The Proposed Global Fund Debt Conversion Mechanism - Debt2Health
RESULTS Educational Fund, March 2007
Background
The Global Fund to Fight AIDS, TB and Malaria (GFATM)’s Innovative Financing Unit is working to develop a debt conversion mechanism that would allow creditor countries to cancel a portion of beneficiaries’ debt which would then be converted and invested (at an agreed discount) by the beneficiary in a GFATM-approved program.
Once a deal is reached, the beneficiary country can factor in this support into its program proposals submitted (through the Country Coordinating Mechanism) to the Global Fund. Proposals can be submitted through the Phase 2 renewal process, a regular round or new rolling continuation channel (RCC), rather than through a separate or new process, and is subject to the same approval process through the Technical Review Panel and Global Fund Board.
The benefits for creditors include a resolution of old loans and increased contribution to the Global Fund, and beneficiaries receive partial debt relief allowing for an increase in health spending and country ownership. Challenges could include the risks that debtors renege on their agreements, donors could reduce their other contributions to the Global Fund and Official Development Assistance, reluctance of some creditors, effective monitoring and oversight of agreement deal and implementation, etc.
The GFATM is working with UNAIDS, the German government and civil society organizations, Make Poverty History and Global AIDS Alliance on a pilot project with support from The Bill & Melinda Gates Foundation. The pilot project would be focused in four beneficiary countries, Indonesia, Kenya, Pakistan and Peru, with possible expansion to additional countries.
Status of “Debt2Health”
- The GFATM Board will be deciding on this scheme at their upcoming meeting in April in Geneva.
- Germany has committed to providing $200 million EUR to Indonesia over five years and will formally begin negotiations with the Indonesian government in March 2007. A deal is expected to be announced in September 2007 at a conference in Berlin with implementation beginning in 2008.
- Italy has also signaled its interest, and the Debt2Health partnership will be reaching out to other potential creditors.
Potential Opportunity for Kenya
Kenya, given its non-HIPC status and high-burden of disease, is included in the pilot phase of this project. A Debt2Health deal for Kenya could yield additional resources for GFATM grants, with significant impact for TB and TB-HIV. A Debt2Health team is hoping to visit Kenya in the next few months to explore this opportunity.
Sources: The Global Fund to Fight AIDS, TB and Malaria, Global AIDS Alliance