The macroeconomic impact of HIV / AIDS in Botswana.

The human consequences of AIDS will become worse at an accelerating pace over the next few years. While there is inevitably some uncertainty about how much wider the pandemic will spread and how quickly it will pass the future of those currently infected with HIV is tragically predictable and unavoidable. As discussed below current treatment options--that is those that are both available and affordable--may help reduce new infections provide greater comfort for the sick and delay in some cases. But premature death generally within around 10-12 years of initial infection is nevertheless almost certain for those currently afflicted in the absence of advanced treatment. There is substantial uncertainty however about the macroeconomic impact of HIV/AIDS the focus of this paper. These economic implications are the subject of a growing literature of country-specific and more general studies many of which draw on demographic projections and a range of other assumptions to model the long-term impact of HIV/AIDS on GDP GDP per capita and related variables. Such a model is also included in the current papers. As in other work in this area particular attention is paid to the sensitivity of model results to variations in the underlying assumptions. A key concern in this regard is to reflect in model simulations what might happen if the approaching acceleration in AIDS-related deaths leads to profound change in social and economic conditions--including for example a collapse of domestic and external investor confidence. With few if any historical parallels to draw on the ability of Botswana (or any other economy) to withstand a shock of the magnitude of the AIDS disaster will be unclear for some time. The paper is organized as follows. Subsection B provides an overview of the macroeconomic effects of HIV/AIDS focusing on the key channels through which the pandemic is likely to affect the macroeconomic outlook and on the uncertainties involved. Subsection C presents model-based estimates of the impact of HIV/AIDS on output and other key macroeconomic variables. The potential effects of HIV/AIDS on the long-term fiscal position of Botswana are considered briefly in Subsection D and subsection E concludes. Details of the theoretical model and of the data are given in the Appendix. (excerpt)