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PUBLISHED ON 2 Oct 2015
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ECONOMIC IMPACTS OF HIV/AIDS AND THE FUNDING DILEMMA

by RUSH

Research by Judith Kabajulizi and Professor Mthuli Ncube of Blavatnik School of Government, funded by the RUSH Foundation, examines the economic impacts of HIV.

Despite remaining a major killer in Africa, the HIV pandemic has been tamed medically into a chronic disease through advances in treatment drugs – antiretroviral therapies (ARTs). However, the full economic costs, over a lifecycle horizon, of keeping people on treatment and implementing prevention measures, are still not fully quantified and are still unfolding. Indeed, the economic effects of the HIV/AIDS disease, and also the economic effects of various interventions need to be better understood.

Sub-Saharan Africa disproportionately bears the burden of HIV/AIDS compared to the rest of the word. This paper analyses the long-term economic effects of HIV/AIDS using a computable general equilibrium (CGE) model. Taking Uganda as a case study for analysis, the paper aims to predict the economic impact of HIV/AIDS through: (i) the human resource channel and, (ii) the source of fiscal space for HIV/AIDS channel, and proposes policy options for funding HIV interventions in the long-term. The paper shows that if the government intervenes by scaling up treatment and prevention of HIV, the negative economic impacts of HIV/AIDS – including the soaring cost of production due to rising wages, declining GDP growth rates relative to the base, and the rising domestic debt as share of GDP – are reversed. The economy thrives from a growing labour force supply and resource flows to HIV interventions.

Foreign-aid and direct taxation are both potential sources of fiscal space for HIV albeit with differential impacts on sectoral growth and government debt levels. The study demonstrates that low-income-countries (LICs) like Uganda have the capacity to mobilise domestic resources to fund HIV interventions by increasing revenues from direct taxes. It is recommended that policymakers – in Uganda and other LICs grappling with similar challenges – devise means to increase revenue from direct taxes particularly by tapping into the large informal sector. The paper also proposes that in the short to medium term, development-aid for health be increased in order for government to meet the future HIV/AIDS obligations. Overall, the research findings strengthen the case for policy makers to frontload investment in HIV treatment and prevention.

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Download the paper: The economy wide impact of HIV/AIDS and the funding dilemma in Africa: Evidence from a dynamic life cycle horizon of Uganda.