purposes across the pandemic cycle (Figure 2). These financial tools can be classified based on their terms and conditions, such as whether they are concessional or at market rate and whether they are contingent or non-contingent. These classifications help policymakers and stakeholders in selecting the most suitable financing mechanisms for addressing the different phases of the pandemic cycle.

Figure 2. Classification of external pandemic financing tools by key characteristics

What did we learn from the COVID-19 pandemic?

The COVID-19 pandemic exposed significant weaknesses in the global pandemic financing architecture. One of the most glaring issues was the lack of a pre-arranged, rapid-response financing mechanism. The world was caught unprepared, and the delays in mobilizing resources had devastating consequences. The chapter provides a critical analysis of the COVID-19 response, highlighting how slow financing hampered efforts to contain the virus and mitigate its impact. For example, the delays in securing funds for vaccine development and distribution led to a situation where wealthier countries were able to secure doses far more quickly than low- and middle-income countries, exacerbating global inequalities.

We argue that to avoid such scenarios in the future, we must prioritize pre-arranged, timely response or surge financing. This means having mechanisms in place that can be activated immediately when an outbreak occurs, ensuring that funds are available to support swift containment efforts and the rapid development and deployment of medical countermeasures. The chapter also stresses the importance of global cooperation, as pandemics are a global threat that requires a coordinated, collective response.

Figure 3. Development assistance for health (COVID-19), 2020–2023

Recommendations for a safer future

The chapter concludes with recommendations to strengthen the global pandemic financing architecture:

• Establish a global financing framework: We call for the creation of a global pandemic financing framework that is fair, transparent, and accountable. This framework should include clear criteria for resource allocation, ensuring that funds are distributed based on need, capacity, and the potential global benefit.
• Innovate in financing tools: There is a need for more innovative financing tools that can be rapidly deployed in the event of a pandemic. The chapter highlights the potential of mechanisms like pandemic insurance and advance market commitments, which can provide immediate funds for outbreak response and incentivize the development of essential medical products.
• Strengthen governance: Effective governance is crucial for ensuring that pandemic financing is used efficiently and equitably. The authors recommend the establishment of robust governance structures that include independent oversight and regular evaluations of pandemic preparedness and response efforts. Global financing mechanisms must be designed to foster collaboration and ensure that resources are available to all countries, especially those with limited financial capacity.

Conclusion

Pandemics are a global threat that require a global response. Our paper provides a roadmap for how we can better finance our preparedness and response efforts, ensuring that we are not caught unprepared when the next pandemic strikes. By investing in the right tools and mechanisms now, we can build a more resilient global health system that protects us all. We invite you to explore the full paper!