DevExplains: Loan buybacks | Devex
MANILA – Huge investments are funding programs to fight HIV / AIDS around the world, but a new report released ahead of World AIDS Day says larger investments are needed to address the threat to public health. These include additional investments ensuring access to life-saving HIV treatments and prevention tools, while ensuring appropriate education, clean environments and freedom from harm and discrimination.
Mobilizing the resources to address this, however, will require exploring multiple funding mechanisms, especially in light of the Trump administration’s proposed cuts to US-funded HIV / AIDS programs, including the President’s emergency plan for the fight against AIDS and the Global Fund to Fight AIDS, Tuberculosis and Malaria. Resources available for HIV and AIDS in low- and middle-income countries have also peaked at around $ 19 billion since 2013, according to UNAIDS data.
Investments in health globally amount to billions of dollars. In 2014, total global health spending was $ 7.6 trillion, according to statistics provided in UNAIDS Right to Health Report. Official development assistance generally represents less than 1% of this amount. This means that a large percentage of health expenditure is still borne by the citizens.
“In most countries, almost 30% of health expenditure is paid directly; in low-income countries it is higher, ”the report says.
To reduce this burden, the United Nations aid agency is echoing calls by global health advocates for countries to increase their health spending to at least 1 or 2 percentage points of their revenue gross domestic product, as well as for international aid donors to scale up their investments in health. , including better aid effectiveness to get “more for the price invested”. Becoming more efficient can also result in savings, which countries can then reinvest in other health priorities. For example, group purchasing can reduce costs.
Allocation of tax revenues, such as sugary foods and beverages, alcohol and tobacco, could also generate additional health resources. Countries can also tap into private sector financing, private equity funds and national health bonds.
The United Nations aid agency also suggests the possibility of borrowing for health.
“Borrowing can face peaks in health-related costs more gradually to avoid sudden disruptions in spending in other areas. It can also fund interventions that free up fiscal space or spread the burden across generations when future generations reap the benefits of an improved health environment, ”the report says, adding that any borrowing must be concessional and development-compliant. national of a country. strategies.
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Countries that are already in debt may, however, have difficulty with this option. In this case, the UN aid agency suggests exploring other hybrid financing instruments, and one example given is the buyback of countries’ loans or debts, often referred to as “loan buybacks”.
What are loan redemptions and how do they work?
The repurchase of credit is not a new concept, but most of its known uses are limited, and often for health. It generally involves three parties: the lender, the borrower and the donor who would be willing to pay all or part of the loans granted. Sometimes the donor only pays the principal or interest on the loan.
the world Bank – in collaboration with other well-known global health donors such as the Bill & Melinda Gates Foundation and Rotary International – piloted this over ten years ago in Nigeria and Pakistan as a way to boost both countries’ efforts to eradicate polio. Donors set up trust funds that essentially paid off loans made by the World Bank through its low-interest lending window – IDA – to the two countries.
But these came with conditions. In the case of Nigeria, there were pre-agreed targets, meaning that money deposited by donors in trust funds would be used to pay off IDA loans if the country was able to meet the targets. polio vaccine coverage targets agreed, government debt potential.
Not all loan buybacks have specific performance targets; sometimes it is used to encourage borrowing for social sectors, such as health, which may be particularly relevant for middle-income countries which borrow often, but only for large infrastructure projects because of their perceived direct links with the economic benefits.
It is not known how many organizations have tried or adopted this type of innovative health financing to date, but organizations such as the Global Fund are explore the funding mechanism, although this elicits expressions of caution, in part because of what civil society actors see as a lack of studies on its impacts.
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