Threatening Sovereigns with Downgrades if Healthcare Investment is not Witnessed is Not Helpful


Today, the G20 will be hosting their Global Health Summit in Rome. Before it, the Chair of a World Health Organisation (WHO) panel that wants to set up a new global body that will focus on improving healthcare investment warned that ‘states that invest too little in public health could have their credit ratings cut’. Whilst the sentiment is that the richer nations should be incentivised with a ‘stick’ to invest more in their healthcare programmes, there is am associated problem that has not been addressed.

 

Mario Monti, the former Italian Prime Minister and the Chair of the Pan-European Commission on Health and Sustainable Development, argued that ‘a pandemic like this one poses huge threats not just to financial stability but to the whole economic and financial system’. This, of course, is true. To counter against future health-related economic shocks, the panel has proposed that a ‘Global Health Board’ be established to prevent future pandemics and coordinate global responses to future crises. The panel cites research that estimates global losses to be more than $10 trillion from the pandemic and the associated shutdowns in economic activity. However, the panel suggest that mere voluntary association from states will not be enough, and that ‘to persuade countries to spend more, health threats could be translated into financial risks, as they have been in climate policy… nations that under-invest could then face the risk of having their credit ratings cut’. The panel explained that ‘credit rating agencies could take health preparedness into account in their assessments’ and that while richer countries could be hit with the ‘stick of the credit rating’ if they underspend, poorer countries ‘might initially be helped to spend more with development aid’.

 

There are a number of issues here. First, the whole sentiment after the Financial Crisis is to reduce reliance on the credit rating world and seek differing forms of financial prudency. This, quite obviously, empowers credit rating agencies further. Perhaps officials are quickly learning that no matter what legislation or regulation attempts to do, the market will continue to use credit rating agencies. Yet, the biggest issue is with this promoting the credit rating agencies to actively penalise countries because of their healthcare spending. For the richer countries, it makes absolute sense. The resources are there to be utilised properly and in a preventative manner and, if they are not, then there should be a consequence. However, the situation facing poorer countries is nowhere near as simple. Poorer countries are usually heavily indebted, and with the credit rating impasse that the CRRI has been focusing on recently, the real issue is that the credit rating agencies are actively – rightly or wrongly – standing in the way of meaningful debt renegotiations that could allow for substantial investment in healthcare infrastructures. Additionally, poorer countries need to develop and expand, and therefore have to prioritise their spending; is it the case that poorer countries are now being incentivised to finance preventative healthcare measures over their own growth so that richer countries do not feel the effects in the future? Monti suggests that there might be, initially, more aid provided to poorer countries for this purpose but how much (?), for how long (?), and with what conditionality? The fear at the moment is that richer nations are already pulling back from the idea of foreign aid when their own economies are in shock after the onset of the pandemic, so how realistic is this suggestion?

 

There needs to be great care when proposing credit rating-based solutions to anything, because the level to which they are intertwined with the financial system dictates that there will always be consequences later down the line. The proposal from the panel makes sense on one side, but could be particularly damaging on the other.

 

Keywords – G20, stick, incentive, poorer countries, development, @C_R_R_I 

Comments

Post a Comment

Popular posts from this blog

Lloyds Bank and the PPI Scandal: The Premature ‘Out of the Woods’ Rhetoric

Image
Today’s very short post focuses upon the news that the Financial Conduct Authority (FCA) has recently extended the deadline to claim compensation for mis-sold ‘Payment Protection Insurance’ (PPI). Whilst a lot of financial institutions will have to prepare to offset the extended deadline, it is Lloyds that has grabbed the business headlines by apportioning an extra £350 million to offset any further claims that may be made of it – however, this comes only a week or two after the Bank posted its best performance figures in over a decade, as was previously discussed in Financial Regulation Matters . This post will therefore argue that the rhetoric being advanced recently regarding Lloyds – rhetoric like Lloyds represents ‘ a modern day success story ’ is wide of the mark and creates a false sense of security that we simply cannot afford to believe in. The ‘ robust recovery ’ was heralded far and wide upon the publication of Lloyds Bank’s financial performance for the previous fi...
Read more

The Analytical Credit Rating Agency: A New Entrant That Will Further Enhance Russia’s Isolation

Image
This short post is based upon a forthcoming article by this author that examines the viability of the latest entrant into the credit rating arena, the Analytical Credit Rating Agency (ACRA). The article, which is due to be published in the European Company Law Journal (and is available here in a pre-published version), looks at the chances of the ACRA succeeding when viewed within the parameters of perception , an aspect that underpins the credit rating sector. For this post, the focus will be upon introducing the ACRA, and then on examining the effect it may have upon the wider political issues affecting the Russian Federation. The Analytical Credit Rating Agency was established in November 2015 and comprises of 27 major Russian companies and financial institutions that serve as its shareholders. The agency, which became the first rating agency to receive accreditation from the Russian Central Bank under the new N 222-FZ Law which was designed to protect investors, has a re...
Read more

British McDonald’s Workers To Go On Strike: The Enduring Legacy of Corporate Greed and Political Irresponsibility

Image
Today’s post reacts to the news that next week, in the UK, workers will make history by staging a strike at two McDonald’s restaurants – one in London and one in Cambridge. The first strike of its kind in McDonald’s British history is a result of poor working conditions, the use of the infamous ‘zero-hour’ contracts, and a demand for an increase in the minimum wage paid to McDonald’s employees. In this post this particular story will be used a vehicle to cover an aspect that has almost become accepted in the mainstream media, unfortunately, and that is the concept of austerity and its repulsive effects. Whilst onlookers hope that the strike will see a revolution-of-sorts amongst the fast-food industry with regards to working conditions, the reality it is that the underlying causes of the grievances aired by the staff will remain whatever the outcome of the strike, as the problem is a systemic problem. The proposed strike, which is scheduled to take place on Monday 4 th Septembe...
Read more