Botswana has the highest prevalence of HIV in the world. How has it affected the population and the development of the economy? This paper by the International Monetary Fund provides an overview of the potential macroeconomic effects of HIV/AIDS, focusing on the channels through which the pandemic is likely to affect the economy and on the uncertainties involved.
The HIV/AIDS pandemic in sub-Saharan Africa, and other parts of the developing world, threatens to be a humanitarian and economic catastrophe of almost unprecedented proportions. The closest parallels in terms of disease-driven disasters may be found in the outbreaks of bubonic plague in the 14th century. In Botswana, the country with the highest HIV prevalence rate, according to official data, the unfolding disaster now overshadows what should otherwise be seen as an African success story, especially in terms of prudent resource management and well-directed economic development.
A few indicators illustrate the scale and implications of HIV/AIDS in the case of Botswana:
- Almost 300,000 of the 14-49 year old population (36 per cent) are infected with HIV.
- Life expectancy has fallen sharply: by some estimates, this has declined from 60 years in 1990, to 40 at present and is projected to fall to under 30 by 2010.
- The death rate per thousand has accelerated from 15 in 1990 to 30 in 2000 and is projected to reach 45 by 2007; in the absence of AIDS, the ‘normal’ death rate would have declined steadily to around 11 over this period.
- On current projections, by 2010 two children out of five would be orphans, totalling more than 200,000 orphans.
It is clear that AIDS will have a significantly negative impact on the rate of economic growth in Botswana over the coming decade.
- The GDP growth rate in the non-mining sector could fall from a predicted five and a half per cent a year without AIDS to between one and a half and two and a half per cent. By 2010, the economy could be 33 to 40 percent smaller than it would have been without AIDS.
- Lower growth rates in labour productivity and capital accumulation are predicted. Labour-intensive sectors are affected by the labour supply, while growth in capital-intensive sectors is reduced by slower capital accumulation.
- Redistribution effects across sectors and labour skills are also likely to arise due to AIDS. These stem from changes in the relative growth rate of the formal and informal sectors compared with the growth of their labour supply.
- The main sectoral impact on income distribution comes from the shortage of skilled labour, a shift of unskilled labour from the informal to the formal sector and a shrinking of the unskilled wage differential between the two sectors.
- The fiscal situation in Botswana will almost certainly deteriorate. Public expenditures could rise by over five per cent of GDP if economic and social pressures lead to weaker tax administration and compliance.
- Fiscal pressures could be substantially higher if anti-retroviral drug treatments are made generally available, highlighting the need for increased international support and/or lower drug prices to make such treatments feasible.