Coronavirus, pandemic bonds are a flop: here's why

Even finance, in theory, would be involved in the match against the spread of the coronavirus and help the countries with the most infected and victims. The facility, established in 2017 by the World Bank following the Ebola epidemic which had caused 11.000 deaths on the African continent alone, has a name that already says it all: pandemic bonds, i.e. loans, subscribed by large international investors (Bloomberg mentions Amundi, Invesco or Baillie Gifford among these), to support the countries affected in the event of serious health emergencies, such as the one currently affecting today China but also partly Europe.

The World Bank three years ago issued pandemic bonds for a total of over 320 million dollars (divided into two classes of 225 million, A, and 95 million, B): a high sum, also to demonstrate the closeness of the ruthless world of markets to problems that can suddenly overwhelm the real life of one or more countries in the world. However these bonds, which work with the same mechanism as insurance against natural catastrophes and have high yields (up to 14%), are not doing their job, for reasons that derive from the parameters established to trigger payment: if the dead they are too "few", as happened in the case of the second Ebola epidemic in 2018 (when the victims were also over 2.000, but only in one country which was Congo), the bond is not even liquidated.

Indeed, according to the Pandemic emergency financing facility (Pef) programme, either certain requirements are met or the disbursement of funds is not activated. According to the issuance regulation, there are two conditions for the allocation of funds. On the one hand, it must be declared a global pandemic by WHO; on the other hand, there must be at least 250 deaths in the country of origin of the epidemic and at least 20 deaths in a second country. To date, as was the case with Ebola in Africa, these requirements are not met. A paradoxical situation, the result of an absurd regulatory architecture and little inclined to understand the real needs of the affected countries. In the case of Covid-2019 however, these limits should unfortunately be exceeded: China already has over 2.700 victims and Korea is not far from 20, not to mention that there are hundreds of infections in European countries including Italy and Japan.

Beyond the paradox for which it is almost necessary to hope for a high number of deaths and affected countries to access emergency financing, another reason for the dysfunction of the pandemic bond and that that financing has very little of urgency: the funds, in addition to being relatively scarce and uncertain, they are unlocked only 12 weeks after the start of the epidemic, when frankly it may almost be too late to intervene. In the case of the coronavirus, whose nature was declared an epidemic by the WHO only a few weeks ago, it would mean that the bond would only be liquidated in late spring when the emergency - hopefully - will have already been overcome (at least in the countries currently most affected).