How do the world’s poorest nations tackle a global health crisis like the current novel coronavirus outbreak? After the 2014 Ebola epidemic in West Africa, the World Bank launched the Pandemic Emergency Financing Facility (PEF) — an insurance-based mechanism to raise money for pandemic responses in low-income countries through “catastrophe bonds” and derivatives.

The coronavirus pandemic is exactly the situation for which the PEF was designed. Most of the PEF-eligible countries are reporting cases of covid-19 (the disease caused by this coronavirus) and urgently require billions of dollars to scale up their public health response. So far, the PEF has yet to pay out a single dollar. Here’s what happened and why.

The PEF should have helped poor countries fight the coronavirus

According to the World Bank, the PEF was “designed to provide surge financing to the world’s poorest countries. … It will make payouts early during an outbreak cycle — before it becomes a pandemic.” The new program promised to blend the best of the public and private sector, “helping to keep 1.6 billion people safe” while “transferring the [financial] risk [from governments] to international markets.” But, as the Wall Street Journal has reported, that’s not how it worked out.

Because of its complicated set of triggers, the PEF may not pay out funds to countries until May 15, well after the March pandemic declaration. With coronavirus cases increasing at an exponential rate, these delays cost lives. Moreover, once triggered, the PEF will only release $132.5 million, instead of the maximum possible payout of $275 million. Media outlets and experts are decrying the PEF as a failure for its (non)performance during the 2018 Ebola epidemic in Congo, and now the covid-19 outbreak.

So why hasn’t the PEF worked? Social science can help explain: The PEF tried to bring the public and private sectors together, but the two sectors have different priorities, different rules and different incentive structures. Bodies of research (including my own work) document how hard it is to develop mechanisms that bridge these needs at the same time.

The PEF’s incentives didn’t work

For the PEF to work, it must do two things: attract investors to purchase the bonds and deliver money to low-income countries in the event of a pandemic. But those two imperatives pull in different directions.

For one thing, there is an obvious conflict of interests. As former World Bank economist Olga Jonas writes, “[e]arly action against outbreaks is imperative because it is both more effective and less costly. But making the bonds attractive to investors meant designing them to reduce the probability of payout. … It was a good deal for investors, not for global health.” Bangin Brim and Clare Wenham report that $114.5 million has been paid to investors — only a little less than will be paid out for the covid-19 response.

Furthermore, investors need to assess their potential profits and risks — which means they require the PEF to have stringent and precise rules on when it would pay out money. But to function as a global health financing mechanism, the PEF needs flexibility, since it’s impossible to predict exactly how a pandemic will unfold.

The PEF’s designers tried to satisfy both needs by creating two windows, an “investment window” and a “cash window.” The bond-backed investment window pays out according to a rigid, complicated and controversial set of triggers based on epidemic size, growth rate and the type of virus. The cash window, which is funded by government donors, provides flexibility by paying out rapidly (before the investment window) or for crises that don’t meet the investment window conditions.

Here’s the big problem: Because the cash window was depleted to pay for the Congo’s Ebola response (which did not trigger the investment window) and hasn’t yet been replenished, any payout for the coronavirus outbreak has to come from the investment window.

In formulating the PEF payout triggers, World Bank and WHO experts had to make their best guess about what a future pandemic would look like. Looking back, they were haunted by the fear of something like the 1918 flu pandemic, a highly contagious, highly virulent novel respiratory virus that killed from 50 million to 100 million people worldwide. In comparison, recent coronavirus epidemics — severe acute respiratory syndrome and Middle East respiratory syndrome (SARS and MERS) — were of much smaller scope.

So the PEF designers set a big payout for a flu pandemic — up to $275 million, to be released in a single payment, with money allocated to countries depending on their population size. For a coronavirus outbreak, the terms were more moderate — layered payments capped at $195.8 million, with money allocated to countries partly based on how many cases they report.

And this effectively tied the PEF’s utility to stringent conditions based on imperfect predictions. Covid-19 is exactly the kind of pandemic that PEF designers feared and tried to plan for, except for one key detail. There is a highly contagious, virulent novel respiratory virus racing around the globe, but it happens to be a coronavirus instead of an influenza virus.

Thus, because of the way that the rules were set, a lot of the PEF’s money will go back to investors rather than to the countries that desperately need it. And because the amount of money countries receive depend on the number of cases they report (rather than just their population), the PEF puts extra onus on countries to test widely to get the funding they need — something even high-income countries are struggling to do.

Private sector solutions don’t always fit public sector problems

In April 2019, Larry Summers, former World Bank chief economist and U.S. treasury secretary, described the PEF as “an embarrassing mistake” and “financial goofiness,” saying governments and the World Bank embraced a poorly designed program because they “loved” the idea of private sector involvement. Social scientists show that the World Bank’s approach is not a one-off mistake, but reflects a pervasive phenomenon in governance — efforts to apply private sector solutions to public sector problems, regardless of compatibility.

Mara Pillinger (@mplngr) is an associate at the O’Neill Institute for National and Global Health Law at Georgetown University.