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Development Loans for Immunization-Questions and Answers 1

1. What is a development loan?
2. Why should countries have to take loans for basic services such as immunization?
3. Is immunization a productive investment?
4. What do immunization programs cost? How much borrowing are we talking about?
5. What about grants? Is there any point taking a loan when grants are available?
6. What is a "development credit"?
7. What about other financing alternatives such as user fees? Is there any alternative to public financing?
8. Is there any point in taking a loan if budgeted domestic funds are available?
9. What are the macroeconomic consequences of taking a loan? Isn't the point to get out of debt, not into more of it?
10. What about other health programs that are under-funded? Would it be better to spend loan proceeds on something other than immunization?
11. Can existing loans be reallocated to support immunization?
12. Who decides what a loan should focus on?
13. If we take a loan, won't the Ministry of Finance just reduce the regular budget allocation to health; and if so, what's the point of borrowing?
14. Don't loan finances have the potential for misuse and corruption?
15. What can loans be used for? What should they be used for?
16. Can loans be used for procurement of vaccines? If so, what are the implications for existing procurement processes? Will they have to change?
17. Will taking a loan impact our existing donor relationships?
18. What are some of the benefits of development loans?
19. What are some of the shortcomings of loan financing?
20. What are the key differences between a grant and a loan?
21. What is the legal foundation of a development loan?
22. How sustainable is loan financing, especially when compared with other options? Doesn't it just generate more "donor dependence"?
23. If we decide to borrow for immunization, what are some things we should look out for?
24. Are there any circumstances in which a country absolutely shouldn't take a loan?

This paper was commissioned by the Financing Task Force of the Global Alliance for Vaccines and Immunization and was written by Peyvand Khaleghian. Over 30 individuals were interviewed in the preparation of this document, representing development banks, UN agencies, bilateral aid organizations, academic institutions and government immunization programs. Much of the paper reflects the input of these individuals, though the document does not reflect the views of any particular agency or organization and is intended as a discussion paper rather than a statement of policy or recommended practice.

What is a development loan?
Development loans are loans from development banks such as the World Bank, the Asian Development Bank, the Inter-American Development Bank and the African Development Bank. They are called "development" loans because they finance various aspects of a country's social and economic development such as roads, energy, health and education, and they are mostly disbursed to a country's central government rather than to districts, provinces or the private sector. Loan amounts can vary from small (~US$5 million) to very large (more than US$100 million), depending on the sector and the project in question, and the disbursement period usually ranges from three to eight years.

There are two broad categories of development loan: investment loans , which account for the majority (~75 to 80 percent) of development loans and are typically focused on specific projects (such as establishing rural clinics, training health workers, reintegrating soldiers into communities, improving the efficiency of water systems, etc.); and adjustment loans , which account for 20 to 25 percent of development lending and are designed to support broad policy and institutional changes (such as privatization, public sector reform or judicial reform) rather than specific projects. Each of these broad loan types has a number of sub-types; these are described in Box 1.

The terms of a loan-interest rates, repayment schedules etc.-depend on a country's income level, its size, and the sector in question. Generally speaking, low-income countries (with a per capita GNP of less than US$755 in 2000) are eligible for zero-interest "soft loans" (also known as "credits") which, in the case of the World Bank, have a 10 year grace period, a small administrative charge (less than one percent of the total loan amount) and a 40 year repayment period. While the principal on these loans has to be paid back, their zero-interest rate and long repayment period mean that around 65% of the loan amount is effectively a grant-hence the term "credit"-and only 35% has to be paid back. In other words, for every dollar repaid, the country receives around two dollars for "free", depending on inflation and commercial interest rates over the repayment period.

In middle-income countries (countries with a per capita GNP between US$756 and US$9265 in 2000), loans are generally made at market or near-market rates, though exceptions are occasionally made for social sector loans (to health and education) and loans to small countries (such as island-nations) with small economies. In the case of the World Bank, the repayment period for these loans is 15 to 20 years, and a five-year grace period usually applies.
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Why should countries have to take loans for basic services such as immunization?
In principle, countries borrow for one of two reasons: either because the government doesn't have enough resources itself to meet its objectives, or because it believes that the return on its investment-whether in immunization, airport construction, the energy sector or anything else-is greater than the amount of interest (or inconvenience) it incurs in taking a loan to finance it. If the Ministry of Finance determines the country has enough money to fund its programs-and if it gives priority to public financing of these programs-then the country does not need to take a loan or seek other sources of external financing. If, however, the Ministry of Finance decides the country lacks sufficient domestic resources, or if it feels that its domestic funds are better spent elsewhere, then it may need to either scale back (or terminate) the programs in question or to seek alternative sources of financing-such as loans, grants or private funds-to meet the "financing gap".

This is not to say that loans and grants should only be used as "methods of last resort" when domestic financing fails. In some circumstances, there may be benefits to taking a loan even when sufficient domestic resources seem to exist. These are discussed further in Question 8.
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Is immunization a productive investment?
Immunization is one of the "best buys" among health interventions-and possibly among a whole range of economic interventions as well. It is a proven, low-cost and effective way of preventing death and extending life. Immunizing children with the complete group of childhood EPI vaccines (which includes vaccines against measles, pertussis, diphtheria, tetanus, polio and childhood tuberculosis) costs between $20 and $25 per child; this translates to a cost-effectiveness of between $14 and $20 per year of healthy life gained, which in turn compares with figures of $25 to $75 for other common preventive interventions such as family planning and community distribution of oral rehydration salts. Table 1 compares the cost-effectiveness of immunization with other interventions that prevent death or extend life. It should be noted that newer vaccines, such as those against hepatitis B and Haemophilus influenzae type B, are also highly cost-effective: a fact that is sometimes forgotten when the absolute cost of these vaccines (which, for various reasons, is higher than that of the EPI group) is considered in isolation, or when preventive services are weighed against politically-popular treatment services.

As a rule of thumb, health interventions are considered cost-effective in a given country if they cost less, per year of life saved, than the GNP per capita. In low-income countries, the average GNP per capita is around US$420. This contrasts with a cost per year of healthy life gained for immunization of between $14 and $20, showing that even low-income countries-countries which often face the hardest decisions about where to spend their limited resources-can include immunization among their top-priority health programs with the confidence of knowing that it represents a genuinely "good buy".

These figures say nothing of the economic benefits of immunization, however. Many economists and MOF officials are more concerned about the cost-benefit of immunization-i.e. the extent to which investments in immunization lead to economic (as distinct from health) benefits, and whether or not these exceed their costs-rather than its cost- effectiveness . Retrospective studies have shown that around eight percent of increases in national income can be explained by improvements in life expectancy, and that a one-year increase in life expectancy can lead to a one percent increase in a country's GDP within 15 years. Immunization is one of the most effective ways of reducing childhood mortality and increasing life expectancy. It prevents diseases that would otherwise be fatal to a large proportion of those who contract them, and it generally does so at a time-early childhood-that makes possible a life-time of economic participation and productivity for those who survive as a result. In the short run, immunization may result in a need to increase government expenditures on education and primary care, as more and more children survive through infancy; but in the long run, the larger and healthier population that results will live longer and reduce its fertility rates, and these in turn will lead to higher incomes and standards of living-welcome news for governments concerned with social and economic development.

Studies have also compared the cost of immunization programs with the economic benefits to which they lead-including cost savings from averted treatment costs, and the economic productivity of individuals who survive as a result of being immunized. These studies have consistently found positive-and often very large-returns on investments in immunization, both for newer vaccines (such as those against hepatitis B and Haemophilus influenzae type B, though these results differ from country to country) and for the traditional EPI group. In the case of the EPI antigens, most studies have estimated economic returns of three to ten times the program's cost -a benefit-to-cost ratio that starkly illustrates the good economic sense behind investing in immunization.
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What do immunization programs cost? How much borrowing are we talking about?
The cost of an immunization program varies from country to country. Determinants of cost include programmatic issues such as scale, efficiency, service delivery strategies, the quality of existing infrastructure, and whether or not newer (and more expensive) vaccines (such as those against hepatitis B and HiB) are included; demographic issues such as population density and distribution; and economic issues such as labor costs and foreign exchange rates.

Recent studies have estimated the "cost per fully immunized child" at around $US20 to $25. Of this cost, approximately 50-60% is for personnel costs (much of which are shared with other programs such as PHC, maternal and child health, rural health extension programs, etc.); 20-35% is for vaccines and supplies; and around 10% is for capital costs such as buildings, vehicles and equipment.

Viewed another way, the total cost of a national immunization program-including allowances for shared costs (such as health workers who combine immunization work with other duties) and depreciation of capital equipment-translates to an average of 2-5% of government health spending or roughly $US0.20 - $0.60 per capita for most countries. This comes to roughly 0.03% to 0.10% of Gross National Product (GNP), though the cost for the basic EPI group has been estimated at no more than 0.01% of GNP for all but the poorest countries. Table 2 gives examples from recent cost studies in Morocco, Côte d'Ivoire, Bangladesh and Ghana.

The amount of an immunization-specific loan would seldom be as high, on an annual basis, as the total costs indicated in these estimates. Borrowing for personnel costs is very limited, tending only to support the incremental costs associated with the project itself (and even then on a declining basis); and some costs may be consistently met by a specific donor-such as UNICEF or a bilateral agency-or by the government itself, in which case the loan amount would be reduced even further (see Questions 5 and 7 for further comments). But even if a government were to borrow at these levels, the total amount required to support an immunization program would seldom account for more than 0.1% of the government's total annual budget-a smaller figure than the amount which most governments, including many of the poorest ones, will comfortably borrow for other development projects such as roads, energy sector reform, or other public works. In addition, the benefits of immunization should be considered alongside the costs: and given the benefits discussed in Question 3, even this level of borrowing may be associated with a high enough rate of return to make it an economically-attractive option. Since most countries borrow for immunization in the context of loans for the health sector in general, these considerations are somewhat hypothetical: but they highlight the fact that immunization, in addition to being cost-effective, is also quite inexpensive in absolute terms, especially by comparison with other projects for which governments typically borrow.
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What about grants? Is there any point taking a loan when grants are available?
Yes and no. Loans have some advantages over grants, so there may be circumstances in which a loan makes sense even if grant funds are available-notwithstanding the fact that loans, unlike grants, have to be repaid. These include:

  • Grant funds for immunization have been falling since the early 1990s, partly because of declining development assistance in general and partly because of a prevalent view by donors that countries should become increasingly self-sufficient in financing their immunization needs. As a result, many programs are finding that even with grants, essential elements (such as cold chain maintenance, training etc.) are inadequately funded-thus raising the need for new financing sources, of which loans are one.
  • Grants often stipulate that a certain proportion of the grant has to be spent on goods or services from the donor country-so-called "tied" aid. This is not the case with loans.
  • Loans are developed through a process of negotiation between country officials and a development bank, a process in which country officials from the Ministry of Finance (MOF) and Ministry of Health (MOH) have considerable influence over the design of the final product. Grants are often designed to meet a donor's requirements as much as those of the receiving country. Grants may therefore be less receptive to a country's priority requirements (and thus less likely to stimulate domestic "ownership") than loans, over which country officials have greater control.
  • Loans provide a secure source of financing over a longer period (upwards of three to five years, and sometimes as long as ten years or more) than most grants (which are typically for one or two years at a time). This is especially important for long-term planning and for ensuring the stability of population-based programs such as immunization.
  • Loans can provide substantially larger sums of money than grants. For example, a recent immunization-strengthening project in India was financed with a "soft" loan in the amount of US $142 million-far more than could have been obtained from grant funds alone.
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What is a "development credit"?
The term "credit" is used by development banks to refer to "soft" loans-loans with an initial grace period, a zero rate of interest, and a long repayment period-that are made available to low-income (or, in some cases, to small middle-income) countries. As explained in Question 1, the repayment amount for these loans is often substantially less, in real terms, than the amount originally borrowed, with one to three "free" dollars for each dollar the government has to repay. The term "credit" is used to capture this fact, and to distinguish these loans from the other financial instruments (such as market-rate loans to middle-income countries or private sector guarantees) which development banks have at their disposal. The terms "credit" and "soft loan" are therefore equivalent.
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What about other financing alternatives such as user fees? Is there any alternative to public financing?
Trying to finance immunizations with user fees can be counterproductive. Generally speaking, people are less likely to pay for preventive services (such as immunization) for diseases which seem like a distant threat when they are confronted by more pressing needs-such as the need to care for a sick child-in the immediate present. As a result, user fees for these services tend to reduce utilization and, in the case of immunization, lower coverage rates. Not only does this reduce the potential for cost recovery, it can also defeat one of the essential aspects of an effective immunization program: high coverage. Due to the phenomenon of "herd immunity", a high coverage level can protect far more people than those actually immunized, whereas a low coverage level can leave large parts of the population-including part of the immunized population-at risk of disease. This is the rationale for aiming for coverage levels of about 80 to 90 percent. If user fees reduce coverage, then they can threaten this essential aspect of an immunization program; and given the relatively small amounts which people are typically prepared to pay for preventive services, this may occur without much in the way of compensating revenues. User fees are therefore discouraged as a financing approach for essential vaccines in most programs.
Although user fees are discouraged as a financing approach, this is not the same as discouraging the participation of private health providers in the delivery of immunizations: which, in contrast to user fees, is a way of increasing immunization coverage, and is therefore useful to the immunization process as a whole. While the bulk of immunizations are provided through public services, some countries have had great success with sub-contracting immunization delivery to NGOs.
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Is there any point in taking a loan if budgeted domestic funds are available?
The standard response to this question is "no". That is, if domestic funds are available, then there is no need to seek external financing of any sort-much less loans, which must eventually be repaid. If budgeted funds are available on a reliable basis, with little fluctuation from year to year, and if they are sufficient to meet the full costs of supplies, training, operations and maintenance for all aspects of the immunization program, then loans are not needed.

This is seldom the case, however. Funds are often insufficient, sometimes extending only to personnel, vaccines and essential supplies but not to equally-important components such as cold chain maintenance (to keep vaccines at their optimal cold storage temperature) or information systems; and the quantity of budgeted funds may be unstable, fluctuating from year to year with changes in the economy, the government, or the government's priorities. Loans can provide one part of a strategy to deal with these problems. Loan funds can be used to fill the financing gap between budgeted allocations and the amount required for an effective immunization program, and they can provide a consistent and predictable source of financing over an extended period of time-both of which can, in turn, improve the efficiency and effectiveness with which immunization activities are carried out. Loans also have their disadvantages, as summarized in Question 19; but in circumstances where funds for immunization are either insufficient or unreliable-whether these are from domestic or external sources-then loan funds may be a useful complement to other sources of immunization financing.
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What are the macroeconomic consequences of taking a loan? Isn't the point to get out of debt, not into more of it?
The macroeconomic consequences of borrowing vary from country to country. In some countries, borrowing has led to unsustainable debts that burden current and future generations; in other countries however, borrowing has been a means to improving social conditions and economic development, with a consequent increase in the standard of living and future possibilities. Generally, if a country takes a loan for sound reasons and uses the money to further its social or economic development, then it can expect a positive return on its decision to borrow; but if a country adopts a borrowing pattern that backs ill-conceived or poorly-executed projects, then it can find itself in a spiral of worsening debt with little in the way of benefits to show for it. In the latter case, development banks may actually suspend lending to a country until it demonstrates a change of direction and improves its performance in areas such as economic management, policies for social inclusion and equity, and management of loan-financed projects-though existing projects are generally permitted to continue.
Every country will have to decide on the merits of borrowing on the basis of its own macroeconomic circumstances. If a country is heavily indebted, or if there is concern about its ability to pay back a loan, then it may wish to look at other financing alternatives such as grants or GAVI funds (if eligible) instead. However, given the importance and value of immunization, the relatively small amounts required to sustain an effective program, and the availability of "soft" loans for such countries, even these countries may wish to consider the benefits of borrowing-as discussed in Question 18-as one potential financing alternative.
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What about other health programs that are under-funded? Would it be better to spend loan proceeds on something other than immunization?
Immunization is a fundamental part of any country's public health program. It is highly cost-effective, benefits society over a long period, and helps to prevent diseases which would otherwise have harmful effects on a country's economy and health. Nevertheless, immunization still has to compete with other health programs (such as malaria control or hospital rehabilitation) for funds. Many of these programs are just as important as immunization and may in some cases be considerably more "visible" to policy makers or the general public. Advocates for these programs may argue that loan proceeds-or any other source of financing for that matter-should be directed to these programs instead. This may explain why immunization-related lending usually occurs in the context of loans to broader areas such as primary health care, child health and communicable disease control, rather than in the form of stand-alone, immunization-specific loans.
The issue of prioritizing health programs is one for each government to decide. In doing so, governments frequently consider issues such as economic cost-benefit (does the program have medium- or long-term economic benefits that exceed its costs?), cost-effectiveness (does immunization "purchase" more health per dollar than other health interventions?), the viability of alternative financing sources (can user fees or grants be used to recover costs without compromising program effectiveness or equity?) and the political consequences of funding-or not funding-the program in question (is the program considered important by professional groups, citizens groups and the general public?). Immunization scores very highly on all these criteria. While the outward appearance of certain health problems may seem greater than that of immunization (which, as a preventive service, becomes more "invisible" the more effective it becomes), the unique benefits and characteristics of immunization make it a high priority for government attention in all countries. Questions 2, 3 and 8 discuss other issues related to this subject.
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Can existing loans be reallocated to support immunization?
Generally speaking, loans are flexible. Unused amounts can be cancelled, bought-down, or reallocated to other programs consistent with the loan's objectives. Lending organizations are usually quite flexible when it comes to such adjustments, and the legal documentation of most loans is usually framed in very general terms so that adjustments, extensions and reallocations can be accommodated without undue difficulty. Thus, an existing loan to support child health services could be adjusted to support upgrading the immunization cold chain, or a loan to strengthen primary health care might be extended to include immunization.
Policy-based loans or loans for general budget support may have even more flexibility, as they can be allocated at the discretion of the government (so long as any core macroeconomic or other conditions have been met), and investing in immunization is a widely-recognized way of demonstrating a government's commitment to effective social policies.
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Who decides what a loan should focus on?
Obtaining a development loan requires the coordinated efforts of a line ministry (such as the Ministry of Health), the Ministry of Finance, and a development bank. The Ministry of Finance plays an important role in this process, first deciding whether or not the country should be borrowing at all, and then deciding where the loan funds (if any) should be allocated. Line ministries that want a loan usually begin by making their case to the MOF-which, depending on the strength of their arguments, the needs or priorities in other sectors and the country's macroeconomic circumstances, will decide whether or not to proceed with a loan for that ministry. The MOH can therefore take certain steps to strengthen its case with the MOF when asking for a loan, including:

  • Reviewing and explaining the economic benefits associated with immunization, as summarized in Question 3 and available in greater detail (and for specific vaccines) from a wide variety of published sources;
  • Summarizing the current sources and uses of financing for the immunization program, and explaining why these are insufficient or too unreliable to meet the program's needs;
  • Summarizing the immunization program's long-term strategy (including its long-term financing strategy and its links with other parts of the health system) and illustrating how loan funds could strengthen this program-particularly with regards to financial sustainability and the program's long-term financial footing;
  • Illustrating the health and personal benefits that flow from an effective immunization program-and the losses associated with a weak program-using case studies, comparisons with neighboring countries or other examples;
  • Demonstrating that the present immunization program is reasonably efficient and is getting the most out of resources currently available;
  • Illustrating how the long term sustainability of the immunization program will be assured after the loan is finished.
  • Demonstrating that the MOH has a proven track-record of fiscal responsibility and effective project management.

The MOH can also engage in high-level advocacy efforts with senior officials in the MOF, ensuring that immunization is placed on the agenda at meetings between these officials and their development bank counterparts. In some cases, such as countries where the MOH has an existing relationship with a development bank through recent or current projects, the MOH may raise the subject of an immunization-related loan directly with development bank staff; but since the final approval for a loan must come from the MOF, and given the importance of the MOF's long-term commitment to immunization in securing the program's long-term health, the MOF should be included in these discussions from a very early stage.

If the idea of a loan for immunization is accepted by the MOF and the development bank, project development proceeds with various contributions from the MOH, the development bank, and from other organizations-including international organizations such as UNICEF or WHO, and domestic groups such as NGOs or academic institutions-that are active or interested in immunization. Assessment activities (such as procurement evaluations, financing assessments, infrastructure reviews, etc.) are also part of this process, providing information about the current system and informing the design of the final project. The main participants at this stage are government officials and development bank staff. On the government side, these representatives usually include officials from the MOF (who review the rationale, appropriateness and country-readiness for a loan) and the MOH (who provide the technical and financial justifications for the loan); while on the development bank side, participants include staff members from various disciplines (including finance, economics and public health) who review the technical and financial aspects of the loan proposal and may suggest changes based on their knowledge of the country, the project or policy changes in question, and the bank's policies and procedures.

The final stage of approving a loan involves high-level negotiations between government representatives and development bank staff. The negotiation process continues until an agreement is reached on what areas a loan should support and how this support should be structured, and no commitments are made until both parties-the government and the development bank-are satisfied with the outcome. Government officials play a large part in this process, and they usually have considerable leverage in determining the structure and terms of a loan: though the final product is always a negotiated agreement, and compromises are often made on both sides. In this respect, however, loans tend to be more country-owned than grants-which often reflect the donor's priorities as much as those of the recipient-and this may be an important benefit for countries looking to improve the sustainability of their immunization programs.

Once an agreement is reached on the final product and the project is approved by the development bank, loan funds are disbursed-usually on a predetermined schedule, and seldom all at once-to the Ministry of Finance (acting, in this context, as a representative of the government as a whole: referred to in the loan contract as the "borrower"), and the MOF in turn passes them on to the line ministry responsible for executing the project (referred to in the loan contract as the "executing agency").

From this point onward, the role of the MOH (the "executing agency") is to oversee project implementation and periodically report to the MOF and the development bank; while the role of the MOF (the "borrower") is to monitor the financial aspects of the loan (such as preventing corruption, ensuring accountability and preparing for the loan's eventual repayment-even if this may be a distant event, as with "soft loans"/credits) and to provide a more general oversight of the project and its implementation.

Development bank staff provide technical assistance and support at all stages of this process, and they periodically undertake project implementation reviews of their own, liaising with both MOH and MOF officials in doing so. The outcome of these reviews may, in some situations, lead to changes in the project's design or objectives, especially in response to learning or changed circumstances as the project unfolds: though any such changes would usually be discussed with MOH and/or MOF officials before being made.
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If we take a loan, won't the Ministry of Finance just reduce the regular budget allocation to health; and if so, what's the point of borrowing?
This is possible, but there are some ways around it. Fundamentally, the consultative process involved in taking a loan for immunization should ensure that all participants-including those from the Ministry of Finance-are fully apprised of the importance and benefits of an effective immunization program and therefore committed to providing adequate funds irrespective of whether or not a loan (or any other new source of financing) enters the picture. To solidify these commitments, some countries have experimented with immunization-specific line-items in their national budgets, while others have contemplated the use of "supra-budgetary funds"-funds that are pre-allocated to immunization and can't be easily modified through budget debates or shifts in government policy-to protect the stability of immunization financing. Sometimes a loan itself can be designed to protect domestic funds. For example, a loan agreement can specify how much the government should contribute to the immunization program (as distinct from how much the loan will provide), or it can set performance targets that can only be achieved if current funding levels are maintained. At a more personal level, development bank staff often have strong working relationships with officials in the Ministry of Finance, so the very involvement of these individuals in the consultative process can sometimes help ipso facto to make long-term financing for immunization more secure.

Even if these strategies fail, and if the government decides to reallocate existing commitments away from immunization because of an immunization-supporting loan, the reliability and predictability of loan funds-which typically extend over a period of five years or longer-may, in and of itself, be a worthwhile and adequate benefit, especially in settings where the irregularity or unpredictability of immunization financing is having an adverse impact on service delivery.
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Don't loan finances have the potential for misuse and corruption?
In some countries, corruption and misuse of public money are a significant problem for all funding including development loans. In view of this, development banks have developed various safeguards-from strict procurement procedures to a variety of accounting and auditing requirements-to prevent loan funds from being misused or misappropriated. While these safeguards can be effective in limiting corruption and misuse, their price for doing so is the increased administrative burden associated with inflexible (and sometimes complicated) procurement procedures and accounting requirements, all of which are inseparable parts of the loan itself.

Projects can be designed to limit corruption in other ways, too. For example, complicated projects-such as those involving multiple departments or numerous concurrent lines of action-present more opportunities for corruption than simple projects, whereas projects that build on established priorities and strengthen existing programs tend to fare better in this regard. In the final analysis, loans are only as effective as the government that takes them; and no matter how many safeguards are put in place, the best defense against corruption is a government that is actively committed to stamping it out.
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What can loans be used for? What should they be used for?
Loans are flexible and can be used in a variety of ways. In most cases, they are used to support specific parts of a given program: which, in the case of immunization, could include vaccines, materials, capital equipment and training, among others. They can also be used in more unusual ways-capitalizing a trust fund to meet the recurring cost of vaccines, for example-provided these meet the needs of the country and are approved by the lending organization. These approaches are known as "investment" or "project-based" lending; non-project ("adjustment") loans are less common in the health sector, though immunization may also be an indirect component of these loans (as a performance indicator of social protection in a public sector reform loan, say) even if not directly financed by them.

Loans are best used for long-term, sustainable improvements to a country's immunization system-not for activities or adjustments that are short-lived or otherwise unsustainable. Possible uses include:

Financing capital or recurrent expenditures. Development loans have traditionally been used as a source of financing for capital expenditures, with very limited support for recurrent costs. In the case of immunization, however, the distinction between capital and recurrent costs may not be so clear. Immunization has some "pure" capital costs such as the cold chain, vehicles and so on; but as a whole, it represents a recurrent investment in human capital. Each vaccinated child represents a long-term human capital benefit to the country as a whole, and this in itself may justify borrowing to meet the cost of vaccines or supplies-provided these do not become a permanent substitute for domestic funds.

Upgrading infrastructure. Loans can finance projects to replace, upgrade or purchase "pure" capital items such as cold chain equipment or vehicles, and to spread the cost of repayment for these items over a longer period than would otherwise be possible. Investing in capital items has some disadvantages, however. First, such investments nearly always increase the recurrent cost burden for recipient governments, yet experience shows that governments seldom make adequate arrangements for the recurring costs (of maintenance, for example) that ensue; and second, investing in capital may reduce governments' motivation to look for more innovative, cost-effective and sustainable solutions such as outsourcing of fleet management or equipment maintenance.

Long term vs. short term investments. Many development agencies focus on short-term goals (which tend to be easier to "see" and monitor) rather than activities whose public health dividend may be longer in coming. Loans can be especially suitable for investments in the latter category. They are long-term in nature and can therefore be integrated within (and designed to support) a program's long-term strategy-a benefit which may be less easy to obtain with other sources of development financing. Of particular value are interventions that will survive beyond the end of the loan period itself, such as improvements in procurement processes, financing strategies, distribution systems and local capacities for IEC or monitoring and evaluation, all of which can continue to benefit the immunization program well after the loan period comes to an end.

Introducing new technologies. Loans can be used as a source of medium-term "seed financing" to introduce new technologies (such as new vaccines, auto-destruct syringes etc.), giving countries a bridge period in which to secure domestic financing for the continued support of these technologies: a similar approach to the use of GAVI funds to introduce new vaccines, for example.

Strengthening intra-sectoral linkages. Since most immunization-related lending occurs in the context of loans to broader areas such as PHC or maternal and child health, the opportunity arises for loans to strengthen linkages between the immunization system and other areas of the health system. Disease surveillance, health information systems, improvements in the primary care system-all of these are aspects of the health system to which immunization is closely related, so loans that improve any of these areas can be used to benefit the immunization system as well.

Financing accelerated activities or program extensions. Loans can provide the financial support necessary to speed up the pace of activities such as disease eradication programs (where these are relevant to the country in question) or to reach geographic areas or population groups with low immunization coverage.

Creative approaches. In small countries with predictable vaccine requirements and a strong commitment to immunization, loans can be used to capitalize the recurrent cost of vaccines by establishing an immunization-specific trust fund, the interest on which is used to finance the program's vaccine requirements (or other recurrent costs) for an extended period. This approach has been used in other sectors such as environmental protection and rural microcredit: but only one country, Bhutan, has taken this approach to financing its vaccine costs, with others such as Armenia contemplating similar moves in the near future. Loans funds could also be used to negotiate multi-year purchase agreements (between the government and a vaccine supplier, for example) and thus to argue for reduced prices for vaccines, syringes or other essential supplies.
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Can loans be used for procurement of vaccines? If so, what are the implications for existing procurement processes? Will they have to change?
Most development loans come with specific conditions regarding acceptable methods of procurement. While the purpose of these conditions is to ensure transparency and reduce costs-and while they are frequently successful in doing just this-the down-side of these requirements is that countries may have to adjust their existing procurement practices to fit in with those of the lending agency. The complexity of this adjustment can range from minimal (if government officials are already experienced with the agency's procurement requirements) to moderate (if officials have to learn the new procurement procedures from scratch) to substantial (if politically-important local suppliers are unwilling to participate in the procurement process or fail to make a successful bid).
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Will taking a loan impact our existing donor relationships?
The use of loan funds to support immunization should present few complications for existing donor relationships. If donors are funding specific parts of a country's immunization system, then this can continue; and if technical assistance is being received from donors or other international agencies, then this remains a valuable contribution and can actually enhance the loan/project development process.

However, development loans are not just about money. The involvement of bank staff, in both technical and managerial capacities, is part-and-parcel of all loans, so an immunization-related loan inevitably brings an additional "player" to the table of government officials, donors and other agencies involved in a country's immunization program. The process of adjusting to these new circumstances can be substantially eased if a well-functioning Inter-Agency Coordinating Committee (IACC) is in place, especially if the IACC and its members are involved or consulted in the loan/project development process. Also, as discussed in Questions 14 and 16, loan finances are usually accompanied by specific procurement and accounting requirements which may differ from those used by the government or other donors. For example, if a country wants to use loan funds to buy its vaccines, the lending agency may require a process of International Competitive Bidding (ICB) before permitting its funds to be used in this way. This may cause difficulties if the country has an existing commitment to purchase vaccines from a specific supplier or through a specific financing intermediary (such as a revolving fund). However, these circumstances can usually be resolved by consultation between the involved parties, especially if anticipated early in the project development process.
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What are some of the benefits of development loans?
Loans have a number of financial and non-financial benefits. These include:

  • A long-term, secure source of financing. Loans are typically made for periods of five years or more, in contrast to grants (which are usually for one or two years at a time) and domestic funds (which may fluctuate from year to year with changes in the government, the economy, or the government's priorities).
  • Large sums of money. Loans provide access to far larger sums of money (from ~US$ 1 million to US$ 100 million or more) than can be obtained from grants; and they do so on terms that are substantially more favorable than loans from commercial lenders, especially in the case of "soft loans"/credits.
  • In-built flexibility. Unwanted loan amounts can be cancelled or bought-down if not required, or can be reallocated to other programs if circumstances change before the loan period ends. Given the flexible legal foundation of development loans (see Question 21), this is usually a fairly uncomplicated procedure.
  • Untied money. Countries can use loan funds to purchase goods or services from any source, provided the procurement requirements of the lending agency (which are designed to maximize transparency, prevent corruption, and obtain products and services at the lowest cost) are met. Grant funds often come with the condition that goods and services must be purchased from the donor country, or may include "in-kind" items such as their staff members' time, travel expenses etc.
  • Domestic ownership and responsiveness to country needs. Government officials play a large part in designing loan-financed projects, and development banks frequently make large concessions to get a loan through. As a result, loan-financed projects may be more responsive to a country's needs than grants-which, in many cases, are designed to meet the donor country's requirements as much as those of the recipient-and they may also stimulate greater domestic "ownership" of the resulting product.
  • Amplification of domestic resources. Countries that are eligible for "soft loans"/credits can use the favorable terms on which these loans are made (i.e. no interest, initial grace period, long repayment periods etc.) to amplify their own domestic resources-in effect, getting one to three dollars "free" for every dollar they themselves spend, as explained in Question 1.
  • Strengthening political commitment. Taking a loan represents de facto political commitment to the service in question-not just from the MOH but also from the MOF and the government as a whole. This is good for sustainability, as it improves the profile of immunization and makes it less likely to be seen as a "weak" budget item, even after the loan period ends.
  • Policy conditions to support sustainability. The disbursement of a loan is sometimes made conditional on specific reforms or policy changes. These are generally considered a nuisance, but they can actually be designed in a way that protects or even strengthens key aspects of the immunization program: for example, by mandating a specific annual budgetary commitment to the immunization program, or by requiring the government to finance a particular cost component (such as EPI vaccines) from domestic resources rather than grants or loans. Carefully-designed conditions can therefore reinforce other efforts to establish the immunization program on a more sustainable footing.
  • Transparency and accountability. The procurement and accounting requirements that come with a loan can limit corruption and misuse and therefore improve the likelihood that a loan-financed project will achieve its intended outcomes-particularly in countries where corruption, patronage or misuse are common.
  • Procurement efficiencies. Procurement practices such as International Competitive Bidding can result in impressive cost reductions on vaccines, syringes and other essential program components. Since these components typically account for around 30 percent of immunization program costs, savings here can have a dramatic impact on the program's financial condition.
  • Technical assistance and knowledge-sharing. Technical assistance is an inseparable part of the loan process and usually continues from project design to project implementation. The involvement of bank staff also provides opportunities for knowledge-sharing on country experiences, best practices and recent innovations in the field, all of which can improve the outcome of loan-financed projects. In addition, technical assistance can be supported through the loan itself, though some governments are reluctant to use loan funds for this purpose.
  • Strengthening dialogue between the MOH and the MOF. Health-related loans provide an opportunity to strengthen relationships and promote increased dialogue between the MOH and the MOF, and this in turn may enhance the MOH's profile among all Ministries: an important benefit with long-term consequences for the MOH's ability to advocate for funding and protect existing programs. Since MOH and MOF staff often "speak a different language" (the language of public health vs. the language of finance), the participation of development bank staff-as facilitators, interpreters and interlocutors-can help this process take shape and proceed more smoothly.
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What are some of the shortcomings of loan financing?
Loans also have a number of shortcomings. These include:

  • Loans have to be repaid. Unlike grants, loans must eventually be repaid-whether at a substantial discount (as in the case of "soft loans"/credits) or at market rates (as with loans to middle-income countries: see Question 1). This may pose a problem for highly-indebted poor countries or countries with severely limited prospects for economic growth or stability (including currency stability); but for most countries, the loan amounts are sufficiently small-and the corresponding benefits sufficiently large-that this is not a problem. Questions 6 and 20 discuss the differences between grant and loan funds, and Question 3 reviews the long-term benefits of investing in immunization.
  • Substitution effects. The receipt of a loan may lead the MOF to reallocate existing budgeted commitments away from immunization, in which case loan funds would be substituting for domestic resources rather than supplementing them. Question 13 discusses this problem and ways to avoid it.
  • Slow to process. Loans can be slower to process than grants, though this may be compensated by the larger sums available from loans.
  • Complicated safeguards. Development loans typically come with a range of procurement and accounting requirements designed to prevent corruption, improve efficiency and ensure transparency. For some countries, the need to adjust existing procedures may be not be worth the effort, especially for small loans; while in others, political consequences or other factors may make it difficult to meet these requirements as expected. See also Question 14.
  • Policy conditions. Loans sometimes come with specific policy conditions that must be fulfilled if the loan is to be granted. In some cases, these conditions may be unacceptable to a borrowing country, and a loan may be refused on these grounds; but in many cases, the conditions are developed in consultation with government officials and can be designed to protect or even strengthen aspects of the program in question. See also Question 18.
  • Variable quality and effectiveness of loan-financed projects. Not all loan-financed projects are successful. Development bank and government officials frequently face pressure to develop and approve projects quickly, and projects are sometimes designed with flaws that make implementation difficult. In addition, loan-financed projects are only ever as effective as the government that takes them: in other words, if implementation capacity is weak, or if there isn't a substantial level of shared political commitment to the service that's being borrowed for, then a loan-even with training, capacity-building, institutional strengthening, etc.-can only improve affairs to a limited extent.
  • Complications in decentralized settings. In large or highly-decentralized countries, loans can be problematic for center-state relations. Loans are almost always disbursed to the central government, while program functions (such as procurement, operations and maintenance) may be decentralized to sub-central levels such as provinces or states. A bank can lend directly to provinces or states, but the center has to guarantee these loans-and in some countries, it may not be willing to do so.
  • Not as flexible as domestic funds. Although loan-financed projects generally reflect domestic needs and priorities better than grants, they are still the product of a negotiated agreement between the government and a development bank and may call for compromises on both sides. Also, although there is usually considerable room for flexibility in loan-financed projects (both intrinsically and in contrast to grants: see Questions 11 and 20 for more), they don't have the same flexibility as domestic funds-which, typically, are completely at the discretion of the government or a given ministry to allocate.
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What are the key differences between a grant and a loan?
Grants and loans differ in a number of key respects. These include:

  • The need for repayment. Loans, unlike grants, have to be repaid, though the repayment amount for "soft loans"/credits may be substantially less than the amount originally borrowed, as explained in Question 1. Loans may also come with small grants, administered and disbursed by the development bank but originating (in most cases) from bilateral assistance agencies. These can be used to finance project preparation studies or ancillary activities such as small side-projects or operations research.
  • Conditionalities and other "strings". Loans and grants both come with a variety of conditionalities, but grant conditions tend to be more restrictive-in terms of how the money is used, where purchases are made, who can be involved, etc.-than those of loans. Loan conditions are generally agreed in advance with the borrowing country, and in some cases may actually be requested by the government itself: to protect domestic funding for immunization, for example, or to specify a policy change that may be politically difficult to achieve without an external body to hold responsible.
  • Tied aid. Grants often stipulate that a certain proportion of the grant has to be spent on goods or services (such as supplies or project consultants) from the donor country-so-called "tied" aid. This is not the case with loans.
  • Country participation and ownership. Loans are developed through a process of negotiation between country officials and a development bank, a process in which country officials from the MOF and MOH have considerable influence in designing the final product. Grants are often designed to meet the donor's requirements as much as those of the receiving country. As such, they are sometimes less receptive to a country's priority requirements (and thus less likely to stimulate domestic "ownership") than loans, over which country officials have greater control.
  • Period of support. Loans provide a secure source of financing over a longer period (upwards of three to five years, and sometimes as long as ten years or more) than most grants (which are typically for one or two years at a time). This is especially important for long-term planning and the stability of population-based programs such as immunization.
  • Amounts available. Loans can provide substantially larger sums of money than grants. For example, a recent immunization-strengthening project in India was financed with a "soft" loan in the amount of US $142 million-far more than could have been obtained from grant funds alone.
  • Stability. Grants are more susceptible to geopolitical influences than loans, which tend to be more neutral.
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What is the legal foundation of a development loan?
Every development loan is based on a "Loan Contract" between the borrowing government and the development bank providing the loan. The purpose of this contract is to provide a legal foundation for the loan and to specify, in very general terms, the loan's objectives, activities and budget categories. Since these are specified in such general terms, the loan contract leaves plenty of room for flexibility and adjustment of the project in response to learning or changed circumstances. This flexibility is not always obvious from project design documents, which are typically very specific about the various inputs, plans, timetables and indicators of a given project; but since the loan contract is so general-and since it is this document that forms the legal basis of the loan, not the project design documents-this flexibility remains an essential and inherent part of virtually all development loans.
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How sustainable is loan financing, especially when compared with other options? Doesn't it just generate more "donor dependence"?
If loans are used as a source of temporary funding, without attention to long-term issues such as capacity building and ensuring a strong immunization system for the future, then "donor dependence" becomes a possibility. On the other hand loans, unlike grants, have to be repaid (even if the repayment amount may be substantially less, in real terms, than the amount initially borrowed), and this in itself may bring about a higher level of domestic commitment to the program-an important benefit that may help to make the program more sustainable and secure in the long term. A related benefit is that loans, unlike many grants, are typically developed through an extensive process of negotiation between the lending agency and government officials from the MOH and MOF. This helps to promote domestic "ownership" of the resulting program and ensure that it is consistent with the government's own priorities.

Even without these factors, many of the activities that accompany a loan-such as data collection, operations research, forecasting, financial projections, procurement reviews etc.-have benefits that can outlast the loan itself. Overall, then, if borrower countries use their loan proceeds to build a sustainable immunization system, and if they take advantage of the loan's long maturity time and inherent flexibility, the problems with sustainability and "donor dependence" are not likely to materialize.
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If we decide to borrow for immunization, what are some things we should look out for?
Countries that decide to use loan funds as part of their immunization-strengthening strategy should bear in mind the strengths and weakness of loan financing, as summarized in Questions 18 and 19. The following points are also worth remembering throughout the loan/project-development process:

Make sure the loan is being taken for the right reasons. Loans that are taken for the sole purpose of meeting a financing shortfall or a short-term target seldom work to stimulate long-term, sustainable improvements in a country's immunization system. On the other hand, loans that are used to strengthen the system through, for example, improved planning and management, regeneration of an aging cold chain, or the introduction of new technologies, can bring about improvements in efficiency and equity that remain in force until well after the loan period is over. Loans should be used to improve the efficiency, effectiveness, equity and sustainability of a program, not simply to meet a financing shortfall.

Make sure the loan is well-designed and suits the needs of your program. Not all loan-financed projects are successful. Development bank and government officials frequently face pressure to develop and approve projects quickly, and projects are sometimes designed with flaws that make implementation difficult. Both government officials and development bank staff are responsible for ensuring the quality, relevance and practicality of projects, but MOH and MOF officials have considerable leverage in designing and setting the terms of a loan-certainly more so than with grants, which are often designed to meet the donor's requirements as much as those of the receiving country.

Think through the implications for existing relationships. Immunization programs are typically founded on strong relationships between government officers and a wide variety of donors, suppliers, interest groups and international organizations. Depending on the circumstances, a loan may be associated with certain conditions or expectations-about procurement procedures, for example-that can affect these relationships. To avoid unexpected complications, these effects should be thought through in advance, preferably through having these groups participate in the loan/project development process.

Use the project preparation process to conduct a comprehensive review of the existing system. The project preparation process can usually be used to conduct a thorough review of the existing immunization system. Grant funds, often available through the development banks themselves, can sometimes be used for this purpose.

Avoid being too complicated. The best projects are often the simplest ones, while complicated projects-which typically involve many agencies and a long list of objectives and recommended actions-often face more difficulties. Immunization projects are, by their nature, complex, and the temptation to squeeze too many activities or objectives into a single project should be strongly resisted. Start simply, be successful, and build upwards from there.
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Are there any circumstances in which a country absolutely shouldn't take a loan?
In countries with overwhelming levels of public debt and few immediate prospects for economic growth, extensive borrowing may not be a prudent strategy. These countries have other avenues open to them, including GAVI funds, bilateral grants and the possibility of debt relief under the HIPC initiative, all of which can be used to good effect-in both health and economic terms-by investing in the country's immunization program. If the national budget and grant resources are still inadequate to finance the highest priority programs, then governments may need to engage in limited borrowing targeted toward essential services or other high outcome interventions. Most countries are not in this situation, however, and most MOFs are comfortable with the concept of borrowing to make productive investments: especially given the favorable terms of development credits and their large grant component (which, as described in Question 1, provides governments with around two dollars "free" for each dollar they themselves spend). Given the cost-benefit and cost-effectiveness of immunization programs, and in view of the relatively small amounts involved, many countries-including many low-income countries-may be in a situation to pursue loans as one way of strengthening their immunization programs. Questions 13 and 19 discuss issues to watch out for in doing so, but these should not be taken as absolute contraindications-just general cautions.
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Box 1-Categories of Development Loan

Most development banks use two basic types of lending instrument: investment loans and adjustment loans. Investment loans have a long-term focus (five to ten years) and finance goods, works and services that support social and economic development in a broad range of sectors. Originally focused on hardware, engineering and bricks and mortar, investment loans now focus increasingly on institution-building and social development. In the case of the World Bank, sub-categories include: Specific Investment Loans (which support the creation, rehabilitation and maintenance of specific infrastructure investments such as hospitals and information systems); Sector Investment and Maintenance Loans (which focus on the entire public expenditure program of a given sector rather than on a specific project or program); Adaptable Program Loans (which provide phased support for long-term investment programs through a series of consecutive loans, each building on the experiences of the previous one); Learning and Innovation Loans (which support small pilot-type investment and capacity-building projects and have a shorter time-frame than other investment loans, of one to three years); Technical Assistance Loans (which are used to build institutional capacity both in specific sectors and for the preparation or implementation of investment or adjustment operations); and Emergency Recovery Loans (which focus on the restoration of key systems following extraordinary events such as war or natural disaster, with a time-frame of two to three years).

Adjustment loans have a short-term focus (one to three years) and provide quick-disbursing funds to support policy and institutional reforms. Originally designed to provide support for macroeconomic reforms, particularly in trade policy and agriculture, adjustment loans now focus more on structural, financial sector and social policy reforms and on improving public sector management. Sub-categories include: Structural Adjustment Loans (which focus on macroeconomic and structural issues that cut across sectors, such as trade policy, public sector management and social safety nets); Sector Adjustment Loans (which support policy changes and institutional reforms in a specific sector, such as reforms in health insurance); Programmatic Structural Adjustment Loans (which support medium-term programs of policy and institutional reform by providing a series of phased loans over three to five years, each building on the lessons of the previous one); Special Structural Adjustment Loans (which are designed to forestall or mitigate the structural and social consequences of short-term financial crises, in tandem with IMF operations); and Debt Reduction Loans (which help highly-indebted countries to reduce their commercial debt, either by converting it to lower-interest instruments or buying it back at a discount).

Source: World Bank (2000)

World Bank. 2000. "Lending Instruments: Resources for Development Impact." World Bank Operations Policy and Strategy Division, July 2000

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Table 1-Cost-Effectiveness of Immunization vs. Other Interventions

Intervention Cost per year of healthy life gained*
Immunization with standard EPI antigens** $14 to $20
Immunization against hepatitis B $15 to $35
Immunization against HiB $20 to $150
Community distribution of ORS $25 to $75
Family planning promotion $25 to $75
Medical treatment of childhood infections $20 to $50
Clinical care for pregnancy/delivery $30 to $250
Curative care for injuries/minor trauma $25 to $250
Medical treatment of tetanus $75 to $250
Medical management of diabetes $100 to $250
Surgery for cancers >$1000
Surgery for coronary artery disease >$1000
Medical treatment of chronic lung disease >$1000

* Measured using disability-adjusted life-years (DALYs).
** Measles, diphtheria, tetanus, pertussis, oral polio and BCG

Sources: Jamison et al. (1993), Peabody et al. (1999), Miller and McCann (2000)

Peabody J et al. Policy and Health-Implications for Development in Asia. New York: Cambridge University Press, 1999
Jamison DT, Mosley WH, Measham AR, Bobadilla J-L (eds.). Disease Control Priorities in Developing Countries. Washington DC: Oxford University Press for the World Bank, 1993
Miller M, McCann L. "Policy analysis of the use of hepatitis B, Haemophilus influenzae type B-, Streptococcus pneumoniae-conjugate and rotavirus vaccines in national immunization schedules." Health Economics 9: pp. 19-35, 2000

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Table 2-What Do National Immunization Programs Cost?

Côte d'Ivoire
Recurrent costs (% of total)        


42 47 54 20


11 23 13 12


1 2 4 8


* 1 1 3

Short-term training

* * * *

Social mobilization

* 1 * 1


2 1 2 1


57% 75% 74% 45%
Capital costs (% of total)        


8 5 6 1


1 1 1 1


3 3 2 1

Long-term training

* * 0.00 *


12% 9% 9% 4%
National Immunization Days (% of total)        


32% 16% 18% 52%
Total annual costs (US$ million) 11.2 34.3 9.6 7.6
Total annual costs per capita (US$) 0.41 0.28 0.67 0.40
Total annual costs as % of GDP 0.03 0.08 0.09 0.11
Immunization coverage (DTP3,%) 89 68 64 69

Sources: Kaddar et al. (2000), Levin et al. (2001)

Note: Given the less than 80% coverage rate observed in three of these countries, these costs are not necessarily optimal and are included for illustrative purposes only.

* Less than 1%

Kaddar M, Levin A, Dougherty L and Maceira D. "Costs and financing of immunization programs: findings of four case studies." Special Initiatives Report 26. Bethesda, MD: Partnerships for Health Reform Project, Abt Associates Inc., May 2000
Levin A, England S, Jorrisen J, Garshong B and Teprey J. "Case study on the costs and financing of immunization services in Ghana." Bethesda, MD: Partnerships for Health Reform Project, Abt Associates Inc., September 2001

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