Felix Lung

Summary

This note summarises learnings from technical assistance provided by the Maintains programme to the UK Department for International Development (DFID) Sierra Leone on flexible financing for health shock response. This note focuses on general learnings that may be used by other programmes and actors; specific DFID programme details for Sierra Leone have been excluded.

When responding to health shocks such as disease outbreaks, lessons from the field of disaster risk finance show that it tends to be effective to plan ahead and arrange required surge funding in advance. Disaster risk finance comprises a set of principles and instruments mainly derived from experiences of responding to natural hazards. These are increasingly also being applied to health-related shocks. At its core, disaster risk finance advocates for more financial planning and automaticity in responding to shocks.

Some donors have started to integrate humanitarian funding mechanisms into their development programmes – so-called ‘crisis modifiers’. Crisis modifiers bring the worlds of development and humanitarian aid together. They are financing mechanisms within a development programme – e.g. a contingency fund – that disburse humanitarian response funding in the event of a crisis. This humanitarian response funding is then implemented through the existing structures of the development programme.

Crisis modifiers can accelerate the response, ensure appropriate coverage of smaller shocks, and protect development gains. Crisis modifiers (i) typically enable a faster response than through traditional humanitarian aid channels, as lengthy application and allocation processes are omitted and local partners are used for delivery; (ii) can help to ensure that humanitarian funding is also available for smaller and medium-sized crises, since other humanitarian contingency funding mechanisms are typically targeted only at larger events; and (iii) protect development gains under the development programmes that would otherwise be threatened by the impacts of the shock. Crisis modifiers have mostly been used to respond to natural hazards, such as droughts, but DFID has started to use them also in order to respond to health shocks, such as epidemic outbreaks.

A review of 13 programmes using crisis modifiers shows that there are three typical crisis modifier designs. They tend to be structured (i) as pre-approved budget reallocation mechanisms at the programme or at the project level; (ii) as fast-track access rules allowing access to a third-party humanitarian donor providing rapid external liquidity inflow; or (iii) as contingency funds held as reserves at the programme or project level. Each of these structures comes with certain trade-offs – for example, a contingency reserve can provide rapid funding but idle funding carries a high opportunity cost. In turn, a rapid budget reallocation mechanism ensures that no funds are kept idle but programme objectives may be jeopardised after funds are reallocated for response from other items. Key challenges of crisis modifiers relate to the ultimately achieved response speed, funding amounts, and the integration with the broader risk management framework.

The response speed of the mechanism depends on the design of both funding access and funding implementation – both can be subject to lengthy decision-making processes. Some programmes are thus moving towards a faster, automated trigger-based approach, adopting pre-defined contingency plans. Another challenge of crisis modifiers is the fact that the funding they make available tends to be relatively small and it is possible that expectations of implementing partners are misaligned – the mechanism is suited to fund response activities that respond to smaller and mid-sized events, not large-scale catastrophes. Donors may not plan for this appropriately in advance and may not integrate the mechanism into a larger risk management framework. This is a missed opportunity for the holistic management of crises.

Crisis modifiers can be an effective instrument for providing rapid and reliable funding to respond to health shocks but five key lessons should be heeded. These build on disaster risk financing (DRF) principles and the experience gathered from existing crisis modifiers, both for health and other shocks.

1. If possible, use pre-agreed access triggers for funding, based on objective data. Pre-agreed, data-based early-action thresholds are the best guarantor to ensure rapid disbursement in case of shocks. Such objective thresholds have mostly been developed for natural hazards – e.g. drought – but can also be used for health shocks.

2. If the use of triggers is impractical, ensure a rapid and reliable decision-making process in regard to accessing funding. When donors want to maintain flexibility in their funding decisions, decision-making processes (at the least) should be agreed in advance.

3. Contingency planning is key. To ensure rapid and politically impartial delivery, actions to be taken using crisis modifier funds should, as much as possible, be defined and designed in advance.

4. Where possible, the response should be delivered through existing structures. Response speed can be further enhanced by working as much as possible through existing programme partners and delivery structures (e.g. existing cash transfer programmes).

5. Integrate with the overall risk financing and broader risk management framework. The crisis modifier should be integrated into a broader framework regarding how crisis risk is financed and managed. Donors should consider exactly which risks the mechanism should cover and which ones it should not.