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Mixed Domestic and External Public Finance: Development Loans

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Mixed Domestic and External Public Finance: Development Loans Mixed Domestic and External Public Finance: Development Loans Financing immunization with public debt. What is a development loan? tion inflation and other factors, these A development loan is money borrowed highly concessionary loans are estimated by a government from a regional devel- to be approximately 65 percent grant. opment bank or from the World Bank. The remaining 35 percent constitutes The government guarantees the loan and the amount which is repaid with domes- is responsible for repaying it in full, with tic resources in real (as opposed to the interest rate varying depending on nominal) terms. the country’s economic situation. Loans may also be referred to as debt financing; What are common international in the case of no-interest loans, they are policies and practices in using called credits. development loans for Loans usually are negotiated with immunization service financing? Ministries of Finance, and then used as The World Bank and regional develop- part of a funding package for a sector ment banks are able to provide loan ministry, such as a Ministry of Health. financing in support of immunization. There are two types of loans: Generally, loans for immunization form • Loans offered at market or near- part of a larger health sector loan but market interest rates, such as those from there has been at least one World Bank the International Bank for Reconstruc- loan solely for immunization (for polio tion and Development (IBRD) of the eradication in India). World Bank, the Asian Development The GAVI Board has stated that coun- Bank and the Inter-American Develop- tries’ willingness to use development bank ment Bank, the African Development credits for immunization may be seen as Bank, the Asian Development Bank and evidence of countries’ financial and politi- the Inter-American Development Bank. cal commitments to immunization. Interest-bearing loans are fundamentally IBRD loans typically are taken by types of domestic finance. middle-income countries and have inter- • Highly concessionary loans with only est rates which vary with market condi- an administrative fee, and a below- tions. IBRD borrowers generally receive a commercial market (or no) interest rate 15- to 20-year repayment term with an charged for use of the funds, and repay- initial five-year grace period. ment periods of up to 40 years. The IDA loans are specifically targeted at International Development Association countries with per capita incomes less (IDA) of the World Bank, and the than US$885, with exceptions for some regional development banks, provide small island states. Seventy-eight coun- these interest-free loans, called “soft” tries currently are eligible for IDA loans. loans or credits. Taking into considera- 1 What are the main preted by donors and international agen- tion, when the economy is expected to characteristics of using cies as evidence of a government’s finan- grow, and when the country can obtain a development loans to finance cial and political commitment to immu- competitive interest rate. Most impor- immunization services? nization as a national priority. Using tantly, loans make sense when the value • Promoting equity (+/-). Whether there development loans to finance immuniza- of the immediate and long-term benefits are inherent equity-enhancing character- tion services represents a national com- to be generated by project activities is istics of development loans depends mitment to immunization—albeit by greater than the sum of the loan, fees largely on whether the future tax struc- committing future national financial and interest over time, if any. ture is progressive. resources in the form of loan repayment. Where additional financing is needed, • Achieving efficiency (-). With respect In addition, there are ways in which the decision to take a loan should be to the efficiency of financial manage- development loans stimulate self- based on the benefits associated with the ment, accessing funds through loans can sufficiency in the near term. Develop- increase in coverage and/or antigens that imply cumbersome and costly adminis- ment loans typically require some level of could be financed; availability of lower trative procedures. matching national counterpart; thus, cost financing options; strength of the In terms of programmatic efficiency— national governments are required to policy environment; and capacity of the the per child cost of immunization—the demonstrate their commitment to a pro- national economy to support the debt substitution of loans for grants will lead gram in a very immediate way. Second, load when repayment comes due. to a higher cost to the government per development loans must be repaid, which fully immunized child, taking into con- implies a long-term financial commit- For more information . sideration the requirement of repayment ment on the part of the government. The World Bank: In developing coun- plus interest. The policy conditions on loan funds tries, contact through your World Bank • Providing adequate, timely and reli- can provide leverage for focusing resident representative or liaison officer, able resources (+). Development loans national resources on priority programs or at the World Bank web site: can provide accessible resources over a such as immunization. Governments www.worldbank.org. relatively long period (5-8 years), with a able to use loans to mobilize additional, Information about the African Devel- high degree of certainty regarding the sustainable national resources for immu- opment Bank can be found at level of financing. Development loans nization are best situated to use loan www.afdb.org. also can provide needed access to financing effectively. Information about the Asian Develop- foreign exchange. ment Bank can be found at In some instances, funds from devel- What are some keys to success www.adb.org. opment loans can be made available of development loans? Information about the Inter-American quickly to respond to urgent needs. This Because immunization represents only a Development Bank can be found at has happened many times in response to fraction of health sector costs, a loan for www.iabd.org. natural disasters and sudden shortfalls in immunization generally is included as a “The Role of Loans in Financing Immu- government outlays for essential services, small part of a broader loan package. For nization in Developing Countries” by such as immunization. these multipurpose loans, performance Matthew Hodge, which is posted on the • Engendering accountability (+). criteria should be structured to prevent Global Alliance for Vaccines and Immu- Accounting and oversight procedures funds for immunization being cut off if nization web site: required by development banks can overall health sector performance fails to www.vaccinealliance.org. increase the level of accountability in meet targets. Assessing Aid, David Dollar ed., (1999) procurement and funds management. All loans have to be repaid. Loans The World Bank, Washington DC. • Encouraging self-sufficiency (+). make sense when a government is not Loan financing of immunization, in con- heavily indebted, when there is little trast to grant financing, may be inter- danger of a substantial currency devalua- 2.
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