A World Bank bond designed to deliver funding to help the world’s poorest countries to tackle fast-spreading diseases has lost half its value as the coronavirus outbreak in China, a report accredited to Reuters has stated.
According to the report the outbreak has fanned fears that investors could face hefty losses.
After the 2013-2016 Ebola outbreak that ravaged Sierra Leone, Guinea and Liberia and killed at least 11,300 people, the World Bank launched bond and insurance instruments under its Pandemic Emergency Financing umbrella in 2017 to establish a mechanism that would speedily deploy funds where needed.
However, the World Bank’s two so-called pandemic bonds came under scrutiny after the second-worst Ebola outbreak on record.
The 2018 epidemic in the Democratic Republic of Congo raged for about a year and killed more than 2,000 people, but it failed to trigger the release of funds to help affected countries.
The bonds, issued by the World Bank’s International Bank for Reconstruction and Development (IBRD), offer investors high coupons in return for the risk of having to forgo some or all their money in the event of pandemic outbreaks of a number of infectious diseases, with the funds channelled instead to countries in need of aid.
With the coronavirus outbreak, having infected more than 74,000 people and claimed more than 2,000 lives, prices for the IBRD pandemic bond with the highest investment risk – the Class B notes – have come under increasing pressure.
Losses to investors depend on the number of deaths and geographical spread.
In the most extreme case, a global outbreak – defined as more than 2,500 deaths across more than eight countries with a certain number of fatalities in each country – will wipe out the bondholder’s entire investment.
Offer prices quoted by one broker have slipped as low as 45 cents in the dollar while another is quoting 62.5 cents, market sources said.
In the midst of the 2018 Ebola outbreak, the bond traded at a little more than 70 cents.
“The money for these bonds could have been better spent in providing the WHO with funds or help strengthen healthcare provisions in poor countries at risk,’’ said Bodo Ellmers, Director of sustainable development finance at Global Policy Forum, an independent policy watchdog.
“It was an ideology-driven idea to get the private sector involved in humanitarian and emergency finance – and I think we have to say this has failed.’’
The World Bank said that if the activation criteria for the instruments were to be met, funding would be triggered to support countries. (Reuters)