Economic Impact of      HIV/AIDS Stakeholder Workshop     March 2, 2007Structure of Presentation Review of Terms of Refere...
Terms of ReferenceTerms of Reference Review and update the BIDPA (2000)macroeconomic impact study, in particular:   the me...
Terms of Reference Analyse the likely impact of HIV/AIDS on the Botswana economy to 2021 using quantitative models; contra...
Terms of Reference Determine what policy levers the Government has at its disposal to mitigate the economic impact of HIV/...
Review of BIDPA Study  Macro Model Structure      BIDPA model – aggregated growth function,      formal & informal sectors...
Survey of HIV & AIDS EconomicImpact Studies – Model TypesType of Model                               No.Econometric estima...
Review of BIDPA Study       Other methodologies also useful       where data is available       Disaggregated approach can...
Summary of Model vs Outcomes Average GDP             9 growth over 2001-       8 2005 higher than        7                ...
Choice of    Macroeconomic      Modelling     ApproachesChannels of Potential Economic Impact Morbidity   Productivity (si...
Macro Modelling ApproachesUpdating of BIDPA model Calibrate to 2001 (from 1996) with new economic data Incorporate 2006 de...
Basis of CGE Model As with aggregate growth model, also works by simulating behaviour of economy More detailed economic st...
Simulated GDP Growth Rates, 2002-     2021 (Fig. 5-8)6%5%4%3%2%1%0%   02            04                    06              ...
Simulated Underemployment, 2002-  2021 (Fig. 5-9)36%34%32%30%28%26%24%22%20%   01           03                   05       ...
Sectoral Impact      Avg. growth 2003-21 (%)   8                                7                                6        ...
Household (Poverty) Impact Wide range of possible impacts on HH   Income and Expenditure   Direct and Indirect Channels   ...
Simulated Poverty Impact (HIES)Poverty Headcount (HH PDL)                             60%                             50% ...
Household (Poverty) Impact HIV & AIDS has clear negative impact on poverty Poverty headcount up to 3% higher due to HIV/AI...
Firm-level Survey - Introduction 25 firms were interviewed in different sectors Survey was not intended to be nationally r...
Firms’ Responses                            Firms have been innovative in their                            responses, espe...
Response in hiring by skill level                            80                            70                            6...
Fiscal Impact of      HIV/AIDSCost Implications ART Hospital in-patient Ambulatory Orphan care Home-based care Prevention ...
Projected Total Number of adults and children on ART            160            140            120            100 th u a d ...
Projected Number of Total deaths per year                                    40,000                                    35,...
Projected ART costsP million (real, 2004/05 prices)                                               700                     ...
Total costs by scenario (P million)                             1,800                             1,600                   ...
Conclusions, Policy Implications andRecommendationsMacroeconomic Implications Real GDP growth reduced by 1.5% - 2% a year ...
Macroeconomic Implications ART provision adds 0.4% - 0.8% to average GDP growth (cf. no-ART) Eliminates apprx one-third of...
Macroeconomic Recommendations Efforts to improve economic efficiency and reduce costs crucial to offset negative HIV & AID...
Fiscal Recommendations Costs are manageable but large & imply fiscal adjustments if budget is to be sustainable Fully fund...
Thank You            30
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2007:The Economic Impact of HIV-AIDS

  1. 1. Economic Impact of HIV/AIDS Stakeholder Workshop March 2, 2007Structure of Presentation Review of Terms of Reference Assessment of BIDPA (2000) Model Macroeconomic Models Firm/industry review Fiscal impact Household/poverty impact Conclusions 1
  2. 2. Terms of ReferenceTerms of Reference Review and update the BIDPA (2000)macroeconomic impact study, in particular: the methodology, assumptions and choice of models; evaluate the findings of the study vis a vis subsequent trends, and ascertain the predictive capabilities and suitability of the models chosen 2
  3. 3. Terms of Reference Analyse the likely impact of HIV/AIDS on the Botswana economy to 2021 using quantitative models; contrast the findings with those of BIDPA (2000) Estimate the trend paths of key economic variables under alternative HIV/AIDS scenarios, including the without-AIDS scenario, specifically: economic growth, savings, investment, human resource capacity, labour supply, productivity, competitiveness and povertyTerms of Reference Estimate the disaggregated current and future costs, direct and indirect, to the Government and the economy, of HIV/AIDS, with implications for the Government budget. Reconcile model predictions of the micro and macro level impacts of HIV/AIDS. This will involve estimating the household and sectoral impacts of HIV/AIDS. 3
  4. 4. Terms of Reference Determine what policy levers the Government has at its disposal to mitigate the economic impact of HIV/AIDS, the extent to which such levers have been used and to what effect. Investigate the strategies that firms have employed to protect their businesses from HIV/AIDS and the extent to which they have been successful in this regard. Review of BIDPA Study (2000) 4
  5. 5. Review of BIDPA Study Macro Model Structure BIDPA model – aggregated growth function, formal & informal sectors, skilled & unskilled labour Accommodates “with” & “without” AIDS scenarios Relevant parameters (infection rates, productivity, labour force growth) can vary Calibrated to 1995/96 actual data, simulations to 2021 based on demographic projections Projections of real GDP growth; per capita incomes; wages; employment Household (poverty) impact using HIES data Diagram of Model Structure Formal Skilled Sector Labour PopulationCapital & AIDS Informal Unskilled Sector Labour OUTPUT 5
  6. 6. Survey of HIV & AIDS EconomicImpact Studies – Model TypesType of Model No.Econometric estimation 2Aggregate growth model 5Macro-econometric model 3Computable general equilibrium 3Review of BIDPA Study Methodology was sound – aggregate growth model is most widely used; notably IMF studies on Botswana, 2001 & 2004, also Malawi & Tanzania Model is transparent, data requirements modest, maths & programming tractable Assumptions used were based on best available data at the time, although subsequent developments not always as assumed BIDPA study has been widely referenced and quoted Household impact analysis (simulation based on HIES data): BIDPA study was first of its kind Used in other studies subsequently 6
  7. 7. Review of BIDPA Study Other methodologies also useful where data is available Disaggregated approach can be useful – more detailed simulation of economic changes CGE models used for SA, Tanzania, Zambia Macro-econometric models in SAActual Outturn vs BIDPA (2000) Projections & Assumptions(period averages) 1995/6 - 2000/01 - 2000/01 2005/06Economic GrowthBIDPA 3.1% 2.9%Actual (non-mining) 5.9% 4.7%Actual (non-mining private sector) 5.4% 3.7%GDP per capita (growth)BIDPA 1.3% 1.1%Actual 2.8% 3.8%Population GrowthBIDPA 2.5% 0.8%Actual (CSO) 2.4% 0.9%Actual (CARe) 2.5% 1.7%Labour Force Participation RateBIDPA 48.5% 48.3%Actual 49.8% 56.5%*Investment (% GDP)BIDPA 25% 25%Actual 30% 21%Productivity (TFP) GrowthBIDPA 0.25% 0.25%Actual 1.3%*HIV prevalence (15-64 yrs, %)BIDPA 31% 30%Actual 24%** different time period 7
  8. 8. Summary of Model vs Outcomes Average GDP 9 growth over 2001- 8 2005 higher than 7 6 predicted 5 % However, recent 4 growth of non- 3 2 mining private 1 sector close to 0 predicted rates 98 00 02 04 06 7/ 9/ 1/ 3/ 5/ 9 9 0 0 0Summary of Model vs Outcomes Population growth higher than predicted (+) Higher labour force participation (+) Investment close to predicted value HIV prevalence lower than forecast (+) Productivity (TFP) higher (+) ART available 8
  9. 9. Choice of Macroeconomic Modelling ApproachesChannels of Potential Economic Impact Morbidity Productivity (sickness, time off) Expenditure (health care, training) Savings (diversion of incomes) Investment (uncertainty, profits, savings) Mortality Smaller population and labour force Changed age structure (experience) Loss of skills 9
  10. 10. Macro Modelling ApproachesUpdating of BIDPA model Calibrate to 2001 (from 1996) with new economic data Incorporate 2006 demographic projections Incorporate “with ART” & “no ART” scenarios along with “No AIDS” counterfactual Pay more attention to costs of HIV/AIDS treatment, impact on savings, investment & growth Impact of ART on labour force, productivity Improve modelling of productivity growth Use 2002/03 HIES data, but no new labour force data (since 1996)Macro Modelling Approaches Other macro modelling approaches Macro-econometric model needs pre-existing model – not available in Botswana model building a long and complex process CGE model feasible to build CGE for this project well-suited to analysis of HIV/AIDS impact 10
  11. 11. Basis of CGE Model As with aggregate growth model, also works by simulating behaviour of economy More detailed economic structure – disaggregated by sector, labour category, household income group Can model many interaction channels simultaneously Based on Social Accounting Matrix (SAM) Very demanding data requirements Can be linked with HIES for simulations Key Findings Macroeconomic Impact 11
  12. 12. Simulated GDP Growth Rates, 2002- 2021 (Fig. 5-8)6%5%4%3%2%1%0% 02 04 06 08 10 12 14 16 18 2020 20 20 20 20 20 20 20 20 20 No AIDS AIDS-ART AIDS - No ART Simulated Real GDP per capita 2002- 2021 (Fig. 5-7)19,00018,00017,00016,00015,00014,00013,00012,00011,00010,000 01 03 05 07 09 11 13 15 17 19 21 20 20 20 20 20 20 20 20 20 20 20 No AIDS AIDS-ART AIDS - No ART 12
  13. 13. Simulated Underemployment, 2002- 2021 (Fig. 5-9)36%34%32%30%28%26%24%22%20% 01 03 05 07 09 11 13 15 17 19 2120 20 20 20 20 20 20 20 20 20 20 No AIDS AIDS-ART AIDS - No ART Contributions to GDP Growth No-AIDS vs AIDS with ART TFP, 22% Capital, 48% Skilled, 21% Unskilled, 9% 13
  14. 14. Sectoral Impact Avg. growth 2003-21 (%) 8 7 6 5 4 3 2 1 0 dm gr Tr r Fi sp C E H fg Tr R e e O e rv B er v Pu erv st in ad & & M A & an on A W H M s s s E th n b usLabour intensive sectorsdependent on less-skilled NO AIDS AIDS ARTworkers most affected Key Findings Household Impact 14
  15. 15. Household (Poverty) Impact Wide range of possible impacts on HH Income and Expenditure Direct and Indirect Channels Temporary and Permanent Effects Possible channels Costs of medical provision Funeral costs Changed household composition (fewer or more members; income-earners vs dependents) Loss of income as breadwinners fall sick or die Changed employment opportunities Impact on general wage levels Government orphan supportHousehold (Poverty) Impact Modelled through: Simulating impacts on HIES source data over 10 years (as per BIDPA study) CGE modelling to 2021 (new) 15
  16. 16. Simulated Poverty Impact (HIES)Poverty Headcount (HH PDL) 60% 50% 40% 30% 20% 10% 0% Gab FT Oth R SE R NE R NW R SW Nat urb Without AIDS AIDS with ART Simulated Poverty Impact to 2021 (CGE) Poverty Headcount ($ a day, %) 25 24 23 22 With AIDS 21 NOAIDS 20 19 18 03 5 7 9 1 3 5 7 9 1 0 0 0 1 1 1 1 1 2 20 16
  17. 17. Household (Poverty) Impact HIV & AIDS has clear negative impact on poverty Poverty headcount up to 3% higher due to HIV/AIDS ART provision offsets this by 1/3 to 1/2. Orphan welfare provision also has significant poverty benefits Key Findings Firm-level Survey 17
  18. 18. Firm-level Survey - Introduction 25 firms were interviewed in different sectors Survey was not intended to be nationally representative but was sufficient to bring out the salient issues about HIV/AIDSGeneral Results Generally a bigger loss of unskilled workers due to illness and death than skilled workers 75% of firms reported negative impact of HIV & AIDS on output and productivity Most firms (56%) responded that HIV/AIDS has no significant impact on investment: other factors affecting profitability more important some firms reported delays in expansion and diversion of spending Difference in impact across sectors – level of skills a major factor Sectoral impact similar to SA Firms reported a reduced effect of the disease due to the availability of ARV since 2001/2002, esp. for skilled workers. 18
  19. 19. Firms’ Responses Firms have been innovative in their responses, especially those that have been impacted most by the disease: training more workers than needed; keeping additional workers on standby. over-employ for critical positions multi-skilling mechanisation more overtime temporary staff Although output could be maintained, training costs increased significantly Response in training by skill level 80 70 60% of skilled workers 50 40 30 20 10 0 No training response Train more multi-skilling Total 19
  20. 20. Response in hiring by skill level 80 70 60% of skilled workers 50 40 30 20 10 0 No response Hire more Hiring temporary Total workers Severity of Impact by Sector Construction (Least) - Severity - (Most) Manufacturing Mining Service Financial Retail 0 20 40 60 80 100 % of skilled workers 20
  21. 21. Fiscal Impact of HIV/AIDSCost Implications ART Hospital in-patient Ambulatory Orphan care Home-based care Prevention Programme management Old age pension 21
  22. 22. Projected Total Number of adults and children on ART 160 140 120 100 th u a d osn 80 60 40 20 0 01 03 05 07 09 11 13 15 17 19 21 20 20 20 20 20 20 20 20 20 20 20 ART Best estimate ART 10%lower ART 10%higherHospital bed needs for HIV and AIDS per year 2,500 2,000 1,500 1,000 500 0 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 No ART ART Best estimate ART 10% lower ART 10% higher 22
  23. 23. Projected Number of Total deaths per year 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 No AIDS No ART ART Best estimate ART Best estimate less 10% Projected Costs – with ART 1,800 1,600P million (real, 2004/05 prices) 1,400 OAP OVC 1,200 Other Prevention 1,000 HBC 800 ART Amb exc ART 600 In-patient 400 200 0 97 99 01 03 05 07 09 11 13 15 17 19 21 19 19 20 20 20 20 20 20 20 20 20 20 20 23
  24. 24. Projected ART costsP million (real, 2004/05 prices) 700 600 500 400 300 200 100 0 01 03 05 07 09 11 13 15 17 19 21 20 20 20 20 20 20 20 20 20 20 20 ART Best estimate ART 10% lower ART 10% higher Actual from Dev expenditure Projected Costs – selected interventions No ART 1,800 OVC 1,600 P million (real, 2004/05 prices) Prog. mgt. 1,400 1,200 Prev 1,000 HBC 800 ART 600 400 Amb exc. ART 200 In-patient 0 97 99 01 03 05 07 09 11 13 15 17 19 21 19 19 20 20 20 20 20 20 20 20 20 20 20 24
  25. 25. Total costs by scenario (P million) 1,800 1,600 1,400P million (2004/05 prices) 1,200 1,000 800 600 400 200 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 No ART ART best estimate Total costs by scenario (% of GDP and Gov Exp) 9% 8% 7% 6% 5%% 4% 3% 2% 1% 0% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 No ART (% GDP) ART (% GDP) No ART (% Gov Exp) ART (% Gov Exp) 25
  26. 26. Conclusions, Policy Implications andRecommendationsMacroeconomic Implications Real GDP growth reduced by 1.5% - 2% a year without ART Economy will be up to one-third smaller by 2021 due to HIV & AIDS Result of reduced labour force growth, younger LF, reduced productivity & investment GDP/capita growth 0.5%-1% lower 26
  27. 27. Macroeconomic Implications ART provision adds 0.4% - 0.8% to average GDP growth (cf. no-ART) Eliminates apprx one-third of negative growth impact Economy still 20%-25% smaller by 2021 Avg. incomes growth higher with ART In both scenarios investment channel is most importantLabour Force & Employment Reduced labour supply and labour demand – so overall effect uncertain Models suggest that demand effects dominate Leading to lower emloyment and lower wages with HIV & AIDS 27
  28. 28. Macroeconomic Recommendations Efforts to improve economic efficiency and reduce costs crucial to offset negative HIV & AIDS impacts Implement measures supportive of private sector investment & economic diversification Skills development, shared training costs Make it easier for firms to recruit citizens and non-citizens Poverty reduction and social welfare policies crucial to minimise poverty impactFiscal Implications HIV & AIDS is having a major impact on govt budget – approx 6% of govt spending Cost will rise by 60% in real terms by 2021, peaking at 8% of spending/3% of GDP ART drugs largest single component (40% of total) No-ART scenario costs are lower, but ART savings offset by higher other costs (health, OVC, HBC etc.) Economic growth and govt revenues would be lower in No-ART scenario Hence incremental ART (as % of GDP and govt spending) costs are small 28
  29. 29. Fiscal Recommendations Costs are manageable but large & imply fiscal adjustments if budget is to be sustainable Fully funding HIV & AIDS costs from budget deficits not feasible – needs trade-offs & cuts in spending elsewhere Prioritising of expenditures crucial to make cuts in lower priority areas Focus on cutting costs of HIV & AIDS programmes e.g. generics, lower cost services Work with donors to secure resources to maintain programmeFiscal Recommendations Consistent data a problem – spread across many spending departments Need for NASA/NAA NSF costings rough and ready Need for more accurate and better documented NSF costings to: Allow more accurate assessment of resource needs Enable updating using consistent methods Facilitate consensus approach Engage meaningfully with donors 29
  30. 30. Thank You 30

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