• Debt would be modeled after ’catastrophe bonds,’ Levy says
  • World Bank to present proposal to G-7 in Japan this year

The World Bank is considering issuing “pandemic bonds” that would release funds to countries affected by the outbreak of a virus such as Ebola, the lender’s chief financial officer said.

The debt would be modeled after so-called catastrophe bonds, said Joaquim Levy, who took over as CFO of the World Bank in February after stepping down as Brazil’s finance minister. “Cat” bonds typically require that interest and principal payments be deferred or forgiven in the event of a disaster such as earthquake. Investors are paid a yield premium to compensate them for the risk.

The idea is to create a pool of funds that stricken countries can access, Levy said in an interview Monday at Bloomberg headquarters in New York.

During the Ebola outbreak in West Africa beginning in 2013, it took considerable time for aid agencies and development lenders such as the World Bank to channel funds to the governments of those nations, he said. The two-year Ebola crisis became the deadliest ever, killing 11,323 people mostly in Liberia, Sierra Leone and Guinea, out of 28,646 cases, according to the World Health Organization.

“The idea now is to have insurance,” Levy said. “Not insurance that you pay after the problem happens, but rather insurance that will unlock money if you start to observe certain signs.”

G-7 Proposal

The first bond issue would likely be on the order of a “couple hundred” millions of dollars, and the debt would probably be three or five years in duration, he said. The development lender is also considering structuring the investment as an insurance product.

Levy said the World Bank plans to present a proposal to Group of Seven leaders when they meet on May 26-27 in Ise-Shima, Japan. The bank will be seeking a financial contribution from the G-7 to support the plan, he said.

Lawrence Summers, the former U.S. Treasury secretary and World Bank chief economist, has expressed support for the idea, saying it would address the issue of underinvestment in pandemic response. However, Summers said the challenge will be to properly price the bonds.

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