Macroeconomics & Macroeconomics & HIV/AIDS in the South HIV/AIDS in the South

African ContextAfrican Context

Gavin GeorgeGavin George

HEARDHEARDThe Health Economics & HIV/AIDS The Health Economics & HIV/AIDS

Research DivisionResearch Division

Presentation StructurePresentation Structure

• Economic ImpactsEconomic Impacts

• African ContextAfrican Context

• Specifically South AfricanSpecifically South African

• Macro Consequences of HIV / AIDSMacro Consequences of HIV / AIDS

• Policy Constraints & Pro-Poor PolicyPolicy Constraints & Pro-Poor Policy

• HIV/AIDS Financing: The African LessonHIV/AIDS Financing: The African Lesson

• Conclusions Conclusions

• Final ThoughtsFinal Thoughts

Three channels forThree channels for impacting the economyimpacting the economy • Direct costsDirect costs

AIDS AIDS treatment (including opportunistic diseases) treatment (including opportunistic diseases) reduction in savings reduction in savings lower accumulation of capital. lower accumulation of capital.

• Indirect costs (short term)Indirect costs (short term)

AIDS AIDS invalidity invalidity reduction in labour participation. reduction in labour participation.

• Deferred indirect costs (long term)Deferred indirect costs (long term)

AIDS AIDS Alteration of the long-term choices of the Alteration of the long-term choices of the agents (households and firms) agents (households and firms) lower investment in lower investment in physical & physical & ‘human capital’‘human capital’ (education, knowledge, (education, knowledge, know-how)know-how)

Economic Impact of the HIV epidemic Economic Impact of the HIV epidemic in developing countriesin developing countries

AIDS: In AfricaAIDS: In Africa

• Weakening institutional capacity (loss of educated professionals/civil servants)

• Threatening food security (knowledge transfer for farming)

• Weakening educational system (loss of teachers)• Exacerbating poverty (loss of breadwinners)• Swamping medical system• Orphans/street children and extended family

burdens• Reduces life expectancy• Impacting economic growth

Drop in labor force will have an Drop in labor force will have an impact on economiesimpact on economies

Source: “Impact of AIDS,” United Nations Secretariat, Population Division

South African Context: The Impact of HIV/AIDS on Economic Activity

In considering how to analyze the macro impacts of HIV/AIDS, there are several salient features of the AIDS epidemic that are likely to have substantial economic implications:

• · AIDS tends to strike young adults. According to the data presented by ING Barings (1999), most AIDS-related deaths are likely to occur in the 25 to 45 year age cohort. As a result, AIDS not only reduces life expectancy and the rate of population growth, it will also increase the burden on the working age population, who will be required to care for the young and the sick.1

• · AIDS is very slow moving. The median span between infection and death is estimated at 8-10 years (based on the medical technologies currently available in South Africa). During much of this period, the HIV positive individual may experience relatively few direct symptoms, and employment and productivity may be only marginally affected. But with the gradual onset of AIDS (usually during the last 2 years), HIV positive individuals are likely to have declining labor productivity, and to incur increasing and substantial medical costs over the period.

• · Infection rates differ by skill class. Analysis in the ING Barings report (1999) suggests that semi-skilled and unskilled workers exhibit a peak infection rate nearly three times the rate for highly skilled workers (these results are based largely on the different racial and age composition of the skill classes). Given these differentials in skill-based infection rates, and the current factor endowments in the economy (abundance of unskilled labor, scarcity of skilled labor) the AIDS epidemic will impact factor demands (for both labor and capital) and relative factor returns.

These features of the AIDS epidemic will combine and interact with South Africa’s economic structure to affect wages, income distribution, savings rates and other economic variables.

Macro Consequences of HIV / AIDSMacro Consequences of HIV / AIDS

• The Macroeconomic Impact of HIV / AIDSThe Macroeconomic Impact of HIV / AIDS, Markus Haacker (ed.) brings together , Markus Haacker (ed.) brings together research done by IMF, World Bank, UNAIDS, ILO, CGD, LSE etc.research done by IMF, World Bank, UNAIDS, ILO, CGD, LSE etc.

– Devastating social and microeconomic consequences. But equally devastating Devastating social and microeconomic consequences. But equally devastating macroeconomic consequences.macroeconomic consequences.

– Through mortality and morbidity in most productive segment of population, Through mortality and morbidity in most productive segment of population, economic growth likely to be reduced.economic growth likely to be reduced.

– Production costs may increase, eroding competitiveness and deterring Production costs may increase, eroding competitiveness and deterring investment.investment.

– Possible adverse consequences on human capital formation (orphaned children Possible adverse consequences on human capital formation (orphaned children or sick parents), and hence future growth.or sick parents), and hence future growth.

– Civil service (hence implementation capacity and public services) can be Civil service (hence implementation capacity and public services) can be devastated.devastated.

– Tax revenues may fall as economic growth slows, while public health Tax revenues may fall as economic growth slows, while public health expenditures rise, creating fiscal burden.expenditures rise, creating fiscal burden.

ContextContextMacroeconomic policy constraints =Macroeconomic policy constraints =- Control inflationControl inflation- Avoid large-scale public deficitAvoid large-scale public deficit- Limit long term dependence on external donor financingLimit long term dependence on external donor financing- Opportunity costs of AIDS programmes for other poverty Opportunity costs of AIDS programmes for other poverty

reduction strategiesreduction strategies

Ultimate goal of growth promotion and Ultimate goal of growth promotion and

Poverty Alleviation?Poverty Alleviation?

Pro-poor growth policiesPro-poor growth policies

• Capacity, opportunity, empowerment, securityCapacity, opportunity, empowerment, security– Investment in education, health, sanitationInvestment in education, health, sanitation– Infrastructure Infrastructure – Financial servicesFinancial services– Land tenureLand tenure– Agricultural research and extensionAgricultural research and extension– Red tape – barriers facing MSMEs (micro, small and Red tape – barriers facing MSMEs (micro, small and

medium enterprises)medium enterprises)– Labor-intensive manufacturingLabor-intensive manufacturing– Safety nets (affordability?) – Be Careful not to create a Safety nets (affordability?) – Be Careful not to create a

dependancy (Child & disability Grants)dependancy (Child & disability Grants)– Participation, consultation, governanceParticipation, consultation, governance

Role for Macroeconomic Role for Macroeconomic PolicyPolicy• Macroeconomic stability Macroeconomic stability growth growth• Macroeconomic Macroeconomic instabilityinstability vulnerability vulnerability• Policy implicationsPolicy implications

– Fiscal policy and debt managementFiscal policy and debt management– Monetary policyMonetary policy– Exchange rate policyExchange rate policy– Financial market policyFinancial market policy

• Mobilization of financing for poverty reduction Mobilization of financing for poverty reduction – Obligations of international communityObligations of international community– Trend towards aid selectivity/conditionalityTrend towards aid selectivity/conditionality

Debt Relief & International Subsidy Priorities will help!Debt Relief & International Subsidy Priorities will help!

HIV/AIDS Financing: The HIV/AIDS Financing: The African LessonAfrican Lesson

• The budget is considered to be a The budget is considered to be a vote of confidence in government, vote of confidence in government, therefore in South Africa no budget therefore in South Africa no budget has been turned down by parliament. has been turned down by parliament. However in South Africa, budgetary However in South Africa, budgetary debate is stifled by the absolute debate is stifled by the absolute majority of the leading party’s vote.majority of the leading party’s vote.

HIV/AIDS Financing: The HIV/AIDS Financing: The African Lesson cont.African Lesson cont.• Advocacy campaigns need to be built around budgetary resource Advocacy campaigns need to be built around budgetary resource

tracking, to avoid the problem of government’s using the excuse that tracking, to avoid the problem of government’s using the excuse that they don’t have the money.they don’t have the money.

• Donors allocate certain amounts to HIV/AIDS outside of their own Donors allocate certain amounts to HIV/AIDS outside of their own countries; there should be a way for sovereign governments to countries; there should be a way for sovereign governments to ensure that these funds do not impact on their sovereignty.ensure that these funds do not impact on their sovereignty.

• Is there any government in SSA that is able to match donor funding Is there any government in SSA that is able to match donor funding toward their health sectors? And if/when these donor organisations toward their health sectors? And if/when these donor organisations leave, many of these sectors programs will not be sustainable.leave, many of these sectors programs will not be sustainable.

• In South Africa, the government has centralised the donor resources In South Africa, the government has centralised the donor resources and planning, in order to know what donors are doing within the and planning, in order to know what donors are doing within the country. This is done in order to ensure that when donor programs country. This is done in order to ensure that when donor programs and funding are withdrawn or come to an end that the government and funding are withdrawn or come to an end that the government can take them over if they have been successful.can take them over if they have been successful.

• Financial dumping occurs when the government realise that they Financial dumping occurs when the government realise that they have not spent their budgets for a financial period and it is offloaded have not spent their budgets for a financial period and it is offloaded on donors who are unable to manage these funds in such a short on donors who are unable to manage these funds in such a short time, this can lead to mismanagement and corruption.time, this can lead to mismanagement and corruption.

HIV/AIDS Financing: The HIV/AIDS Financing: The African Lesson cont.African Lesson cont.• There are many players who are involved in the budget process, it is There are many players who are involved in the budget process, it is

important to pool the correct skills when costing, in order to ensure that important to pool the correct skills when costing, in order to ensure that the budgets are able to meet the plans and priorities going forward.the budgets are able to meet the plans and priorities going forward.

• Costing should be part of a country’s national strategic plan, they Costing should be part of a country’s national strategic plan, they provide the framework for a budgetary plan going forward, and allow a provide the framework for a budgetary plan going forward, and allow a country to access and allocate funding appropriately.country to access and allocate funding appropriately.

• How do you relate budget outcomes to a specific budget, for e.g. HIV How do you relate budget outcomes to a specific budget, for e.g. HIV prevalence and the health budget? This should not matter, if a country prevalence and the health budget? This should not matter, if a country has a holistic approach or overarching integrated national strategy, but it has a holistic approach or overarching integrated national strategy, but it raises an important issue about the contribution of specific and non-raises an important issue about the contribution of specific and non-specific budget allocations to meeting a particular target like a reduction specific budget allocations to meeting a particular target like a reduction of HIV prevalence.of HIV prevalence.

• The equitable share formula is used in South Africa to ensure that the The equitable share formula is used in South Africa to ensure that the budget is distributed according to the needs of the broader society.budget is distributed according to the needs of the broader society.

• Refugees are not properly accounted for in the budgetary process, they Refugees are not properly accounted for in the budgetary process, they are often unable to access the health care system until they achieve are often unable to access the health care system until they achieve legal refugee status. Even though there are international conventions legal refugee status. Even though there are international conventions that guarantee the ‘protection’ of refugees in SA, this does not seem to that guarantee the ‘protection’ of refugees in SA, this does not seem to be happening here.be happening here.

HIV/AIDS Financing: The HIV/AIDS Financing: The African Lesson contAfrican Lesson cont• Is it possible for civil society to be involved in the budgetary process? Although Is it possible for civil society to be involved in the budgetary process? Although

there should be more openness in SA With respect to the budget, it does not there should be more openness in SA With respect to the budget, it does not really happen, civil society are only invited to comment on the budget when it has really happen, civil society are only invited to comment on the budget when it has already been finalised.already been finalised.

• Are there any weights or indicators in order to determine how much of the budget Are there any weights or indicators in order to determine how much of the budget is effectively targeting HIV prevention/management? No, it is very difficult to is effectively targeting HIV prevention/management? No, it is very difficult to determine.determine.

• Accountability – in some African countries, there is usually only a one way stream Accountability – in some African countries, there is usually only a one way stream of accountability from government to the donors, but not from government to the of accountability from government to the donors, but not from government to the public. This is why civil society is so important in ensuring that the government public. This is why civil society is so important in ensuring that the government are held accountable for their actions.are held accountable for their actions.

• The auditor general should be protected by law from the influence of government. The auditor general should be protected by law from the influence of government. The findings made, should also be widely disseminated into the public domain.The findings made, should also be widely disseminated into the public domain.

• Governments must be held accountable and their performance monitored with Governments must be held accountable and their performance monitored with respect to the signing of international/regional agreements. For example the issue respect to the signing of international/regional agreements. For example the issue of the South African health minister and the Abuja declaration to committing 15% of the South African health minister and the Abuja declaration to committing 15% of the health budget to HIV/AIDS, where the health minister is denying the fact of the health budget to HIV/AIDS, where the health minister is denying the fact that this agreement was signed.that this agreement was signed.

• How do I link my rights, to my health?How do I link my rights, to my health?• Health is definitely an intersectoral issue; all ministries should be working toward Health is definitely an intersectoral issue; all ministries should be working toward

ensuring that their population are able to attain good health.ensuring that their population are able to attain good health.

Concluding remarksConcluding remarks

Challenges aheadChallenges ahead

• Tracking resource use at the country Tracking resource use at the country levellevel– Earmarked funds for HIV/AIDSEarmarked funds for HIV/AIDS– Public subsidies through the service delivery Public subsidies through the service delivery

networknetwork– Linking to programmatic indicatorsLinking to programmatic indicators

• Building national systems to track Building national systems to track performanceperformance

• Timeliness trade offsTimeliness trade offs

Additional ThoughtsAdditional Thoughts

• Where are the studies looking at the Where are the studies looking at the Macroeconomic impacts of other Macroeconomic impacts of other diseases?diseases?– Is there too much focus on AIDS?Is there too much focus on AIDS?– WAR (civil unrest)?WAR (civil unrest)?