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IMF Book Forum: The Macroeconomics of HIV/AIDS

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
December 2004
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To commemorate World AIDS Day, December 1, the IMF hosted a Book Forum entitled The Macroeconomics of HIV/AIDS (see box), opened by IMF Managing Director Rodrigo de Rato. The new book, which explores the economic and fiscal consequences of HIV/AIDS, drew commentary from Rachel Gesami, Markus Haacker, and Simon Johnson of the IMF, and Shantayanan Devarajan of the World Bank.

According to the UN, close to 40 million adults between the ages of 15 and 49 worldwide live with HIV/AIDS, and an estimated 3.1 million people will die from AIDS in 2004. While most of the worst-affected countries are in sub-Saharan Africa, India is estimated to have the world’s largest population living with HIV/AIDS, and in China the number of infected people could reach 10 million by 2010. The enormous size of the Asian population, said Rachel Gesami (Advisor to the Executive Director for one of the IMF’s two sub-Saharan constituencies), means that the region could account for a substantial share of new infections in coming years and, given a further increase in prevalence rates, most HIV-positive people in the world may very soon be living in these countries.

Markus Haacker (Economist, IMF African Department, and editor of the book) described how HIV/AIDS has become an important issue for economic analysis and policy advice in countries facing severe epidemics. While the most direct effects of the epidemic are deteriorating health and increased mortality, these effects, in turn, have significant economic and fiscal consequences—for example, on economic growth and government finances. At the same time, the impact is very uneven across individuals and households. An economic assessment therefore also needs to take into account effects on poverty rates and income distribution.

Putting the epidemic into a historical context, Simon Johnson (Assistant Director, IMF Research Department) noted that the spread of infectious diseases has dominated most of human history—at least since the beginning of urbanization. Disease and human societies have essentially coevolved. The good news is that while the past 100 years have been marked by wide-scale outbreaks of influenza, typhus, and malaria, global pandemics have been largely absent, notwithstanding the onset of HIV/AIDS. “You have to go back to cholera in the 19th century for something that was huge, initially misunderstood, and had a really devastating effect on everybody’s expectations about their life and whether it was worth making investments in human capital,” Johnson said.

“The past 50 years,” said Johnson, “have been a wonderful aberration” in the sense that infectious diseases have come under control or even been eliminated thanks to scientific advances, such as the development of miracle drugs and learning how best to administer them. These breakthroughs, he said, have been central to the advancement of human welfare.

Some progress has also been made in fighting HIV/AIDS. As IMF Managing Director Rodrigo de Rato noted, “The World Health Organization’s work, supported by steep discounts in the prices of anti-retroviral drugs, has provided a road map to an expansion of access to treatment for large numbers of people living with HIV/AIDS in low-and middleincome countries.”

How HIV/AIDS affects the macroeconomy

How about the economic ramifications of this epidemic? Shantayanan Devarajan (Chief Economist, South Asian Region, World Bank) saw AIDS as a profound threat to economic development because it cuts off the process of human capital transmission, which is the engine of long-term economic growth. Unlike diseases such as malaria, he explained, AIDS kills primarily young adults and therefore also affects their children. Children of parents afflicted with HIV/AIDS are less likely to go to school or to receive vital nurturing and life skills. Less educated children are then less able to provide for their own children’s education—a vicious cycle that will have deeply negative consequences for long-term economic growth.

What can be done to mitigate or moderate the adverse macroeconomic impact? An effectively managed AIDS intervention program, like Botswana’s, said Gesami, could significantly moderate the adverse economic effects on the labor force, capital accumulation, and economic growth. As Devarajan underscored, intervention in the form of treatment will also allow parents more time to transmit some of their life skills to their children. However, even for a relatively rich country like Botswana, the cost of implementing such a comprehensive intervention plan would be astronomical and probably not feasible without donor support. Alternative, cheaper intervention programs may be the answer. Gesami urged further research in this area, including closer attention to the experiences of Uganda and Thailand.

Johnson emphasized that “either we collectively and individually deal with HIV/AIDS—and this means adapting what we’ve done before—or the disease will have first-order consequences for human development.”

Persuasion is also an important element in the battle against HIV/AIDS. Among policymakers, even in countries with high prevalence rates of HIV/AIDS, there is still a tendency, Devarajan said, to think that “it’s the health minister’s problem.” The problem is of such a magnitude that it cannot be resolved by reallocating resources within a budget. Haacker suggested that while increased resources have become available to fight the epidemic, the implications for governments are more far-reaching. Increased mortality erodes governments’ human resources, increasing personnel costs and expenditures indirectly related to HIV/AIDS, which add to the fiscal burden.

Where the IMF fits in

Turning to the role of international institutions, Johnson called on the IMF to think through carefully the consequences of the catastrophe and to figure out how much can be spent on it without destabilizing economies. In response to a question, Haacker explained that the IMF does not provide direct funding for HIV/AIDS prevention and treatment. However, through its concessional lending under the Poverty Reduction and Growth Facility and debt relief under the Heavily Indebted Poor Countries Initiative, the IMF supports poverty-reducing policies that include measures to fight HIV/AIDS and mitigate its effects.

The IMF’s role in the fight against HIV/AIDS has also changed over time, explained de Rato. Initially, IMF staff focused on the adverse social, economic, and fiscal effects of the epidemic, but the emphasis has since been shifted. As national responses to HIV/AIDS in member countries take shape and greater external financing for HIV/AIDS programs creates new challenges for member countries, the IMF is increasingly called upon to assist member countries in managing fiscal or macroeconomic aspects of the response to HIV/AIDS. De Rato underscored the IMF’s commitment to work with member governments and donor agencies to ensure that adequate and predictable financing for HIV/AIDS programs is available and that these funds are used in effective and macroeconomically sound ways.

The full transcript of the Book Forum is available on the IMF’s website at http://www.imf.org/external/np/exr/BForums/2004/120104.htm.

New book addresses economic and fiscal consequences of HIV/AIDS

The Macroeconomics of HIV/AIDS, the first book published by the IMF on a public health issue, addresses HIV/AIDS as a key economic development issue, and provides a comprehensive resource on the epidemic’s multiple economic consequences, as well as the implications for government finance, public services, and key areas of public policy.

The book begins with a chapter by Brynn Epstein (U.S. Bureau of the Census) on the global HIV/AIDS epidemic and its demographic impact. Five chapters focus on the epidemic’s economic consequences, starting with a discussion of the impact of HIV/AIDS on the social fabric and the economy by Markus Haacker (IMF). Clive Bell and Hans Gersbach (University of Heidelberg) and Shantayanan Devarajan (World Bank) link the impact on the household level to the accumulation of human capital and highlight the potential long-run consequences for economic growth. Nancy Birdsall and Amar Hamoudi (Center for Global Development) look at the role of human capital in economic growth more generally and providing some empirical evidence linking life expectancy to the demand for education. As the impact of HIV/AIDS is uneven across households, Robert Greener (UNAIDS) concludes that HIV/AIDS can have a substantial effect on poverty or inequality even if the change in GDP per capita is small, especially if poor households are disproportionally affected by the epidemic. Nicholas Crafts (London School of Economics) and Markus Haacker (IMF) argue that most of the welfare effects of HIV/AIDS arise directly from increased mortality, and that they are several times larger than the impacts on income or output.

The final four chapters of the book discuss some of the policy implications of HIV/AIDS. Markus Haacker (IMF) discusses the epidemic’s impact on public services and government finance. In an examination of the financial effects of HIV/AIDS on national social protection schemes, Pierre Plamondon, Michael Cichon, and Pascal Annycke (International Labor Organization) project that the cost of health care, sickness, and unemployment benefit schemes may rise. Iyabo Masha (IMF) describes and assesses Botswana’s National Strategic Framework on HIV/AIDS, illustrating the potential of a comprehensive national strategy to reverse the macroeconomic damage associated with the epidemic. Finally, Mead Over (World Bank) discusses the impact of HIV/AIDS on the health sector and the challenges facing countries that set out to substantially expand access to HIV/AIDS treatment.

The full text of The Macroeconomics of HIV/AIDS is available at http://www.imf.org/external/pubs/ft/AIDS/eng/index.htm. Copies of the book are available for $28.00 each from IMF Publication Services. See page 350 for ordering information.

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