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The Global Fund 55% rule: why it needs to be revoked

Policy brief
13 November 2012 Eurasian Harm Reduction Network Authors: Stela Bivol and Liliana Caraulan

The text of the policy brief was prepared by: Stela Bivol and Liliana Caraulan (PAS Center Moldova) for Eurasian Harm Reduction Network (EHRN) EHRN acknowledges the following for their support for this publication: Open Society Foundations (OSF) International Council of AIDS Service Organizations (ICASO) The following individuals provided the authors with valuable insights during the preparation of this publication: Sergey Votyagov and Ivan Varentsov (EHRN); Viorel Soltan, director of the PAS Center Moldova and chair of the Global Funds Finance and Operational Performance Committee (FOPC); Shaun Mellors, Global Fund Board Member from the Communities Living with HIV, TB and affected by Malaria Delegation; and David Traynor, member of the Global Funds Communities Living with HIV, TB and affected by Malaria Delegation. Editor: Jeff Hoover

Acronyms and abbreviations EECA EHRN Global Fund LIC LMIC NGO UMIC Eastern Europe and Central Asia Eurasian Harm Reduction Network Global Fund to Fight AIDS, Tuberculosis and Malaria low-income country lower middle-income country non-governmental organization upper middle-income country

Context
In 2011, the Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) came under significant budgetary pressure and undertook several steps intended to address the financial challenges. In November 2011, for example, it cancelled its 11th round of funding (Round 11). Also during the year the Global Fund started complementary processes of i) reviewing its approach to resource allocation with the goal of focusing more on country income level, and ii) reducing budgets of awarded grants during periodic review and grant renewal phases. One result was the adoption of the 55% rule in November 2011. This rule says that the total funding approved for grant renewals for low-income countries will be no less than 55% of any annual funding window.1 Essentially this means that 55 percent of all funding allocated by the Global Fund each year must go to countries classified as low-income.2 The argument made by the Global Fund Secretariat in support of the 55% rule was that anticipated grant renewals for already committed projects in 20112013 would be heavily skewed towards middleincome countries (MICs). According to the Secretariat, without the new rule the share of renewals funding allocated to low-income countries (LICs) would decline from 54 percent to 43 percent between 2011 and 2013, with the share going to lower middle-income countries (LMICs) declining from 34 percent to 21 percent over the same period. The same projections indicated that without the rule, the share of renewals funding allocated to upper middle-income countries (UMICs) would increase from 8 percent to 20 percent between 2011 and 2013. 3 The Global Fund realized that effectively implementing the 55% rule would not be possible without additional changes. To that end, in February 2012 the chair of the Global Fund Board announced new restrictions regarding funding renewals (Phase 2) of existing grants due in 2012. The new restrictions were based on even a wider range of country income classifications. For countries classified as lower LMICs and below (including LICs), the highest possible amount of funding for each grant renewal would be 90 percent of the amount originally agreed to when the grant was approved. The cut was larger for countries classified as upper LMICs and above (including UMICs); for those countries, the upper ceiling for renewal funding was set at 75 percent of the originally approved amount.4 As a region, Eastern Europe and Central Asia (EECA) fared badly under this change as most of the regions countries are classified as upper LMIC or above. Countries that had to renew grants in early 2012 (including Armenia and Belarus) experienced cuts totalling 25 percent of original budgets in addition to mandated value-formoney savings.5 These developments were unprecedented, but the debate about how and where Global Fund money should be distributed has been going on for years. Some donors to the Global Fund feel strongly that the Fund should prioritize its funding in the worlds poorest countries. Over the years, these donors have managed to convince the Global Fund Board to impose both minimum floors concerning how much money should go to LICs as well as various restrictions on the ability of MICs to apply for and access funding.6 For example, in its Round 10 proposal guidelines the Global Fund included eligibility criteria that limited the type and scope of funding UMICs could seek. One criterion made LICs and LMICs automatically eligible to apply, while proposals submitted by UMICs would only be reviewed if they demonstrated a severe or extreme generalized disease burden or a high concentrated burden of disease within a segment of the population. An additional eligibility criterion required LMICs to target at least 50 percent 4

of the requested budget on underserved and most-at-risk populations and/or highest impact interventions; for UMICs, meanwhile, that required share was 100 percent. (No such limit was set on applications from LICs.) In its Round 10 guidelines the Global Fund also required differential thresholds for counterpart financing, a term that refers to the governments financial engagement. The minimum level of counterpart financing was set at 5 percent for LICs, 20 percent for lower LMICs, 40 percent for upper LMICs) and 60 percent for UMICs. (These shares are the minimum level that the governments contribution to the relevant national disease programme should reach, as a share of total government and Global Fund financing.) In addition, the Global Fund instituted a prioritization framework based on a three-part composite index comprising income level, disease burden and Technical Review Panel (TRP) recommendation category. The aim and result of this decision was to give greater priority to poorer and higher burden countries.7

Freezing the 55% rule


The 55% rule and renewal funding ceilings faced strong criticism from civil society groups, several Global Fund delegations and countries classified as LMIC and above. Between February and May 2012, a number of non-governmental organizations (NGOs) launched a worldwide campaign in opposition to the new eligibility rules and helped prepare position papers and statements that were presented to the Board. One of them, distributed in advance of the 26th Board meeting in May 2012, was drafted by the Developed Country NGO Delegation with contributions from several NGOs.8 The campaign was effective. The Board agreed at that meeting to freeze the implementation of the 75 percent ceiling on grant renewals funding for Lower-Middle Income Countries and above. It also directed the Secretariat to suspend implementation of the 55% rule and undertake further analysis given the unintended consequences of the 55% rule and some negative impact on achievement of the targets of the Global Fund Strategy and on vital programmes targeted for the poorest people in lower middle-income countries.9 (By the time the freeze was announced, the 55% rule and renewal funding ceiling had been applied to four countries, including Armenia and Belarus. Some of the funding cut was eventually restored after the Global Funds suspension announcement.) Originally the Board had planned to discuss the 55% rule at its November 2012 meeting. Shortly before that meeting began, however, Board members circulated information that unfreezing the 55% rule would not be on that meetings agenda. Instead, the rules future will likely be discussed in May 2013, when the Secretariat presents its report analyzing the potential consequences of the 55% rule as well as recommendations as to whether it should be retained and implemented. The following are among the main arguments raised by civil society groups and their allies against the 55% rule and associated funding renewal ceilings: Until 2011, funding distribution highly correlated with disease burden. Before the changes in 2011, the Global Funds eligibility requirements of both country income status and disease burden led to a high correlation between grant size and disease burden (0.84). Given the changes placing greater emphasis on country income category, the revised requirements would not lead to nearly such an effective funding distribution.10 Middle-income countries have higher absolute burdens of HIV and TB than low-income countries. Three of the top five countries with the highest HIV burdens are middle income and eight of the ten countries with the highest TB burdens are middle income. In fact, only 30 percent of HIV-positive people lived in LICs in 2009.11 Poverty is not necessarily related to countries income status. About 60 percent of the worlds poor live in five populous countries currently classified as middle income: Pakistan, India, Nigeria, China and Indonesia. Of the top 10 countries by contribution to global poverty, only four are low income.12 Many countries are transitioning from low to middle income, but poverty remains widespread in many middle-income countries. As of 2011, there were only 35 countries classified as low income that were receiving Global Fund support. The comparable number for middle-income countries was 110, and in them collectively was concentrated the greatest burden by far for all three priority diseases (HIV, TB 6

and malaria).13 Given this situation and ongoing trends, allocating more than half of funds to a decreasing number of LICs, where the disease burden is not necessarily the highest, seems inequitable and inadequate from a disease-response point of view. The capacity and willingness of middle-income countries to pay for health and their disease responses varies. In addition to financial constraints, increasing public health expenditure is heavily influenced by political will; in many countries, health and social development do not rank as highly in terms of budgetary priorities as (for example) public infrastructure and defense. In the EECA region, the Global Funds added value may be particularly influential through relatively modest investments in marginalized and stigmatized communities (such as prisoners and people who use drugs), while national governments have primary responsibility for funding for less controversial activities such as HIV treatment and preventing mother-to-child transmission of HIV.14 The Global Fund will only achieve its targets if investment is proportionate to disease burden. The Global Fund 2012-2016 Strategy: Investing for Impact outlines ambitious targets for the reduction of disease burden globally by 2016, aiming to save 10 million lives and to prevent 140-180 million new infections from HIV/AIDS, tuberculosis and malaria.15 The strategy places a specific focus on highest impact countries, interventions and populations. The 55% rule jeopardizes the achievement of the new targets.16

Possible impact of the 55% rule on EECA region and other regions with concentrated HIV epidemics
Although the 55% rule has been suspended, the possibility remains that it could be reinstated before or at the May 2013 Board meeting. In the view of EHRN and most other NGOs in the EECA region, reinstatement would have a severely negative impact on the response to concentrated HIV epidemics around the worldand especially in middle-income countries in EECA and other regions including East and South Asia, Latin America and the Caribbean, and the Middle East and North Africa. The consequences would likely be especially devastating in EECA. It is the only region in the world where the HIV epidemic continues to grow, mainly due to limited political will to respond adequately and the reluctance of national governments to make evidence-based HIV services available for the individuals most affected by the epidemic, people who inject drugs. Governments are therefore unlikely to fill the gap if the Global Funds eligibility changes reduce or eliminate funding from a critical external source. This potential impact has already been realized in Russia, where the government refuses to support vital HIV prevention interventions for people who inject drugsand the absence of Global Fund support means there is little or no money to bridge the gap.17 If it is reinstated, the 55% rule will particularly affect the EECA region since more than 95 percent of people living with HIV there live in middle-income countries. (Only two EECA countries, Kyrgyzstan and Tajikistan, are still classified as low income.)18 It seems that the Global Fund recognized such concerns prior to the eligibility criteria changes in 2011. For example, the authors analysis of the Global Fund Rounds 8-10 global resource allocation according to the country income status shows a gradual decrease in the share of funding going to LICs from 86 percent in Round 8 to 74 percent in Round 9 and 51 percent in Round 10 (see Figure 1). That trend indicates that resources were being directed to the countries and individuals most in need, a development that would be reversed if the 55% rule were reinstated. 7

Figure 1. Global Funds funding distribution per country income status in Rounds 8-10 and singlestream funding (SSF)
86% 74% LIC LMIC UMIC 13% 0.3% Round 8 19% 4% 3% Round 9 7% 1% 3% SSF MC

51% 41%

51% 46%

Round 10

Source: Global Fund website, grant portfolio: http://portfolio.theglobalfund.org/en/DataDownloads/Index. Note: Country income classification for single-stream funding is reported for year 2011, due to difficulty in assigning a country classification status at the time of grant consolidation

However, the decreasing share of funding for LICs over that period should be considered in the context of decreasing number of eligible LICs, as some of them have since become classified as LMICs and a number of LMICs have become UMICs. As seen in Table 1 below, the number of countries awarded Global Fund grants has decreased in absolute numbers in past roundsalthough the consolidation process for single-stream funding (SSF) makes such analysis difficult, as it cannot be broken down by rounds of funding. Table 1. Share of countries that received Global Fund grants by income status at the time of grant awarding
Country income category LICs LMICs UMICs Multi-country Round 8 # 38 25 2 0 % of all grants 58% 38% 3% 0% # 23 22 2 4 Round 9 % of all grants 45% 43% 4% 8% # 17 15 4 4 Round 10 % of all grants 43% 38% 10% 10% # 23 31 9 1 SSF 8-10* % of all grants 36% 48% 14% 2%

Total number of 65 51 40 64 countries Source: Global Fund website, grant portfolio: http://portfolio.theglobalfund.org/en/DataDownloads/Index.

In the EECA region, the shift produced by Global Fund resource allocation based on country income status over the past four years is more significant than the overall shift. As shown in Figure 2 below, the share of funding in the region that went to LICs was 56 percent in Round 8, but had fallen to 0 percent 8

by Round 10. (Some, but far from all, of the shortcoming was covered by SSF funding, of which LICs had a share of 21 percent of the regions funding in 2011.) Figure 2. Global Fund Rounds 8-10 grant allocations in the EECA region, based on country income status

97% 79% 56% 44% 21% 0% Round 8 3% 0% 0% Round 10 SSF* 21% 60% LIC LMIC UMIC 19%

Round 9

Source: Global Fund website, grant portfolio: http://portfolio.theglobalfund.org/en/DataDownloads/Index.

If the 55% rule is reinstated, countries such as Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Georgia and Montenegro would be forced to cut 25 percent of budgets planned for Phase 2 programming of existing grants. The reduction in activities and interventions would affect marginalized populations the most, as such cuts tend to fall most heavily on activities such as NGO development, 19 building service-delivery capacity and other types of community systems strengthening. Armenia and Belarus offer examples of the likely standard impact of the 55% rule, as both negotiated grant renewals before the rules freeze. Both Armenia (reclassified as an upper LMIC since the initial award of HIV and TB grants in Round 8) and Belarus (reclassified as UMIC since being awarded an HIV grant in Round 8), were subject to the 75 percent ceiling (see Box 1). To achieve the 75 percent ceiling, the Global Fund principal recipients for Round 8 HIV grants in both countries asked the sub-recipients to reduce budgets without changing services and indicators and without expanding coverage or adding new services. The biggest cuts concerned community systems strengthening activities (including NGO capacity building). After the 55% rule was frozen in May 2012, the Global Fund allocated extra funds to two countries up to 85 percent of the original budgets of the two grants, aimed mostly at increasing coverage of marginalized (key) populations.20 The negative impact of the 55% rule is also of great concern because the proposed rule could take effect around the same time that the Global Funds new funding model is implemented. The Global Fund Board approved the broad elements of the new funding model at a September 2012 meeting; it is expected to discuss and approve a final version drafted by the Secretariat at its November 2012 meeting. Already certain is that countries will be divided into groups referred to as bands based on 9

disease burden and ability to pay for prevention and treatment programmes. The criteria determining the composition of those bandsand the funding allocation formula for themare to be discussed at the November Board meeting. If eligibility criteria under the new funding model put more weight on country income than on epidemic burden and pace of epidemic growth, it is likely that countries in the EECA region and others with concentrated HIV epidemics will have even fewer opportunities to apply for and receive Global Fund support in the future. If the 55% rule is retained and implemented, the overall unfavourable impact on the region will be even greater because the rule would reduce access to already approved funds during grant renewal processes. Over the last decade, the Global Fund has been the leader in responding to the HIV Box 1. Armenia HIV grant renewal process in 2012 epidemic among people who use drugs in EECA, as it approved $263 million for harm The following cuts were identified by Armenias reduction services in the region from 2002 to country coordinating mechanism (CCM) after it 2009, more than all other international was asked to cut its Round 8 HIV grant budget by 21 25 percent to comply with Global Fund policies sources combined. Thus, any Global Fund aimed at implementing the 55% rule: decisions that lead to a reduction in funding 23 percent cut for services for key for the EECA region particularly affect the HIV populations from the original Phase 2 response in these countries where epidemics budget are concentrated among people who use The biggest cuts foreseen were for drugs. For better or worse, the Global Fund prevention among people who use drugs, remains indispensable to the HIV response in the population with highest HIV the region in the absence of sustainable prevalence (about 10 percent) and low (15 funding from other sources (including percent) coverage in the country governments) for comprehensive HIV 96 percent cut to NGO capacity-building prevention activities such as harm reduction budget. and community-based services. Global Fund No cuts foreseen for antiretroviral treatment (ART) and HIV testing. cuts due to any reason threaten to reduce the range of harm reduction interventions that Source: Stuikite R, Votyagov S, Pinkham S (2012). are resourced, thereby making the epidemic Quitting while not ahead: the Global Funds response less effective. Among the essential retrenchment and the looming crisis for harm reduction features of harm reduction programmes that in Eastern Europe & Central Asia. Available at need more, not less, support to make a www.harm-reduction.org/library (accessed 22 October difference are programme quality, innovation 2012) to address changing drug-use practices and the needs of different sub-populations, After May 2012 freeze of the 55% rule, Armenia got technical support, drug user participation, extra that went to increasing coverage of PWID and 22 community mobilisation, advocacy and legal services.additional supplies for MARPs.
Source: Arguments to revoke the 55% rule for new andinterviews withfunding renewed grant recipients in Armenia

Other reasons have been cited in opposition to the 55% rule, in addition to arguments that led to the freeze of the 55% rule and the anticipated negative impact on countries with concentrated epidemics. Many observers argue that the 55% rule is not good from a development point of view and contradicts the Global Funds institutional policies and strategies because of the following reasons:

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Increasing resource allocations solely based on country income level is a short-sighted development objective and will not serve LICs best interest. An analysis of 2009 Global Fund disbursements has shown considerable country variation in the Global Funds contribution to total health expenditure (THE), ranging from 0.002 percent to 53.4 percent. Yet there was no correlation between per capita Global Fund disbursements and per capita THE. In fact, several countries with a high degree of aid dependency had the potential to increase levels of domestic financing for health.23 Some 15 of the 20 most aid-dependent countries are on the list of LICs likely to receive even more official development assistance through the Global Fund if the 55% rule is implemented.24 Thus, the 55% rule is likely to increase aid dependency among many LICs even as a growing number of observers contend that substantial increases in aid inflows over a sustained period have a harmful effect on institutional development25 and quality of governance.26 Bilateral funding is already focused primarily among LICs and underfunds HIV epidemics concentrated among MARPs (most-at-risk populations). As evidenced by other reports, LICs already receive preferential aid from bilateral donors, such as the U.S. Presidents Emergency Plan for AIDS Relief (PEPFAR) and the UK Department for International Development (DFID).27 Adding more resources and without investing in country ownership and governance is as likely to have a negative effect as resulting in better results and higher impact. Moreover, bilateral funding for harm reduction programmes targeting people who inject drugs is low and represents a tiny fraction of spending on HIV. The concentration of bilateral funding in LICs without concern for HIV disease burden threatens the future of the scale-up of HIV programmes targeting people who use drugs, and the problem is exacerbated by the U.S. governments retreat on the funding of needle and syringe programmes.28 Earmarking of resource allocations solely based on income level contradicts strategic objectives of the Global Fund Strategy 2012-2016: Investing for Impact. The five-year strategy envisages investing more strategically in order to maximize impact, an overarching focus that prioritizes value for money and closer integration with countries national strategies.29 Resource allocation must take into account disease burden, epidemiology patterns and counterpart financing commitments and other criteria of quality (country-level performance, effectiveness and impact). Resource allocation based on income level fails to acknowledge differences between epidemic patterns and customized epidemic responses. HIV epidemic patterns and disease responses differ between epidemics concentrated among MARPs (in EECA and other regions including East and South Asia, Latin America and the Caribbean, and the Middle East and North Africa) and generalized epidemics (mostly in sub-Saharan Africa). Therefore, conditionalities for counterpart financing should take into account governments commitment in these two different epidemic contexts and impose minimum government thresholds for HIV prevention community-based activities. This is especially important because governments are far less likely to support MARPs-targeted programming than more general HIV interventions The shift in the Global Funds strategy from emergency to sustainability funding should entail more targeted, focused, cost-effective and epidemiologically sound interventions, and not just focus on the poorest. As the report of Global Funds High-Level Independent Review Panel on Fiduciary Controls and Oversight Mechanisms pointed out in 2011, [T]o be effective, the Global Fund should be more targeted. A one-size-fits-all approach to approving and managing grants is no longer appropriate nor effective [...] It should take a more global look at the disease burden and better determine who needs 11

the money most.30 Given this recommendation, preferentially allocating resources based on income status alone, without taking into consideration the disease burden and various epidemic patterns, seems inappropriate and simplistic. The new funding model aims to invest the worlds money more strategically and for greater impact; the 55% rule, however, contradicts this goal. Under the new approach, countries will be grouped in bands, to ensure focus is placed on countries with the highest disease burden and least ability to pay.

The criteria determining the composition of those bandsand the funding allocation formula for themare to be discussed at the November Board meeting, yet it seems that maintaining the
55% rule, which gives more weight to income status than disease burden, contradicts the goal of the new funding model.

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Based on interviews with sub-recipients in Armenia and Belarus.

21

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22

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