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World Bank Cancels Pandemic Bond Program

The Origin of Pandemic Bonds

Three years ago, in the wake of the Ebola outbreak in West Africa, the World Bank issued $320 million worth of “pandemic bonds.” These bonds had high interest rates, ranging from 8% to 12%.

The pandemic bonds were structured like catastrophe bonds, which provide money for relief programs after events like hurricanes. The idea was that in the event of a pandemic, the principal from the bonds could be used to fund public health efforts.

The pandemic bond initiative has faced harsh criticism because it was slow to send aid to countries in need during the early stages of the coronavirus pandemic. Subsequently, the World Bank has canceled plans to sell a second round of pandemic bonds.

How Money Was Distributed

Eventually, $200 million from the pandemic bonds was sent out to fund coronavirus relief efforts. However, criteria for the payments to be distributed was not met until mid-April and money was not distributed to countries until the death toll from the virus was already severe.

64 countries received aid money from the pandemic bonds. The amounts allocated depended on population, amount of COVID-19 cases, and level of political stability. Nigeria and Pakistan received $15 million, the highest amount of funding available.

Disappointment From Governments and Investors

Before the COVID-19 pandemic, the World Bank was planning to issue a second round of pandemic bonds in May 2020, after tweaking the structure of the program. However, these plans have since been canceled due to criticism of the bond money’s distribution during the coronavirus pandemic.

Additionally, while catastrophe bonds are supposed to be uncorrelated to the broader market offering investors diversification within their portfolios, the pandemic bonds didn’t achieve this objective. Unfortunately, the novel coronavirus led to a macroeconomic downturn impacting multiple asset classes, therefore bonds didn’t function as a reliable hedge. For this reason, even if the World Bank had continued the program, it may have been difficult to attract investors.

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