Pandemic bonds face scrutiny after Ebola outbreak yet to trigger payout

LONDON (Reuters) – World Bank funding instruments issued to help emerging countries swiftly tackle pandemics have come under the spotlight after the latest deadly Ebola outbreak has yet to trigger a payout.

Following the 2013-2016 Ebola outbreak that ravaged Sierra Leone, Guinea and Liberia and killed at least 11,300 people, the World Bank launched a bond and insurance instruments in 2017 to establish a mechanism that would quickly deploy funds to help tackle outbreaks of infectious diseases.

But while another Ebola outbreak — the second worst on record — has been raging for a whole year and has been classed an international health emergency by the World Health Organization, the pandemic instruments have so far not paid out.

Payouts are triggered once a virus outbreak crosses an international border and claims at least 20 lives in each of at least two countries.

The virus has killed more than 1,800 people in Democratic Republic of Congo and two in neighboring Uganda – meaning the threshold for payouts have not been reached.

On Thursday, Congolese authorities confirmed that a third case had been diagnosed in the densely populated city Goma, increasing fears that the virus could take root in the trading hub on the Rwandan border, hundreds of miles away from where the outbreak was first detected.

Asked about the lack of a payout, Michael Bennett, head of derivatives and structured finance at the World Bank’s capital markets division, explained the pandemic bonds were structured to cover cross-border events.

For payouts to be triggered, they “require a set number of confirmed cases or deaths in more than one country”, he said.

“Then the payout is also dependent on how many deaths and how many countries are involved.”

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The Pandemic Emergency Financing (PEF), which includes funding for an Ebola outbreak, comprises $95 million of bonds and $55 million of insurance. It would also provide financing in event of pandemics caused by other infectious diseases such as Marburg, Crimean-Congo hemorrhagic fever or Lassa fever.

Payouts would be staggered: a death toll of 250 triggers a $45 million disbursement, while 750 deaths would bring another $45 million payout. The remaining $60 million is paid out when the death toll reaches 2,500.

Funded by the governments of Germany and Japan, the instruments carry a coupon of LIBOR plus 11.1%. According to data from Refinitiv, the bond is or has been held by asset managers such as Baillie Gifford, Amundi and Oppenheimer.

But the lack of payout from the World Bank instruments is raising questions over whether they can indeed offer governments timely help to tackle crises, given the stringent small print.

“The problem is that when there are catastrophes, there is often a lack of quick disbursing instruments because of very lengthy approval processes,” said Bodo Ellmers, head of policy at the European Network on Debt and Development (EURODAD).

“They raised the money ex-ante, so there is a pot of money available that can immediately kick in. The case we have now is that there is a financial need, but the criteria are so stringent that the facility is not disbursing.”

The World Bank’s Bennett said the pandemic facility had been very specifically designed to insure against cross-border events rather than single-country outbreaks.

But with the instruments due to mature next summer, the bank is examining possible changes to the structure, for instance, seeking out a cost-efficient way of insuring single-country events, he said.

It is also looking into instruments that could help tackle outbreaks of different viruses affecting humans, or even livestock such as pigs or poultry.

“Of course, we always run the risk of coming up with a structure that takes into account a previous event,” said Bennett. “If we now completely change the structure to pick up the current event it may not pick up a future one.”