## Seven Finance and Trade Lessons from COVID-19 for Future Pandemics ## Source details **Canonical URL:** [Seven Finance and Trade Lessons from COVID-19 for Future Pandemics](https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022097-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2022/english/wpiea2022097-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2022/english/wpiea2022097-print-pdf.pdf.json) --- ### I. Introduction — framing the problem - Pandemics are global public goods challenges requiring multilateral coordination and financing. - As of early 2022: - "More than 6 million people have died according to official estimates (with the true death toll likely exceeding 15 million [WHO 2022])". - The IMF World Economic Outlook Update estimated the cumulative output loss from the pandemic through 2024 to be about $13.8 trillion (IMF 2022). - Progress toward IMF Pandemic Proposal targets has been insufficient: - 86 countries had not met the 40 percent vaccination target by the end of 2021. - Under current trends, more than 100 countries are unlikely to meet the 70 percent vaccination target by mid-2022. - The daily testing target was set at 1 per 1,000 people; about 2 in 3 developing economies continue to test below this target. - High-income countries are testing 70 times more than low-income countries. - Pandemics and epidemics will continue to pose systemic risks; frequency of pandemics expected to rise. ### II. Lesson 1 — Rationale & Source of Financing: pandemics are systemic risk issues; donors must provide sizable grant financing - Core finding: - Pandemic policy is economic policy; controlling the health crisis is critical for ending the economic crisis. - Policy implications and recommendations: - Treat pandemics and health system strengthening as a systemic risk issue for the macroeconomy and a global public good, not solely a development issue. - Advanced economies must allocate additional funding to fight pandemics and strengthen health systems in developing economies beyond narrow official development assistance constraints. - Sizable donor financing should be provided on a grant basis; concessional financing from multilateral development banks can be complementary. - Contextual facts: - Many countries faced higher pandemic-related spending and lower revenue due to containment measures. - Even before COVID-19, about half of low-income developing countries were already in or at high risk of debt distress; the pandemic exacerbated this pressure. - The IMF Pandemic Proposal and related global strategies used grant-financing principles. ### II. Lesson 2 — Timing of Financing: enormous time value of early action; need prearranged, day-zero financing - Core finding: - Timely financing at the onset of a pandemic dramatically alters outcomes. - Evidence and key figures: - As of early 2022, fully vaccinated share: exceeds 70 percent in high-income countries, less than 10 percent in Africa. - Only seven African countries reached the 40 percent global vaccination target in 2021. - COVAX took more than 15 months since the start of the pandemic (by June 2021) to raise $10 billion to procure sufficient vaccines to cover 30 percent of developing economy needs, delaying advance purchase agreements and deliveries. - If the same money had materialized one year earlier, outcomes would have been substantially better. - Policy recommendations: - Create prearranged credit lines or financing mechanisms (for example, through a financier or multilateral development bank) that can be activated up-front on day zero to procure vaccines, tests, and treatments. - Up-front financing risk is small relative to global returns from a better pandemic response. - Broader costs: - First-year pandemic schooling losses: as much as a quarter of the school year in advanced economies and up to half in emerging market and developing economies. - Early action reduces long-lasting social and economic losses. ### II. Lesson 3 — Scope of Financing: finance health system strengthening, not only supply tools - Core finding: - Financing supply (vaccines, tests, treatments) does not automatically solve demand-side and delivery challenges; absorptive capacity matters. - Three sequential global challenges in COVID-19 response: - 2020: "year of the lab" — research and development of vaccines and tools. - 2021: "year of the factory" — scale-up of production and addressing supply chain challenges. - 2022: "year of delivery" — in-country delivery and uptake of vaccines. - Evidence and operational issues: - COVAX allocation and delivery to developing economies resulted in unequal outcomes; several countries deferred or refused vaccines in the near term. - In 2021 lack of predictable supplies was a problem; by early 2022, lack of demand and in-country delivery obstacles became key barriers. - Policy recommendations: - Finance and strengthen health systems ahead of future pandemics to increase absorptive capacity to rapidly deploy lifesaving tools. - Improve transparency of supply delivery schedules and establish mechanisms to prevent hoarding (including swap arrangements). - Donor countries should share vaccines well ahead of expiration dates and without earmarking. - Invest in understanding and addressing vaccine hesitancy via coordination of policy and planning, communication strategies, social media monitoring, community engagement, monitoring and evaluation, and trust-building. ### II. Lesson 4 — Financing Frameworks: explicitly account for downside risks and identify complementarities across health agendas - Core finding: - Many response strategies failed to consider downside risks (such as substantial mutation), leaving the world underprepared and underfinanced. - Evidence and rationale: - SARS-CoV-2 mutated substantially within two years; properties (infectivity, virulence) differed from the original strain. - Repeated optimism about quick returns to "normality" left responses off-guard when new variants emerged. - Policy recommendations and design features: - Financing frameworks and global strategy for future pandemics should explicitly recognize possibility of mutations and severe downside risks, and allocate financing up-front to address such risks. - Example from IMF Pandemic Proposal: set aside about $11 billion out of the $50 billion financing package to insure against downside risks (for at-risk investments for vaccines, genomic surveillance, systemic supply chain risks, and possibility of waning protection by some vaccines over time). - Ongoing risk: - SARS-CoV-2 is now expected to remain in circulation for the long term; further mutations remain a key risk. ### II. Lessons 5–7 (overview) - Note: Lesson 5 (Research and Development), Lesson 6 (Production), and Lesson 7 (Cross-Border Flows) are treated as distinct lessons; detailed text for each appears later in the source. ### Section 2 — Complementarities between health system investments and pandemic preparedness - Investing to prepare for future pandemics can pay dividends even if such pandemics never materialize by strengthening health services (for example, routine immunization), addressing infectious and parasitic diseases, reducing child mortality, and advancing other development goals. - Actions to fight tangible risk from new SARS-CoV-2 variants are complementary to the broader pandemic preparedness agenda and to the universal health coverage agenda. - A unified financing approach and quantifying the multipliers (bang for the buck) for spending on post-Omicron COVID-19 and pandemic preparedness priorities may enable a better evidence-based coordinated global approach. ### Lesson 5 (Research and Development): R&D and knowledge as a global public good - Findings: - The global scientific response to COVID-19 achieved unprecedented scale: vaccines, tests, and treatments were developed at record speed. - Prior to COVID-19 the fastest vaccine development was four years (for mumps); by end-2020 multiple vaccines had proved highly effective. - In April 2020, roughly as many new clinical trials were started for COVID-19 products as for all other diseases combined. - By the end of 2020, more than 200 vaccine candidates at various stages of development were listed in the World Health Organization COVID-19 vaccine landscape. - Agarwal and Gaule (2022) find that COVID-19 R&D was 4 to 26 times larger than expected under a variety of plausible assumptions for its market size. - Public institutions (universities and hospitals) accounted for 70 percent of COVID-19 trials. - Rapid detection and sequencing of the Omicron variant by scientific teams in Botswana and South Africa alerted the world at least five times faster than for any previous variant of concern. - Policy implications and recommendations: - Scaling up R&D rapidly is possible but requires greater public support because private incentives may be insufficient to respond early and effectively to a global pandemic. - Put arrangements for technology transfer in place before the next pandemic; public sector support for R&D should be designed with greater incentives for technology transfers to maximize global benefits. - Continue investing in R&D to upgrade the toolkit for new coronavirus variants and novel pandemic threats, including development of novel drugs and a universal vaccine against coronaviruses. - Enhance genomic surveillance capabilities, especially in developing economies, given their high returns for global early warning and response. ### Lesson 6 (Production): Supply chain bottlenecks and systemic risk surveillance - Findings: - During 2021, vaccine manufacturers produced roughly three times the annual global supply of vaccines in a typical year. - Rapid scale-up created substantial supply chain challenges, with shortages of raw materials shared among multiple vaccine candidates. - Some manufacturers, including the Serum Institute of India (licensed to manufacture Novavax and AstraZeneca), experienced substantial delays. - Delays were also attributable to export restrictions (for example, U.S. Defense Production Act actions) and to India delaying vaccine exports in 2021 to prioritize domestic vaccinations. - Production and quality control problems caused delays for several vaccines (for example J&J, Novavax, and others). - Policy implications and recommendations: - Improvements in quality control must accompany capacity expansion and supply chain investments to ensure reliable vaccine production and mitigate systemic supply chain risk when scaling up. - Contracting authorities should explicitly account for supply chain risks by diversifying their portfolio of vaccines and other medical tools; diversification also helps address the risk of new variants. - Develop global surveillance of systemic supply chain risks for critical products, including contingency plans for downside scenarios. - Regularly update and stress-test contingency plans through scenario planning with multilateral agencies, vaccine developers, and key national governments. - Contingency plans should include guidelines on how manufacturing capacity can be repurposed under different scenarios. - An initial oversight step could be developing a global database of critical raw materials and manufacturing capacity and utilization, perhaps coordinated by a multilateral agency such as the World Trade Organization (WTO). ### Lesson 7 (Cross-Border Flows): Political economy constraints and regionalizing supply chains - Findings: - Trade barriers and vaccine nationalism have been a serious constraint for equitable access to vaccines and medical tools during COVID-19. - Crowding out of vaccine and drug supplies tended to be at the expense of poor nations. - Policy implications and recommendations: - Strengthen research capacity and regional supply chains in developing economies while bolstering in-country health systems. - In the near term, encourage more voluntary licensing (for example, AstraZeneca licensing deals in Brazil and India during COVID-19) and cross-company and cross-border partnerships to increase manufacturing capacity. - Over the medium term, develop a critical level of regional manufacturing capacity (for example, initiatives to expand capacity in Africa) to ensure equitable access. - Pursue these efforts in parallel with WTO negotiations and discussions on sharing intellectual property for vaccines and lifesaving tools during pandemics. - Enhance coordination across countries when considering efforts to expand regional manufacturing capacity (for example, through WHO, WTO, and COVAX); the COVAX manufacturing task force for COVID-19 can be a useful guide. ### Broader lesson: Global collaboration and stewardship of global public goods - Findings and implications: - The COVID-19 pandemic highlighted the critical importance of global collaboration and the need for better stewardship of global public goods. - Lack of an effective global and national architecture prevented coordination and execution of actions that could have prevented the pandemic or reduced its scale. - Countries with effective mechanisms in place were more likely to have successful responses to COVID-19. - Strengthening multilateral institutions; creating rapid and adequate financing windows for global public goods; diversifying regional manufacturing; and increasing investment in surveillance, R&D, and health systems are required to prevent health threats and enable faster, better responses to future threats. *Source: wpiea2022097-print-pdf - Section 2* ### Section 1 ### Seven Finance and Trade Lessons from COVID-19 for Future Pandemics ### I. Introduction — framing the problem - Pandemics are global public goods challenges requiring multilateral coordination and financing. - As of early 2022: - "More than 6 million people have died according to official estimates (with the true death toll likely exceeding 15 million [WHO 2022])". - The IMF World Economic Outlook Update estimated the cumulative output loss from the pandemic through 2024 to be about $13.8 trillion (IMF 2022). - Progress toward IMF Pandemic Proposal targets has been insufficient: - 86 countries had not met the 40 percent vaccination target by the end of 2021. - Under current trends, more than 100 countries are unlikely to meet the 70 percent vaccination target by mid-2022. - The daily testing target was set at 1 per 1,000 people; about 2 in 3 developing economies continue to test below this target. - High-income countries are testing 70 times more than low-income countries. - Pandemics and epidemics will continue to pose systemic risks; frequency of pandemics expected to rise. ### II. Seven Financing & Trade Lessons from COVID-19 #### A. Lesson 1 — Rationale & Source of Financing: pandemics are systemic risk issues; donors must provide sizable grant financing - Core finding: Pandemic policy is economic policy; controlling the health crisis is critical for ending the economic crisis. - Policy implications and recommendations: - Treat pandemics and health system strengthening as a systemic risk issue for the macroeconomy and a global public good, not solely a development issue. - Advanced economies must allocate additional funding to fight pandemics and strengthen health systems in developing economies beyond narrow official development assistance constraints. - Sizable donor financing should be provided on a grant basis; concessional financing from multilateral development banks can be complementary. - Contextual facts: - Many countries faced higher pandemic-related spending and lower revenue due to containment measures. - Even before COVID-19, about half of low-income developing countries were already in or at high risk of debt distress; the pandemic exacerbated this pressure. - The IMF Pandemic Proposal and related global strategies used grant-financing principles. #### B. Lesson 2 — Timing of Financing: enormous time value of early action; need prearranged, day-zero financing - Core finding: Timely financing at the onset of a pandemic dramatically alters outcomes. - Evidence and key figures: - As of early 2022, fully vaccinated share: exceeds 70 percent in high-income countries, less than 10 percent in Africa. - Only seven African countries reached the 40 percent global vaccination target in 2021. - COVAX took more than 15 months since the start of the pandemic (by June 2021) to raise $10 billion to procure sufficient vaccines to cover 30 percent of developing economy needs, delaying advance purchase agreements and deliveries. - If the same money had materialized one year earlier, outcomes would have been substantially better. - Policy recommendations: - Create prearranged credit lines or financing mechanisms (for example, through a financier or multilateral development bank) that can be activated up-front on day zero to procure vaccines, tests, and treatments. - Up-front financing risk is small relative to global returns from a better pandemic response. - Broader costs: - First-year pandemic schooling losses: as much as a quarter of the school year in advanced economies and up to half in emerging market and developing economies. - Early action reduces long-lasting social and economic losses. #### C. Lesson 3 — Scope of Financing: finance health system strengthening, not only supply tools - Core finding: Financing supply (vaccines, tests, treatments) does not automatically solve demand-side and delivery challenges; absorptive capacity matters. - Three sequential global challenges in COVID-19 response: - 2020: "year of the lab" — research and development of vaccines and tools. - 2021: "year of the factory" — scale-up of production and addressing supply chain challenges. - 2022: "year of delivery" — in-country delivery and uptake of vaccines. - Evidence and operational issues: - COVAX allocation and delivery to developing economies resulted in unequal outcomes; several countries deferred or refused vaccines in the near term. - In 2021 lack of predictable supplies was a problem; by early 2022, lack of demand and in-country delivery obstacles became key barriers. - Policy recommendations: - Finance and strengthen health systems ahead of future pandemics to increase absorptive capacity to rapidly deploy lifesaving tools. - Improve transparency of supply delivery schedules and establish mechanisms to prevent hoarding (including swap arrangements). - Donor countries should share vaccines well ahead of expiration dates and without earmarking. - Invest in understanding and addressing vaccine hesitancy via coordination of policy and planning, communication strategies, social media monitoring, community engagement, monitoring and evaluation, and trust-building. #### D. Lesson 4 — Financing Frameworks: explicitly account for downside risks and identify complementarities across health agendas - Core finding: Many response strategies failed to consider downside risks (such as substantial mutation), leaving the world underprepared and underfinanced. - Evidence and rationale: - SARS-CoV-2 mutated substantially within two years; properties (infectivity, virulence) differed from the original strain. - Repeated optimism about quick returns to "normality" left responses off-guard when new variants emerged. - Policy recommendations and design features: - Financing frameworks and global strategy for future pandemics should explicitly recognize possibility of mutations and severe downside risks, and allocate financing up-front to address such risks. - Example from IMF Pandemic Proposal: set aside about $11 billion out of the $50 billion financing package to insure against downside risks (for at-risk investments for vaccines, genomic surveillance, systemic supply chain risks, and possibility of waning protection by some vaccines over time). - Ongoing risk: - SARS-CoV-2 is now expected to remain in circulation for the long term; further mutations remain a key risk. #### E. Lesson 5 — Research & Development - (Content in source indicates R&D is a distinct lesson; detailed text for Lesson 5 appears later in the document and is not included in this section of the source. This section in the source table of contents signals its importance among the seven lessons.) #### F. Lesson 6 — Production - (Content in source indicates production is a distinct lesson; detailed text for Lesson 6 appears later in the document and is not included in this section of the source. This section in the source table of contents signals its importance among the seven lessons.) #### G. Lesson 7 — Cross-Border Flows - (Content in source indicates cross-border flows is a distinct lesson; detailed text for Lesson 7 appears later in the document and is not included in this section of the source. This section in the source table of contents signals its importance among the seven lessons.) *Prepared by Ruchir Agarwal and Gita Gopinath; IMF Working Paper WP/22/97 (May 2022).* ### Section 2 ### Section 2 ### Complementarities between health system investments and pandemic preparedness - Investing to prepare for future pandemics can pay dividends even if such pandemics never materialize by strengthening health services (for example, routine immunization), addressing infectious and parasitic diseases, reducing child mortality, and advancing other development goals. - Actions to fight tangible risk from new SARS-CoV-2 variants are complementary to the broader pandemic preparedness agenda and to the universal health coverage agenda. - A unified financing approach and quantifying the multipliers (bang for the buck) for spending on post-Omicron COVID-19 and pandemic preparedness priorities may enable a better evidence-based coordinated global approach. ### Lesson 5 (Research and Development): R&D and knowledge as a global public good Findings - The global scientific response to COVID-19 achieved unprecedented scale: vaccines, tests, and treatments were developed at record speed. - Prior to COVID-19 the fastest vaccine development was four years (for mumps); by end-2020 multiple vaccines had proved highly effective. - In April 2020, roughly as many new clinical trials were started for COVID-19 products as for all other diseases combined. - By the end of 2020, more than 200 vaccine candidates at various stages of development were listed in the World Health Organization COVID-19 vaccine landscape. - Agarwal and Gaule (2022) find that COVID-19 R&D was 4 to 26 times larger than expected under a variety of plausible assumptions for its market size. - Public institutions (universities and hospitals) accounted for 70 percent of COVID-19 trials. - Rapid detection and sequencing of the Omicron variant by scientific teams in Botswana and South Africa alerted the world at least five times faster than for any previous variant of concern. Policy implications and recommendations - Scaling up R&D rapidly is possible but requires greater public support because private incentives may be insufficient to respond early and effectively to a global pandemic. - Put arrangements for technology transfer in place before the next pandemic; public sector support for R&D should be designed with greater incentives for technology transfers to maximize global benefits. - Continue investing in R&D to upgrade the toolkit for new coronavirus variants and novel pandemic threats, including development of novel drugs and a universal vaccine against coronaviruses. - Enhance genomic surveillance capabilities, especially in developing economies, given their high returns for global early warning and response. ### Lesson 6 (Production): Supply chain bottlenecks and systemic risk surveillance Findings - During 2021, vaccine manufacturers produced roughly three times the annual global supply of vaccines in a typical year. - Rapid scale-up created substantial supply chain challenges, with shortages of raw materials shared among multiple vaccine candidates. - Some manufacturers, including the Serum Institute of India (licensed to manufacture Novavax and AstraZeneca), experienced substantial delays. - Delays were also attributable to export restrictions (for example, U.S. Defense Production Act actions) and to India delaying vaccine exports in 2021 to prioritize domestic vaccinations. - Production and quality control problems caused delays for several vaccines (for example J&J, Novavax, and others). Policy implications and recommendations - Improvements in quality control must accompany capacity expansion and supply chain investments to ensure reliable vaccine production and mitigate systemic supply chain risk when scaling up. - Contracting authorities should explicitly account for supply chain risks by diversifying their portfolio of vaccines and other medical tools; diversification also helps address the risk of new variants. - Develop global surveillance of systemic supply chain risks for critical products, including contingency plans for downside scenarios. - Regularly update and stress-test contingency plans through scenario planning with multilateral agencies, vaccine developers, and key national governments. - Contingency plans should include guidelines on how manufacturing capacity can be repurposed under different scenarios. - An initial oversight step could be developing a global database of critical raw materials and manufacturing capacity and utilization, perhaps coordinated by a multilateral agency such as the World Trade Organization (WTO). ### Lesson 7 (Cross-Border Flows): Political economy constraints and regionalizing supply chains Findings - Trade barriers and vaccine nationalism have been a serious constraint for equitable access to vaccines and medical tools during COVID-19. - Crowding out of vaccine and drug supplies tended to be at the expense of poor nations. Policy implications and recommendations - Strengthen research capacity and regional supply chains in developing economies while bolstering in-country health systems. - In the near term, encourage more voluntary licensing (for example, AstraZeneca licensing deals in Brazil and India during COVID-19) and cross-company and cross-border partnerships to increase manufacturing capacity. - Over the medium term, develop a critical level of regional manufacturing capacity (for example, initiatives to expand capacity in Africa) to ensure equitable access. - Pursue these efforts in parallel with WTO negotiations and discussions on sharing intellectual property for vaccines and lifesaving tools during pandemics. - Enhance coordination across countries when considering efforts to expand regional manufacturing capacity (for example, through WHO, WTO, and COVAX); the COVAX manufacturing task force for COVID-19 can be a useful guide. ### Broader lesson: Global collaboration and stewardship of global public goods Findings and implications - The COVID-19 pandemic highlighted the critical importance of global collaboration and the need for better stewardship of global public goods. - Lack of an effective global and national architecture prevented coordination and execution of actions that could have prevented the pandemic or reduced its scale. - Countries with effective mechanisms in place were more likely to have successful responses to COVID-19. - Strengthening multilateral institutions; creating rapid and adequate financing windows for global public goods; diversifying regional manufacturing; and increasing investment in surveillance, R&D, and health systems are required to prevent health threats and enable faster, better responses to future threats. *Source: wpiea2022097-print-pdf - Section 2* --- _Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022097-print-pdf.pdf_