Saturday, May 15, 2021

Botswana ÔÇô from death sentence to debt sentence

While Botswana is celebrating the end of AIDS as a medical disaster, the country is now counting the cost of keeping HIV survivors alive, a major fiscal liability to the economy.

A report by the international Monetary Fund (IMF) released earlier this month states that more than 10 percent of Botswana’s population is HIV positive and, taking into account the continuing spread of HIV Botswana faces a liability of over 20 percent of GDP arising from the need for treatment.

The report states that because Botswana is a middle-income country, it cannot count on the international community to shoulder much of its future burden. Fortunately, because the country has been prudently managed and therefore has moderate overall levels of debt to GDP, the treatment liability is substantial but not destabilizing.

“The cost of financing antiretroviral treatment poses its own unique moral issues. Once treatment is started, it would be abhorrent to stop it because funds run out. Choosing to discontinue treatment is an “act of commission” that ends the lives of identifiable people rather than the “act of omission” of failing to start treatment. But expenditures on antiretroviral treatment are long lasting precisely because treatment enables normal life spans: currently young sufferers will have to be treated for decades” states the report.

The IMF research, examined the prevalence of HIV and its future fiscal implications for Botswana and seven other African countries. “We recognize that there are clear benefits to treating HIV/AIDS in terms of individual well-being and the economy, but our focus here is on the fiscal implications of the moral duty to rescue. We use a standard epidemiological model integrated in the widely used Spectrum software to estimate the likely spread of infections until 2050 (Avenir Health, 2014). Then we calculate the total cost of future treatment. The unit costs come from Schwartl├ñnder and others (2011) and are assumed to be constant over time. We reduce future costs by the “discount rate,” which is the rate of interest. The higher the rate of interest, the lower the value of the liability today of costs that occur in the future. Generally, health economists use an interest rate of only 3 percent, which would imply a massive liability. In our work we use the higher (and therefore more conservative) rate of 7 percentÔÇöthe rate at which African governments can currently borrow in sovereign debt marketsÔÇösince this is a clearer reflection of opportunity costs. Even with this high discount of future expenditures, the liabilities arising from the treatment of HIV/AIDS are large enough to have an impact on countries’ economies.”

 

Zimbabwe has a somewhat lower prevalence of the disease than Botswana or South Africa, but a much lower income level and a higher recognized debt burden. In this case, it would be desirable to agree in advance on burden sharing with potential donors. Otherwise, there is a danger of a game of chicken between donors and government, each underfunding so as to leave the other with the duty of rescue.

Lesotho is in an altogether different situation. It is much poorer than Botswana or South Africa, but has a similar level of HIV infection. As a result, it faces a dramatically larger liability, analogous to a debt in excess of 70 percent of GDP. Lesotho’s external debt is only 31 percent of GDP, but the HIV-related liability would raise the country’s overall burden above 100 percent, in effect thrusting it into a debt level defined by the IMF’s Heavily Indebted Poor Countries Initiative as unsustainable. For this very reason, donors should not leave Lesotho to face this burden on its own. The international community already recognizes that external unsustainable debt burdens of poor countries should be forgiven. Lesotho has a small population, so the financial burden on the international community of financing the country’s HIV/AIDS expenses will be trivial.

In Malawi, despite the lower HIV prevalence, the cost burden of future treatment dwarfs the country’s modest external indebtedness. But because Malawi is much larger than Lesotho, the costs to the international community will necessarily be much higher. The Malawian government must therefore have reasonable reassurance of future donor funding if it is to commit to future treatment.

Clearly, given these liabilities for future treatment, ministries of finance must be aware of HIV/AIDS, and consider how to minimize the implied risks. Even for Uganda, which has lower prevalence, the hidden liability of treatment is as large as recognized indebtedness.

For some of the countries we studied, liabilities far exceed the capacity of the government to bear them. Given that there is an obligation of rescue, the excess of liabilities for treatment over what a country can reasonably afford becomes a liability of the donor community, and funding it will stretch for decades into the future. Ministries of finance must pressure donors to clarify their future commitments. Although donors face constraints on their ability to make long-term commitments legally binding, an agreed burden-sharing framework would make it less likely that donors will divert funds in the future to newly fashionable priority.

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