IDEAS home Printed from
   My bibliography  Save this paper

The economy wide impact of HIV/AIDS and the funding dilemma in Africa: Evidence from a dynamic life cycle horizon


  • Judith Kabajulizi
  • Judith Kabajulizi
  • Mthuli Ncube


The HIV pandemic, even though it is still a major killer in Africa, seems to have been tamed medically into a chronic disease through advances in treatment drugs (ARTs). However, the full economic costs, over a lifecycle horizon, of keeping people on treatment and implementing prevention measures, are still not fully quantified and are unfolding. Indeed, the economic effects of the HIV/AIDS disease, and also the economic effects of various interventions, also need to be better understood. Sub-Saharan Africa (SSA) disproportionately bears the burden of HIV/AIDS compared to the rest of the word. Over 70% of the people living with HIV (PLWHIV) are resident in SSA, of which 82% are adults. It is evident that the productive segment of the population is afflicted by the devastating health effects of the pandemic. The economic impact of AIDS is felt at all levels of economic analysis: micro, meso and macro. At the micro level, the household experiences increased costs of healthcare expenditure. Additionally the household faces indirect costs of reduced earnings and income when the productive household members are infected. At the meso level, sectors that are labour intensive are faced with low labour productivity. The increased demand for healthcare implies that health sector incurs higher budget allocations, which may necessitate a reduction of the budgets of other government functions. At the macro level, there is loss in economy-wide productivity due to increased absenteeism of sufferers and carers of sick people. Increased mortality from AIDS leads to a reduction in total labour force supply. There is a change in the skill composition of the labour force if AIDS affects one category of skilled labour relatively more. And finally, aggregate savings decline as a result of households resorting to assets and savings for immediate health expenditures, and the reduced capacity to earn income. The advances made in treatment of HIV/AIDS since the advent of anti-retroviral therapies (ART) in 1996 have meant that people can live longer while on treatment. Ultimately HIV/AIDS has become a chronic ailment that continuously draws resources from the health system. The commitment by governments to avail ART to those who need it constitutes a long-term financial liability which can be conceptualised as a debt liability. The dilemma for SSA countries is that they continue to grapple with the challenge of finding adequate resources to finance their health systems and yet also have to increase expenditure for HIV interventions. In exploring the “moral duty of rescue” for PLWHIV, Collier, Sterck and Manning (2015) conclude that funding HIV interventions spans beyond the infected person and the governments of the affected countries, especially for resource poor countries. On the other hand, it is also evident that donor funding for HIV has been gradually dwindling and its sustainability is not certain. The purpose of this paper is to model the economy-wide impact of HIV/AIDS taking into account various modes of funding HIV/AIDS interventions for selected SSA countries. This study extends the previous CGE methodologies by incorporating updating equations that emphasize the cost impact channel of HIV/AIDS interventions. Specifically, given the long term debt liability feature of HIV interventions, the impact on the countries’ debt burden is explicitly modelled, in addition to the impact on growth rate in GDP, investment, private consumption and the trade account. The study countries are purposefully selected to fulfil one of three criteria. A country with high prevalence rates of HIV and (i) resource rich – Botswana, currently resource poor but with prospects of future natural resource exploitation - Uganda, and (iii) currently resource poor and no prospects of future natural resources exploitation -Malawi. We explore different ways of funding the HIV interventions including government capital expenditure, foreign grants, tax financing, domestic borrowing, and foreign borrowing including financial innovations such as diaspora bonds and future-flows securitisation, among others. We use a recursive dynamic model in order to capture the lagged effects of HIV/AIDS-related health effects and the HIV intervention investments over time. It is an adaption of the “core” version of the Maquette for MDG Simulations (MAMS) model developed by the Word Bank group and documented in (Lofgren, Cicowiez, & Diaz-Bonilla, 2013). Technically the model is comprised of a static (within-period) equilibrium solution where producers maximise profit and consumers maximise utility in a given set of institutional constraints, and a dynamic (between-period) equilibrium solution. For the dynamic component, exogenous variables are updated to reflect changes in HIV/AIDS induced population and labour supply growth rates, capital accumulation and total factor productivity growth changes. Additionally, the HIV related government expenditure patterns and sources of funding are updated over the model period. The dynamic module captures the tracking of assets and liabilities of the households and the government, a feature that makes it suitable to predict the impact of HIV intervention cost on debt sustainability. Model solutions are analysed and presented as comparative growth rates over the model horizon. The impact of HIV/AIDS –with no intervention is contrasted with the baseline results. Similarly the impact of HIV/ AIDS-with intervention and different sources of financing the cost of intervention is contrasted with the baseline. Results present the baseline growth path and deviations from the baseline caused by changes in exogenous variables, holding other factors constant. Specifically each country results will show the impact on growth rates in GDP, and as a share of GDP, growth in consumption (private and government), investment (private and government), exports and imports, domestic and foreign debt. At the intermediate level, sectoral growth rates and sector shares are reported. The mechanisms of adjustment: exchange rate dynamics, interest rate payments (domestic and foreign), and factor income changes are explicitly captured and reported.

Suggested Citation

  • Judith Kabajulizi & Judith Kabajulizi & Mthuli Ncube, 2015. "The economy wide impact of HIV/AIDS and the funding dilemma in Africa: Evidence from a dynamic life cycle horizon," EcoMod2015 8563, EcoMod.
  • Handle: RePEc:ekd:008007:8563

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Thurlow, James & George, Gavin & Gow, Jeff, 2009. "HIV/AIDS, growth and poverty in KwaZulu-Natal and South Africa: Integrating firm-level surveys with demographic and economywide modeling," IFPRI discussion papers 864, International Food Policy Research Institute (IFPRI).
    2. Vijay P. Ojha & Basanta K. Pradhan, 2006. "The Macro-Economic and Sectoral Impacts of HIV and AIDS in India," Macroeconomics Working Papers 22134, East Asian Bureau of Economic Research.
    3. John Anyanwu & Yaovi Gassesse Siliadin & Ejikeme Okonkwo, 2013. "Role of Fiscal Policy in Tackling the HIV/AIDS Epidemic in Southern Africa," African Development Review, African Development Bank, vol. 25(3), pages 256-275.
    4. Robalino, David A. & Voetberg, Albertus & Picazo, Oscar, 2002. "The macroeconomic impacts of AIDS in Kenya estimating optimal reduction targets for the HIV/AIDS incidence rate," Journal of Policy Modeling, Elsevier, vol. 24(2), pages 195-218, May.
    5. Channing Arndt & Jeffrey D. Lewis, 2001. "The HIV|AIDS pandemic in South Africa: sectoral impacts and unemployment," Journal of International Development, John Wiley & Sons, Ltd., vol. 13(4), pages 427-449.
    6. Paul Collier & Olivier Sterck, 2018. "The moral and fiscal implications of antiretroviral therapies for HIV in Africa," Oxford Economic Papers, Oxford University Press, vol. 70(2), pages 353-374.
    7. Bloom, David E. & Mahal, Ajay S., 1997. "Does the AIDS epidemic threaten economic growth?," Journal of Econometrics, Elsevier, vol. 77(1), pages 105-124, March.
    8. World Bank, 2001. "Botswana : Selected Development Impact of HIV/AIDS," World Bank Publications - Reports 15536, The World Bank Group.
    9. Mr. Markus Haacker, 2002. "The Economic Consequences of HIV/AIDS in Southern Africa," IMF Working Papers 2002/038, International Monetary Fund.
    10. World Bank, 2014. "World Development Indicators 2014," World Bank Publications - Books, The World Bank Group, number 18237, December.
    11. Haacker, Markus, 2011. "HIV/AIDS as a Fiscal Liability," Proceedings of the German Development Economics Conference, Berlin 2011 35, Verein für Socialpolitik, Research Committee Development Economics.
    12. Bos, Eduard & Bulatao, Rodolfo A., 1992. "The demographic impact of AIDS in sub-Saharan Africa : Short- and long-term projections," International Journal of Forecasting, Elsevier, vol. 8(3), pages 367-384, November.
    13. Mr. Markus Haacker, 2001. "Providing Health Care to HIV Patients in Southern Africa," IMF Policy Discussion Papers 2001/003, International Monetary Fund.
    14. R Bonnel, 2000. "HIV/AIDS and Economic Growth: A Global Perspective*(1)," South African Journal of Economics, Economic Society of South Africa, vol. 68(5), pages 360-379, December.
    15. Peter Amico & Christian Aran & Carlos Avila, 2010. "HIV Spending as a Share of Total Health Expenditure: An Analysis of Regional Variation in a Multi-Country Study," PLOS ONE, Public Library of Science, vol. 5(9), pages 1-8, September.
    16. Lofgren, Hans & Cicowiez, Martin & Diaz-Bonilla, Carolina, 2013. "MAMS – A Computable General Equilibrium Model for Developing Country Strategy Analysis," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 159-276, Elsevier.
    17. Cuddington, John T, 1993. "Modeling the Macroeconomic Effects of AIDS, with an Application to Tanzania," The World Bank Economic Review, World Bank, vol. 7(2), pages 173-189, May.
    18. C Arndt & J D Lewis, 2000. "The Macro Implications of HIV/AIDS in South Africa: A Preliminary Assessment," South African Journal of Economics, Economic Society of South Africa, vol. 68(5), pages 380-392, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kabajulizi, Judith & Ncube, Mthuli, 2017. "Financing HIV/AIDS responses in Africa: Impact evidence from Uganda," Journal of Policy Modeling, Elsevier, vol. 39(5), pages 843-860.
    2. Edwards, Jeffrey A. & Al-Hmoud, Rashid & Fawaz, Fadi, 2007. "The effects of HIV/AIDS infections and mortality on saving and investment," MPRA Paper 36308, University Library of Munich, Germany.
    3. Thornton, Rebecca L., 2012. "HIV testing, subjective beliefs and economic behavior," Journal of Development Economics, Elsevier, vol. 99(2), pages 300-313.
    4. de Araujo, Pedro & Murray, James, 2010. "A Life Insurance Deterrent to Risky Behavior in Africa," MPRA Paper 22675, University Library of Munich, Germany.
    5. Enrico Lovász & Bernhard Schipp, 2009. "The Impact Of Hiv/Aids On Economic Growth In Sub‐Saharan Africa1," South African Journal of Economics, Economic Society of South Africa, vol. 77(2), pages 245-256, June.
    6. Sanghamitra Das & Abhiroop Mukhopadhyay & Tridip Ray, 2008. "Negative reality of the HIV positives: Evaluating welfare loss in a low prevalence country," Discussion Papers 08-02, Indian Statistical Institute, Delhi.
    7. Denis Cogneau & Michael Grimm, 2002. "AIDS and Income Distribution in Africa; A Micro-simulation Study for Côte d'Ivoire," Working Papers DT/2002/15, DIAL (Développement, Institutions et Mondialisation).
    8. Pedro Cavalcanti Ferreira & Samuel Pessôa & Marcelo Rodrigues Dos Santos, 2011. "The Impact Of Aids On Income And Human Capital," Economic Inquiry, Western Economic Association International, vol. 49(4), pages 1104-1116, October.
    9. Robalino, David A. & Jenkins, Carol & El Maroufi, Karim, 2002. "Risks and macroeconomic impacts of HIV/AIDS in the Middle East and North Africa : why waiting to intervene can be costly," Policy Research Working Paper Series 2874, The World Bank.
    10. Pedro de Araujo, 2008. "The Socio-Economic Distribution of AIDS Incidence and Output," Caepr Working Papers 2008-014_updated, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    11. José Cuesta, 2008. "Does a Mature AIDS Epidemic Threaten Growth?," Research Department Publications 4567, Inter-American Development Bank, Research Department.
    12. de Araujo, Pedro & Murray, James, 2015. "A life insurance deterrent to risky behavior in Africa," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 548-576.
    13. Louise Roos, 2013. "Modelling the impact of HIV/AIDS: A literature review," Centre of Policy Studies/IMPACT Centre Working Papers g-233, Victoria University, Centre of Policy Studies/IMPACT Centre.
    14. Arndt, Channing, 2002. "HIV/AIDS, human capital, and economic prospects for Mozambique," TMD discussion papers 88, International Food Policy Research Institute (IFPRI).
    15. Pedro de Araujo, 2008. "The Socio-Economic Distribution of AIDS Incidence and Output," Caepr Working Papers 2008-014_updated, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington, revised Sep 2008.
    16. Desmond, Christopher*Greener, Robert, 2003. "The strategic use and potential demand for an HIV vaccine in Southern Africa," Policy Research Working Paper Series 2977, The World Bank.
    17. Nicolas Couderc & Nicolas Drouhin & Bruno Ventelou, 2006. "SIDA et croissance économique : le risque d'une « trappe épidémiologique »," Revue d'économie politique, Dalloz, vol. 116(5), pages 697-715.
    18. McDonald, Scott & Roberts, Jennifer, 2006. "AIDS and economic growth: A human capital approach," Journal of Development Economics, Elsevier, vol. 80(1), pages 228-250, June.
    19. Kenneth Harttgen, 2007. "The Impact of HIV on Children´s Welfare," Ibero America Institute for Econ. Research (IAI) Discussion Papers 157, Ibero-America Institute for Economic Research.
    20. Anthony Mveyange & Christian Skovsgaard & Tine Lesner, 2015. "Does HIV/AIDS matter for economic growth in sub-Saharan Africa?," WIDER Working Paper Series wp-2015-086, World Institute for Development Economic Research (UNU-WIDER).

    More about this item


    Malawi; Uganda; Botswana; General equilibrium modeling (CGE); Developing countries;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:008007:8563. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.