Vaccine programmes – the hidden victim of the financial crisis?

‘Vaccine Bonds’ are a radical innovation that has helped to save more than two million lives over a six year period. But, amid turmoil in global financial markets, could the world’s poorest people suffer most from the fallout of the eurozone crisis?

Getting vaccines to children in the developing world is proven to deliver major health and social benefits, dramatically reducing infant mortality and improving children’s chances of completing their education. Indeed, there is evidence that the value of vaccines is highest where the need is greatest.

That’s why the GAVI Alliance was launched in the year 2000. It brings together the World Health Organisation (WHO), UNICEF, the World Bank, the Bill & Melina Gates Foundation, as well as representatives from industry, government, academia and NGOs in an effort to increase the availability of vaccines in the developing world.

Last year, at a major ‘pledging conference’ in London, the Alliance struck a landmark deal which saw governments and private donors commit around €3.5 billion while manufacturers promised to lower prices when providing life-saving vaccines for poor countries.

Momentum under threat

Efforts to slash rates of preventable illnesses and to make a final push for the eradication of polio have built momentum in recent years, yet global financial instability threatens to derail progress in a number of areas.

Last month, Liam Donaldson, chair of the Global Polio Eradication Initiative, said efforts to wipe out the disease could be jeopardised by a funding gap of more than €750 million. This, he added, would lead to the cancellation of vaccine programmes in 33 countries leaving 94 million children “exposed to the horrors of this disease”.

Funding for these immunisation drives comes in part from wealthy philanthropists – many of whom have seen their wealth diminished by collapses of the value of shares and property in the Western world.

But it’s the contribution of governments that is facing most strain. Fiscal austerity in Europe and spending cuts in the US mean foreign aid budgets are under pressure, prompting some commentators to ask whether the ‘good times’ in global health are coming to an end.

Cost of credit downgrades

That’s the obvious, direct impact of the financial crisis on development aid. More subtle is the impact of decisions made by credit ratings agencies to downgrade the debt of European governments.

These decisions, by high-profile agencies including Fitch, Moody’s and Standard & Poor’s, are effectively advice for investors about how risky it is to make a particular investment.

In recent years, news headlines have been full of stories of how Greek bonds (to take the obvious example) have been downgraded. Bonds are like promises sold to investors which commit governments to repaying a certain amount over an agreed period – buying a bond is like giving a loan.

The interest rate on that loan is largely dependent on how sure an investor is that they will get their money back. The interest rate on Greek bonds has been very high due to the perception that not all the money would be repaid. By contrast, the interest rate on German bonds is exceptionally low because they are seen as a safe bet.

What are Vaccine Bonds?

So, what has all of this got to do with vaccines? Well, for the past six years, the GAVI Alliance has been raising money on financial markets through the International Finance Facility for Immunisation (IFFIm). This is achieved by selling ‘Vaccine Bonds’ to investors which gives GAVI cash to spend on vaccines and immunisation programmes.

The initiative has been hailed by world leaders as “a catalytic success story and one that is constantly attracting new members”. An official G8 report from the May 2012 meeting at Camp David describes the IFFIm as part of a “game changing” effort for global immunisation.

René Karsenti, Chair of the IFFIm Board, told Vaccines Today that vaccine bonds are a proven way to raise funding for immunisation projects in developing countries.

“IFFIm’s innovative use of vaccine bonds to benefit global health through the GAVI Alliance has been transformative. IFFIm not only provides a market-based return, it saves lives and is an inspiration for socially-responsible investments,” he said.

So what’s the problem?

While this is essentially a ‘good news’ story – vaccine bonds have been a huge hit with the markets and have injected millions of euros into the global health effort – they have not been immune (pardon the pun) to the vagaries of financial markets.

The IFFIm was downgraded by Standard & Poor’s in January 2012. Having previously been AAA-rate (implying that it is the safest form of investment), it was reduced by one notch to AA+ with a warning that more downgrades could follow.

This is still a pretty ‘safe’ investment but it means that the IFFIm has to pay higher interest rates when it sells bonds, effectively making it more expensive to raise money. That translates into less money being available to spend on vaccine programmes.

Why the downgrade?

The IFFIm is supported by guarantees from the UK, France, Italy, Norway, Australia, Spain, The Netherlands, Sweden and South Africa. France guarantees one quarter of the IFFIm’s debt so when French government debt was downgraded in early January it was almost inevitable that the IFFIm would come under the spotlight.

The UK, the biggest supporter of the fund, is also on a ‘negative outlook’ suggesting a downgrade could be announced if the economic situation worsens, while Italy and Spain have also been repeatedly downgraded over the past year. 

In short, if the people guaranteeing your debt are seen as less creditworthy than in the past, you will see your creditworthiness fall too.

Butterfly effect

For parents queuing to have their children vaccinated as part of GAVI Alliance immunisation schemes in the world’s poorest countries, it might seem bizarre that their lives are dependent on policies agreed at EU summits, reports written by credit rating agencies, or decisions made by investors in financial centres but that is the reality.

When discussing the impact of the financial crisis on health services in European countries we might also spare a thought for those in the developing world who depend for their survival on foreign aid and investment in vaccine bonds.

Who knows, maybe the true cost of failure to tackle the Eurozone will be defeat in the global war on polio.

Read:

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