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