When an IMF mission visited Swaziland for the annual Article IV consultation in April 2000, it discussed with the authorities the economic and social implications of the HIV/AIDS epidemic that the country is experiencing. This article highlights some of the issues that emerged during the visit, such as the scale of the demographic impact, the impact on the public and private sectors, and government strategies to combat the epidemic.
Swaziland, along with Botswana, South Africa, and Zimbabwe, is one of the countries most seriously affected by HIV/AIDS (see table, page 359). The Joint United Nations Program on HIV/AIDS (UNAIDS) estimates that, by the end of 1999, about 130,000 Swazis (out of a total population of less than a million) were infected with HIV, which represents an HIV prevalence rate of 25 percent in the working-age population (ages 15—49). HIV prevalence rates among young adults (ages 15—30) are reported to be even higher than the aggregate prevalence rate of 25 percent reported by UNAIDS. Thus, the share of this generation that will become victims to AIDS will exceed the aggregate prevalence rate.
About 7,100 Swazis died of AIDS in 1999. Because of the disease’s long incubation period, this number is expected to rise over the next few years and to remain at high levels, even if the number of new infections can be reduced. For the period 2004—07, the Swazi government projects that about 60 percent of all deaths will be AIDS-related. According to the U.S. Bureau of the Census, by 1998, life expectancy at birth in Swaziland had fallen to 39 years; it would be 58 years if the country were not experiencing an AIDS epidemic. To date, 12,000 Swazis have been orphaned because of AIDS, and the government projects that the total number of underage AIDS orphans will rise to 120,000 (about 10 percent of the population) by 2010.
Rising demand for health services
There is no comprehensive study of the impact of HIV/AIDS on the health sector in Swaziland. However, the IMF staff estimates, on the basis of studies of other countries in the region, that the demand for health services created by HIV/AIDS amounted to about 1 percent of GDP in 1999 and may rise to about 1.5 percent of GDP in the near term, as more Swazis fall ill. This compares with a total health budget of 2.2 percent of GDP during 1994—98. The health sector, however, appears to be unable to cope with this rapidly increasing demand for services and has had to scale back services to the less serious cases and the terminally ill. Thus, actual health expenditure on HIV/AIDS is likely to be lower than estimates of the AIDS-related demand for health services.
In 1998, 80 percent of hospital inpatients were HIV positive, and rising mortality rates in the region suggest that the overall quality of health services is declining. At the same time, health service employees themselves are becoming infected with HIV/AIDS, and it will be difficult to train enough doctors and nurses to replace them.
The HIV/AIDS epidemic affects both the demand for education and the supply of teachers. In spite of the epidemic, however, the Ministry of Education estimates that the number of pupils in primary and secondary schools will rise from 308,000 in 1998 to 353,000 in 2010, while the pupil-teacher ratio has risen to 40 in 2000 from 34 in 1997. In order to return to and maintain a ratio of 34 pupils for each teacher, the number of teachers will have to increase by 4,130 (to 12,450) by 2010. At the same time, 5,650 more teachers will be needed to replace those who succumb to AIDS.
The total cost of training additional teachers to replace the AIDS victims will amount to $17 million, or $1.5 million a year. Additionally, the Ministry estimates the costs of sick leave and death benefits, including pensions for surviving dependents, at an average total of $7.1 million a year until 2010. Thus, HIV/AIDS is associated with an additional annual cost of $8.6 million in the education sector, which is equivalent to 12.7 percent of the recurrent education budget for the 1999 academic year, or 0.7 percent of GDP in 1999. This cost does not include additional funds that will be needed to maintain access to education for the rising number of orphans.
Decline in quality of public services
In general, as mortality rates among public sector employees rise, the quality of public services is likely to deteriorate. If the HIV prevalence rates in the public service are similar to those in the population as a whole, it means that about 1 in 60 government employees died of AIDS in 1999. As the epidemic evolves, this rate could increase to 1 in 40 or worse. This trend is causing disruptions of services, losses of experience and skills, and considerable outlays for sick leave, death benefits, and training of new employees. Taking into account the increased demand for government services, especially in the health sector, and the costs associated with the increasing mortality rates of government employees, fiscal costs of 2—3 percent of GDP (up to 10 percent of total government expenditure) related to HIV/AIDS seem plausible.
Impact on the private sector
The HIV/AIDS epidemic is lowering the supply of labor, raising production costs, and reducing productivity. Some companies in the formal sector would be able to replace employees who have died of AIDS by recruiting workers from the informal sector. However, it would be impossible to replace the most highly educated, and a shortage of well-qualified employees is consequently developing.
To maintain a constant supply of highly skilled labor, training and higher-education facilities will have to expand significantly, at a time when the number of available teachers is declining as a result of AIDS.
Various Swazi employers have indicated that the HIV/AIDS epidemic has affected their employees at all skill levels. Studies from other southern African countries suggest that the illness and death of an employee could represent total costs of 50—100 percent of the employee’s annual salary, depending, for example, on the extent of a company’s medical and death benefits.
Companies are taking steps to reduce the costs related to HIV/AIDS, such as screening, preventive measures, and reductions in benefits. For example, companies may become less willing to invest in training or hiring young workers, who are more likely than older workers to contract HIV. Preventive measures include sponsoring education campaigns and distributing condoms to employees.
At the household level, HIV/AIDS is leading to an increase in poverty, because families are frequently unable to compensate for the loss of a principal income earner. Moreover, the scale of the epidemic puts a severe strain on traditional social safety nets; for example, orphans may be left with no close relatives to care for them.
Changes in economic growth and income
Available studies on the impact of the HIV/AIDS epidemic on economic activity agree that rates of GDP growth will decline considerably. For southern Africa, these studies suggest that the rate of GDP growth will fall by 1—2 percent, which compares with a rate of growth of about 3 percent achieved in the region in the late 1990s. The evidence on the impact on GDP per capita is less clear. While reduced saving rates and a drop in productivity have a negative impact on per capita GDP, a decline in the rate of population growth tends to increase per capita income. For Swaziland, the IMF staff estimates that, by 2010, the rate of GDP growth will be about 2 percent lower and the level of GDP per capita 4—5 percent lower than they would be if Swaziland were not experiencing an AIDS epidemic. However, the level of GDP per capita may not be an appropriate indicator of the welfare effects of HIV/AIDS because it does not include the epidemic’s many associated costs or its nonmonetary losses. A recent study by Channing Arndt and Jeffrey D. Lewis, for example, estimates that, in South Africa, HIV/AIDS-related private and public expenditure amounts to about 5 percent of GDP. For Swaziland, non—AIDS-related GDP per capita declines by about 10 percent.
Demographic impact of HIV/AIDS in selected southern African countries
|HIV prevalence||Life expectancy||AIDS deaths,|
|rate, end-19991||at birth, 1998||1999|
The government was, by its own admission, initially slow to implement policy measures to reduce the rate of new HIV infections. However, a strategy for preventing the spread of HIV through improved education efforts at schools and information events at the community level has now emerged. Although effective prevention campaigns are difficult to implement because of the stigma associated with the illness, attitudes are, to some extent, changing. For example, King Mswati III of Swaziland and senior government officials have stressed the need to bring about a complete reversal in attitude and behavior, and a few high-profile public figures have made it known that they are HIV positive.