Economic Impact of HIV/AIDS in Botswana: Linkages between Macroeconomic, Sector and Household levels HIV/AIDS intervention in developing countries: use of Cost Effectiveness and Cost Benefit analysis to guide Policy and Action Harvard School of Public Health Sept 13-15 2006 Keith Jefferis and Anthony Kinghorn
Background � Previous macroeconomic impact study 2000 � Roll-out of ART � National Strategic Framework costing – considered “unaffordable” � Subsequent work on macroeconomic impact in Botswana (IMF) and elsewhere in Southern Africa
Ongoing Study - 2006 � Funded by UNDP, on behalf of GoB/NACA � Parallel demographic impact study � Review of earlier studies � Accuracy of projections � Methodology � Components � Updating of macroeconomic models � Firm/industry review � Costing/fiscal impact � Household/poverty impact
Macroeconomic Modelling
Macroeconomic Modelling � Aim to capture variety of macro impact channels: � Labour force � slower growth (demographics) � changed age & experience structure � labour productivity (illness/absence) � Broader macro impacts � overall productivity growth � expenditure diversion � savings & investment
Macroeconomic Modelling � Dual approach: � Aggregate production function (Solow growth model) incorporating formal and informal sectors, skilled & unskilled labour � Computable General Equilibrium (CGE) model incorporating range of economic sectors and labour and household categories � Both solve for macroeconomic equilibrium on the basis of calibrated model & input assumptions (e.g. demographics)
Macroeconomic Modelling � Scenario modelling: � No AIDS � with AIDS � AIDS with treatment (ART) � Solve annually and roll forward to 2021 � Outputs include GDP, growth, per capita incomes, employment, wages
Model Structure (Agr. PF) Skilled Formal Labour Sector Population Capital & AIDS Informal Unskilled Sector Labour OUTPUT Productivity (TFP)
Illustrative GDP Growth Impact 6% 5% 4% 3% 2% 1% 0% 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 No AIDS AIDS no ART AIDS with ART
Contributions to GDP Growth No-AIDS vs AIDS with ART TFP, 31% Capital, 49% Skilled, 14% Unskilled, 6%
Illustrative Impact - Real GDP per capita 19,000 P million (2001 prices) 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 2001 2004 2007 2010 2013 2016 2019 No AIDS AIDS No ART AIDS with ART
Key Modelling Results & Conclusions � Labour market effects through: � demand (investment, wage levels, productivity) � supply (size & composition of LF) � Result: less favourable employment trends (reduced demand outweighs reduced supply) � Higher un/under-employment and slower wage growth � Only partially alleviated by ART
Household-level Impact
Household Impact � Poverty impact simulated through use of household survey data (income & expenditure, 2002/03 & AIDS impact, 2004) � Superimpose HIV/AIDS on population in accordance with demographic prevalence trends � Simulate income and expenditure effects and calculate impact on poverty headcount rates
CGE Results - Poverty 24 National poverty headcount (%) 23 With AIDS 22 Treatment 21 Without AIDS 20 19 2003 05 07 09 11 13 15 17 19 21
Costing & Fiscal Impact of HIV/AIDS
Methodology � Demographic projections � ART, No-ART, No-AIDS � Utilisation � Various protocols, policies, site data � Calibration to empirical data - plausible � Limitations � Costs � Unit costs of ART, Orphan Grant, program expenditure history, step down for in- and outpatient
Projected Total Number of adults and children on ART (Provisional - illustrative) 160 140 120 100 thousands 80 60 40 20 0 1 3 5 7 9 1 3 5 7 9 1 0 0 0 0 0 1 1 1 1 1 2 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 ART Best estimate ART 10% lower ART 10% higher • There will continue to be large, rapidly rising numbers on ART • Some uncertainty about length of survival on ART, uptake rates that may affect scenarios
Projected Number of Total deaths per year (Provisional - illustrative) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 No AIDS No ART ART Best estimate • Needs for terminal care should not increase substantially beyond recent levels
Costs
Preliminary projected Costs – % contribution of selected interventions No ART (Best estimate) 100% 90% 80% 70% 60% P million 50% 40% 30% 20% 10% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Hospital In-patient Ambulatory excl ART ART HBC Prevention Prog. mgt. OVC
Preliminary projected Costs – % contributed by selected interventions combined with ART (Best estimate) 100% 90% 80% 70% P million 60% 50% 40% 30% 20% 10% 0% 7 9 1 3 5 7 9 1 3 5 7 9 9 9 0 0 0 0 0 1 1 1 1 1 9 9 0 0 0 0 0 0 0 0 0 0 1 1 2 2 2 2 2 2 2 2 2 2 Hosp. in-patient Ambulatory excl ART ART HBC Prevention Prog. mgt OVC OA pensions (cost vs. no ART)
Key preliminary findings � Terminal care and hospital bed needs are unlikely rise substantially above 2001/2 levels until after 2015, but substantial backlogs and referral system inefficiencies remain � The double orphan epidemic should reach a plateau soon under high ART coverage scenarios � Prevention expenditure is uncertain but costing shows importance of effective prevention for sustainability � Capacity requirements of sustainable, effective ART models are still unclear � Current models and implications for e.g. HBC and hospital loads are not clear
Preliminary Conclusions: Impact on Government Budget � Overall fiscal impact of HIV/AIDS expected to be substantial, but (just) manageable � Bulk of HIV/AIDS-related costs required whether or not ART is provided (ART adds 50% to costs) � Incremental costs of ART can probably be partially – but not completely - funded from taxes on extra GDP generated � Overall costs of HIV/AIDS cannot be financed from budget deficits � Need to reprioritise expenditures within health budget, HIV and AIDS program and elsewhere � Tougher trade-offs required if ART is provided � Donor resources needed to keep fiscal burden manageable
Summary of Preliminary Conclusions
Preliminary Conclusions – Methodological issues � Policy making advantages of combined macroeconomic, sectoral and poverty analysis � Shows linkages between sectoral decisions and effects � Clearer tradeoffs for prioritisation � Fiscal analysis � Macro planning – establishing “common language” with health and programme planners � Developing implicit policy scenarios and interpreting them for different audiences and purposes
Preliminary Conclusions – Methodological issues � Macroeconomic analysis � Macro modelling approaches valid and useful � CGE + micro-simulation particularly useful in providing integrated approach � Some key input parameters – investment and productivity impacts – have uncertain empirical basis – key areas for further, micro-level research � HIV impact on impact on firms’ decision making processes � Trade-off between cuts in recurrent and investment spending in fiscal decisions
Preliminary Conclusions – Policy making implications � Risks of inadequate NSF costing � Prioritisation � Objectives of costing � Cost vs cost benefit focus � Cost control essential (ART, welfare) � Consider cost & clinical effectiveness of ART distribution channels; innovative solutions necessary � Exploring implications of Abuja Declaration targets – Health as 15% of public expenditure � Advocacy to donor community
Implications – other countries � Botswana somewhat exceptional (in sub-Saharan Africa): � Very high HIV prevalence rate � High income, GDP growth � Savings surplus (over investment) � Capital intensive � Fiscal, BoP surpluses � Domestically-financed ART provision feasible but tough even in favourable environment � Methodological approaches useful and transferable depending on quality of data � Results elsewhere could well be different elsewhere
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