Blended Finance Won’t Save Global Health – Renewed Public Sector Commitment Might [Guest Essay]
Newsletter Edition #280 [The Files In-Depth]
Hi,
Global health financing is front and center as the field is in the throes of a painful transformation.
The global health machine needs money to run. Now with the machine sputtering, the jury is divided on how best to get this on track. Hard cash as much as realpolitik will determine who gets to be in the driver’s seat. There is evidence from years past that may guide this transition.
In our guest essay today, scholars, Felix Stein from the Department of Anthropology, University of Amsterdam, and Desmond McNeill from the Centre for Development and the Environment, University of Oslo, take a hard look at blended finance as an approach to solve the financing crises, and urge for greater public investment.
Practitioners and policy experts are sharply divided about the role of innovative financing. Experts have also cautioned on using public capital to boost private gains without serving the needs of the sector.
As a platform to discuss competing views, we seek to present a diversity of opinions and expertise. Practice and evidence from all sides must shape the future approaches to the reform of global health financing. (See our earlier guest essay, The US$ 8 Billion Hole in Global Health: Why Private Capital Must Step Up Now.)
We bring this to you, at the cusp of Gavi’s replenishment this week. And ahead of the fourth International Conference on Financing for Development (FfD4) in Spain.
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I. GUEST ESSAY
Blended Finance Won’t Save Global Health – Renewed Public Sector Commitment Might
By Felix Stein & Desmond McNeill
Stein: Department of Anthropology University of Amsterdam (Contact: f.stein@uva.nl); McNeill: Centre for Development and the Environment, University of Oslo.
Global health financing experts getting together at the fourth International Conference on Financing for Development (FfD4) in Spain later this month are facing a dire situation. Global health spending is falling off a cliff, given the world’s many competing priorities, the abdication of US leadership, and stagnant health spending in low-income countries. If history is anything to go by, current funding gaps will lead to renewed calls for more ‘blended finance’, i.e. for financing the private sector in the hope that this will be ‘catalytic’ in the medium to long term. However, blended finance will not fill current global health financing gaps, given its serious shortcomings regarding costs and impact, and its frequent failure to attract additional funding.
Global health financing is breaking away
The past six months constitute a major upheaval in global health financing. The US government, previously responsible for over a quarter of Development Assistance for Health (DAH), first imposed a sudden 90-day foreign aid freeze, before dismantling the Agency for International Development (USAID), cancelling over 80% of USAID’s contracts and folding it into the State Department. The US also took a series of additional aid-cutting measures, reducing its DAH overall by around 90% (from around US$ 10 billion in 2024 to an estimated US$ 1 billion for 2025).
Other affluent countries, such as members of the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) are not willing to step up and counterbalance these cuts. Instead, many of them are now planning ODA reductions of their own, with cuts announced by Belgium Germany, Finland, France, the Netherlands, the UK, Sweden, Switzerland, and Finland, among others. Against a background of high post-COVID-19 budget deficits, European re-militarization, bunkered nationalism and increasing political nihilism, the future of DAH is more uncertain than ever.
This has been devastating news for everyone who depends heavily on US foreign aid, such as the millions of citizens of war-torn Sudan, who lose nutrition, shelter and WASH support. Aid cuts mean that community kitchens abruptly had to close, even though around 25 million Sudanese people are acutely hungry.
The cuts are also devastating for millions of people who rely on PEPFAR to fight HIV or count on USAID to slow the growth of malaria or tuberculosis. Many of the over 20 million people who rely on PEPFAR face their future with dread, uncertain whether the antiretrovirals which keep them alive will remain on the shelves in the years to come.
The cuts also leave multilateral organizations stranded, with the World Health Organization planning to reduce its budget by around 20%, and UNICEF, needing to do the same. The past over-reliance of global health funding on a few major donors is now revealing its vulnerability.
Blended finance won’t fill the gap
Given that public sector funding is falling away, one might hope for the private sector to fill global health funding gaps. This has long been the promise of blended finance, i.e. of the strategic use of public and philanthropic funds to attract additional private sector financing. The idea, that with just a little bit of public or philanthropic spending, substantive amounts of private finance may be ‘leveraged’ or ‘unlocked’, has been repeated time and again for at least a decade, starting with the Third International Conference on Financing for Development in 2015.[1]
It has led to the creation of new financial products, such as an international bond-based insurance against pandemic outbreaks, cataract bonds for eye surgery in Cameroon, or bonds to reduce maternal and newborn deaths in India.
Given the continued promotion of blended finance for global health by the UK government, the World Bank as well as various global health partnerships and philanthropies, we decided to study three major blended financing instruments in greater detail. We took a closer look at vaccine bonds issued by the International Finance Facility for Immunisation (IFFIm), sales-dependent subsidies for vaccines production, known as Advanced Market Commitments (AMCs), and matching funds to attract private donations to fight COVID-19. These mechanisms have long served as examples of how successful blended finance claims to be.
Our study yielded sobering results (as did similar studies of blended and ‘innovative’ global health finance published before and since). IFFIm was launched almost 20 years ago to fund Gavi. It has since borrowed from the private sector, but it has failed to attract additional private sector resources to global health, as all the money it borrows is ultimately paid back using public donor funds. IFFm’s bond-based financing has also been expensive, with donor costs amounting to 4% of IFFIm’s health disbursements so far, costs that are likely to rise in absolute and relative terms.
It is worth noting that the Pandemic Emergency Financing facility, which also relied on bond-based lending, and ran from mid 2016 until mid 2023, ended up spending 30% of available funds on bond coupon and other financing costs (US$110,6 million), using only 69% of funds (US$257,2 million) for outbreak response.
AMC subsidies, such as Gavi’s Pneumococcal Vaccine (PCV) AMC try to influence corporate research and development (R&D) by promising future price-based subsidies if the desired vaccines are being developed. Their effectiveness is very hard to assess, as the pharmaceutical companies they support keep their production costs confidential. This means that public donors essentially promise foreign aid to companies in the hope that this accelerates R&D.
Despite having distributed US$1.3 billion to Pfizer, GSK and the Serum Institute of India, as part of Gavi’s Pneumococcal AMC, company representatives interviewed by the Boston Consulting Group and Dalberg stated that the AMC “did not materially accelerate R&D of new PCV products” and that they “do not consider [the AMC] to have influenced the speed of or resources dedicated to PCV R&D”.
Matching funds for global health raise fewer effectiveness and cost-effectiveness issues compared to vaccine bonds and AMCs. However, given that they mostly rely on voluntary contributions from the private sector, they tend to be relatively small.
At the height of the COVID-19 pandemic, for example, when COVAX constituted the main international effort to fight the new found virus, matching funds provided only about 2.5% of all the funding that COVAX ended up receiving. This small level of funding is telling, given that it was reached during a truly exceptional time in recent history, when public health was on everyone’s mind.
Add to that a myriad of additional problems with the blended finance mechanisms we studied, such as their convoluted governance and lack of transparency and it seems unlikely that they can or should fill the DAH funding gaps that are opening now.
While blended finance PR continues to promise the moon, global health policy should have a very clear idea of what to expect from private sector counterparts in return for providing them with scarce foreign aid.
A renewed public sector commitment
If blended finance will not fill DAH funding gaps, then what will? One set of options for donor countries today is to focus less on aid and instead work on the myriads of alternative fiscal and regulatory measures that also promise positive global health impacts. These can be summarized under the heading “do less harm”.
They include stopping fossil fuel subsidies and speeding up the transition to combustion-free energy sources; closing global tax loopholes that drain wealth from the global South; facilitating health technology transfer; improving policy-coherence within and between multilateral organizations such as the International Monetary Fund and the World Bank so that they improve, rather than undermine population health and social protection; facilitating debt-restructuring for developing countries; ameliorating chemicals and waste management standards; or developing fiscal policies that lower-income countries can emulate to promote healthy diets and reduce global addictions to tobacco and e-cigarettes.
While such non-aid measures are promising and urgent, they leave the question of the future of DAH unanswered. In the short term, OECD DAC countries should reverse course and increase, rather than cut foreign aid. It is the right thing to do in the face of mass suffering and dying brought about by US aid unreliability. It would also help DAC countries like Germany to live up to their grandiose rhetoric of assuming global responsibility and leading global health by example.
Aiming for the established ODA target of 0.7% of gross national income, which most OECD DAC countries have failed to reach in the past, would be a small first step. Spending such foreign aid on lower-income countries rather than one’s own companies, research institutions and domestic issues would be another.
In the medium term, however, global health spending will have to be based on new conceptual foundations. After all, cold-War understandings of international development aid have less and less traction in a world where international inequality declines but intranational inequality rises and where health effects of past and present imperialism and colonialism are painfully obvious. We highlight three such conceptual foundations for international public health spending here.
Firstly, the case for humanitarian aid persists, as human rights remain the foundation of health economics and health policy, and people will continue to rely on outside support when their governments fail to ensure minimal health care levels.
Secondly, in a hyper-connected world, collective spending on global public goods, such as pandemic prevention or clean water, continue to make sense from a national economic and security perspective. In recent years, such spending has been framed as Global Public Investment (GPI), based not on charity but on internationally shared interests and the need for collective action. These are some of the driving forces behind the ongoing regionalization of international health financing, for example in the African Union or the European Union.
Lastly, future global health financing can be thought of at least in part as repair for past harm. While distributive justice logics are likely to dominate public health policies on a national, regional and global level for the foreseeable future, calls for restorative justice measures have gotten louder during COVID-19. Restorative justice claims are likely to increase, as people’s negative health outcomes are increasingly man made, as in the case of anthropogenic air pollution, for example. Moreover, our knowledge of how to improve public health continues to be out of step with our actions. This growing gap leads to accusations that negligent governments and companies are “involved” in avoidable deaths and that this may be “criminal”.
Rather than hoping for voluntary market measures to solve these growing problems, public sector officials should tackle them head on and explicitly renew a public commitment to global health.
[1] The idea that ‘innovative financing’ could fill global health funding shortfalls is even older, dating back at least to the 1960s
Note on funding from the authors: This work was supported by the European Research Council : REPAIR and The Research Council of Norway: PANPREP
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