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Economic Issues- Impact and Investment Response By Dr. Karl Theodore |
Abstract
The paper presents updated information on the estimated impact of HIV/AIDS on the economies of the Caribbean. The author uses the output of a 1997 study on the economic impact of HIV/AIDS in Jamaica and Trinidad and Tobago as the starting point and updates the projections for these two countries based on some adjustments to some of the underlying assumptions in respect of the epidemiology of the disease and the cost of treating infected persons. Estimates are also derived for one of the smaller countries in the Eastern Caribbean, St. Lucia.
Estimates of the economic losses associated with the incidence of the disease in these three countries are placed within the context of the present outlays on health as well as in the context of the development objectives of these island states. The study identifies four channels through which the HIV/AIDS epidemic can impact on the development process and makes the case that the epidemic has the potential to distort this process. The study ends by quantifying the level of resources that would be needed if the region is to adequately respond to the threat of this modern day plague.
INTRODUCTION
The information on the world experience of HIV/AIDS borders
on the incredible. This is especially so for policy makers and
even health workers in the Caribbean, where, for the English-speaking
sub-region the population is less than 8 million and for the
wider Caribbean it is around 34 million. It is difficult for
the people of this region to fully absorb and respond to the
reality that since the early 1980s when the disease was first
recorded in the region, the epidemic has claimed the lives of
more than 16 million people world-wide and it is estimated that
a further 34 million are presently infected (UNAIDS 2000). There
is something unreal about the information. The message has probably
begun to sink in, however, as we contemplate the rate at which
the AIDS deaths have been taking place. According to UNAIDS,
whereas the epidemic claimed the lives of 1.5 million people
in the 1980s, in the subsequent decade it claimed 15 million
more lives, and it is expected to claim another 15 million lives
in the first half of the present decade (UNAIDS 2000). On a global
scale therefore, the rate of increase in deaths between the first
and the second decade was 900 percent and the projected rate
of increase for the present decade is at least an additional
100 percent. When we turn to the Caribbean we find that while
just under 1,100 deaths were recorded in the first decade, by
the end of the second decade another 7,000 deaths had occurred
- an increase of more than 500 percent. Even if we make allowances
for the better recording of deaths in the second decade, the
corresponding rates of increases in rates are mind-boggling.
As we turn from AIDS deaths to HIV infection there is an equally
alarming picture. "In just 20 years, over 50 million
people have been infected with HIV. Countless others have become
more impoverished as a consequence: children have lost their
parents, families have lost their property; communities have
lost teachers, health workers, business and government leadersand
societies have lost untold potential contributions to their social,
economic, political, cultural and spiritual life with the deaths
of millions of young people in their most productive years."
[UNAIDS Draft Global HIV/AIDS Strategy Framework, Draft, Sept
2000 p. 3]
While data limitations make it difficult to make a similar statement
about the Caribbean we do know that as far as AIDS cases are
concerned, even with the under-reporting that is known to be
taking place, the reported number of cases of infection is now
close to 460,000 (Caribbean Task Force on HIV/AIDS 2000). Using
a world population estimate of 6 billion, all of whom can be
assumed to be at risk, the presumed prevalence worldwide would
be 0.57 per cent. For the Caribbean, using a population estimate
of 34 million, overall prevalence is estimated at 1.35 percent,
almost two and a half times the world level.
As if the news so far were not bad enough, UNAIDS reminds us
that the major impact of the pandemic is yet to come. "While
it is difficult to predict the future spread of the epidemic,
the impact in terms of morbidity and mortality in the next decade
is clear. In the absence of effective treatment and care, an
additional 15 million people currently infected with HIV will
develop AIDS and die in the next five years." [UNAIDS
2000 ]
This is the context in which we need to place our analysis of
the economic impact of HIV/AIDS in this region. For while it
is obvious that the epidemic will harm the productive capacity,
and with it, the income and wealth creating potential, of the
region, we seem to be in a race against time. We have reasonably
good information about the rate at which the pandemic is developing.
However, we do not yet have as equally robust information on
the rate at which the epidemic is destroying the economic and
development potential of the Caribbean. Yet, the timing, the
scale and the quality of the region's response will most assuredly
need to be informed by our knowledge of the projected economic
impact of this disease.
In order to arrive at a functional understanding of the genesis
of the economic impact it will be necessary to understand the
specifics of the epidemiology of the disease in the Caribbean.
This issue is addressed in the following section.
THE EPIDEMIOLOGY OF THE DISEASE IN THE REGION
According to the international data in Table 1 below, at
the end of 1999, the Caribbean registered the highest prevalence
after Sub Saharan Africa. Studies by the Caribbean Epidemiology
Centre (CAREC) and the University of the West Indies (UWI) suggest
that the predominant mode of transmission of the virus is still
via sexual contact, of which 63% can be classified as heterosexual
and 12% due to homosexual, male-to-male contact (CAREC/UWI 1997).
Further, the World Bank suggests than in excess of half the number
of cases to date have been due to unprotected sex between men
and women (World Bank CGCED Report, June 2000). Moreover, strong
social, cultural and legal discrimination against homosexual
males has resulted in gross underestimations of the incidence.
What is worrying from an economic perspective is that the disease
appears to be impacting most heavily on young and middle-aged
adults where it has become the leading cause of death among the
15 to 44 age group - the core of the productive labour force
(Caribbean Task Force on HIV/AIDS 2000). Moreover, statistics
suggest that 70% of all cases in the region are among the 15-44
age group.
In Table 1 we present the adult prevalence
estimates for the different regions of the world. The data show
that the Caribbean ranks second to Sub-Saharan Africa with a
rate of 1.96 percent. This compares to Latin America with a rate
of 0.57 percent and the USA with a similar rate of 0.56 percent.
*: the percentage of adults age 15-49 living with HIV
in 1999 based on 1998 populations.
Source: UNAIDS 1999; 2000.
More detailed prevalence rates for the region are presented in
Table 2. The Table reflects the data difficulties already alluded
to in that they are not only three years out of date, but there
are also serious gaps across the different countries.
CGCED Toward a Caribbean Vision 2020.
* Adult rates (%) are derived from the number of total adults
(15-49) living with HIV/AIDS at the end of 1997 divided by the
1997 adult population.. Source: UNAIDS Report on the Global HIV/AIDS
epidemic, June 2000This information is to be seen in conjunction
with the results obtained from surveys among certain high-risk
groups. The table below details the prevalence among these groups
in selected Caribbean Countries.
Source: Caribbean Task Force on HIV/AIDS: HIV/AIDS in the
Caribbean-Addressing the Challenges and Opportunities for Strengthening
the National and Regional Response to the Epidemic.
Partly because of the extended period of economic adjustment,
in some countries of the region commercial sex workers have become
a more visible component of the service sector. The implications
for the spread of HIV are being taken seriously. Since it is
possible that some of these sex workers may be part of the cause
of the derived demand for STD clinic services, from a prevalence
point of view it is important that there is continuous monitoring
of these workers and STD clinic attendees.
Prevalence rates vary between the countries of the region and
the populations that are most affected are also different. Moreover,
prevalence is highest among commercial sex workers, STD clinic
attendees and Tuberculosis patients. The groups at risk are changing
as the greatest incidence of the epidemic has been shifting to
young people who continue to have unprotected sex, as well as
among men having sex with men.
The evidence also shows increases in the absolute number of
cases among women. Since 1995 the absolute number of cases among
women increased by a factor of 1.7 and while there are generally
more males affected, a disturbing finding is that in the 15-19
age group it is the adolescent girls that are especially vulnerable.
This also partially explains the observed increases in the number
of paediatric AIDS cases.
All the factors which influence prevalence of HIV/AIDS in the
Caribbean are likely to generate specific economic burdens within
the society. This is the subject of the next section.
ECONOMIC IMPACT OF THE EPIDEMIC
It is now generally well accepted that a bi-directional relationship
exists between HIV/AIDS and the Economic System. That is to say,
HIV/AIDS impacts on the economic system and the economy in turn
affects the epidemic. Figure I below maps out the relationship
between HIV/AIDS and the Economic System. As the diagram shows,
the epidemic has the potential to destabilise the economic system
because it impacts on the foundation pillars on which the production
of the society is built the labour force and the accumulation
of savings. What is more, the epidemic has the potential to keep
the health financing system in a permanent state of disequilibrium.
In short, it erodes productivity, consumes savings, increases
expenditure and reduces income. The devastation does not end
here though, for, with every increase in the rate of prevalence,
the negative impact worsens.
Figure
1
There are essentially four channels through which the HIV/AIDS epidemic could potentially exert economic impacts in the Caribbean. These are the (i) production; (ii) allocation; (iii) distribution; and (iv) regeneration channels.
The Production Channel
This channel speaks to the mechanisms by which the disease impacts
on the main factors of production labour and capital
causing the production process to be less fruitful than it would
otherwise have been. In extreme cases there would be a potential
for the epidemic to impoverish countries with one possibility
being the dismantling of the production process itself.
There are three development-related issues which arise in this
context. The first relates to the scale of production
in many on the countries, the second to desired factor intensity
of production, and the third relates to the industrial
policy framework.
In each case the HIV/AIDS epidemic seems to be pointing the economy
in the "wrong" direction. In respect of production
scale the prognosis is that production volumes across the region
will decline making it more difficult to fulfil export orders
and raising unit costs to the point of putting a number of arrangements
in jeopardy. In respect of factor intensity, the argument is
that with the absolute decline in the labour supply in a number
of sectors the economies will become more and more capital intensive,
making it harder to deal with unemployment objectives when the
epidemic is brought under control. Finally, in the light of the
expected dislocation of existing strategic sectors - tourism,
for example the instinct to survive the crisis will lead
to policy support for sectors which may not in the longer term
be in the best interest of particular countries, for example
ones that maybe environmentally unfriendly.
In summary, the epidemic seems to have the potential to severely
distort the developmental aspects of the region's production
processes. For the present paper our information only allows
us to focus on the direct quantitative impact of the epidemic
on production.
The main economic costs associated with HIV/AIDS would come from
the production losses coming from repeated and prolonged illness
that persons suffer as a result of the disease. HIV/AIDS would
therefore impose significant costs on both households and the
health systems. In an early Trinidad and Tobago study by Henry
and Newton (1993), the estimated loss in GDP that would result
if the epidemic continued in the manner in which it was growing,
was between 1% and 3%. The more recent CAREC/UWI study found
that the estimated loss to GDP would reach a level of 4.2% by
the year 2005. In essence, these figures tell us that the epidemic
is not only threatening to weaken the economic base of the society
but is also succeeding in being a major challenge to both the
delivery and financing sub systems of the health system. In these
circumstances the need for more detailed economic investigations
of this epidemic is compounded by the fact that these countries
are small in terms of their geographical size, lack of robust
infrastructure and experience high inward and outward migration
rates. This is therefore a region with several doors of vulnerability.
The Allocation Channel
One the important functions of the economic system is to ensure
that resources are allocated to the different lines of production
in a way as to minimizes the cost of production to the society.
Any epidemic which has the potential to cause shortages of critical
resources and/or to skew the use of resources away from crucial
lines of production, also holds the potential to impose heavy
economic costs on the society under threat. In the case of HIV/AIDS,
the issue raised here concern the volume of the region's foreign
exchange which will need to dedicated to dealing with the disease.
To the extent that the therapeutic component of the response
to the epidemic will require a reallocation of the region's foreign
exchange away from alternative productive uses, there is a likelihood
of production shortages and increasing costs in the now foreign-exchange-short
sectors. In fact, the exchange rate may itself be under pressure
to adjust.
On another level, in the case of HIV/AIDS the very fact that
the age group 15-45 is the most affected suggests that there
is the potential for the region's skilled labour force to be
negatively affected. What is more, this negative impact may well
deplete the labour force such that the countries may be taken
below resource threshold levels, thereby making for an upsetting
of factor combinations to the point of inefficiency as well as
insufficiency.
The Distribution Channel
The development planners of the Caribbean are in general agreement
that one of the main aims of development in the region has been
to engender an environment wherein the output of goods and services
in the society are equitably distributed. The historical legacy
of uneven distributions of income and wealth has remained one
of the challenges to policy makers in the region. The emphasis
on improving the education system as well as the attempts to
reform the health system have all been predicated on the need
to ensure that the weaker, more vulnerable members of our society
are not left behind as the economies move forward (Trinidad and
Tobago Budget Speech 2000; UNESCO 1999).
In the face of an epidemic like HIV/AIDS which has the potential
to weaken the income-base while spurring higher expenditure requirements,
it is eminently possible that the lowest income groups will find
themselves even worse off once the disease takes root. Not only
will their most promising income earners be plucked away but
the young ones who should be replacing them will not live to
become earners of income. Although the upper income groups will
not be immune from the epidemic, their capacity to protect themselves
will have the indirect result of widening the gap between the
upper and lower income groups as the epidemic gains momentum.
One of the relevant issues here is the access to health care
for HIV/AIDS patients themselves. The relatively expensive nature
of required interventions raises this access question both at
the level of the individual and at the level of the broader society.
In a context where poverty levels are known to be significant,
and where governments are generally under severe fiscal constraints
the care of patients from the lower income brackets has become
an important social concern. One suggestion, yet to be adopted
by any government in the region, is for the care of HIV/AIDS
patients to be included, wholly or partly, within the proposed
basic packages of health services which most of the governments
are now considering as part of their health sector reform.
There is clearly a need for serious ongoing research on this
issue.
The Regeneration Channel
In the face of normally expected increases in population and
the usual rise in the expectations of the existing population,
the economic system is expected to combine its saving propensity
with its technological development to ensure that the system
keeps on a path of expansion and increasing sophistication. If
the savings capacity and the human capital of the economy are
compromised by the HIV/AIDS epidemic the ability of the economy
to regenerate itself at a higher level will also be compromised.
This is an important concern for the Caribbean given recent theoretical
work coming out of the UWI which suggests that, in its interdependence
with the economic system, the health system has the potential
for converting a downturn into downward spiral (Thomas 2000).
What this means is that the economic managers of the region now
have a vested interest in affording preferential treatment to
the health system, taking all necessary steps to ensure that
no health condition is allowed to reach the point of exerting
a negative impact on the economy. The reality, however, is that
the HIV/AIDS epidemic threatens to be just such a health condition.
General Comment
Perhaps one of the most disturbing implications of the potential
of HIV/AIDS to disrupt the development process of the Caribbean
lies in the fact that even as the economies of the region seek
to stabilize themselves after prolonged structural adjustment,
and even as they proceed with the restructuring necessary to
fit themselves within the new global trading arrangements, they
now find that they have to cope with a threat to the resource
which holds the key to the generation of income and wealth in
this region the region's human capital. The
protection of this resource is therefore no longer a matter for
Ministries of Health alone. Similarly, the prevention component
of the region's response to HIV/AIDS will need to target those
sectors of the economy which are not yet being ravaged by the
epidemic to ensure that they do not fall prey to its lethally
embracing clutches. In other words, there is now an interesting
symbiosis between Ministries of Health and Ministries of Planning
and Development: the health of the population and the health
of the economy are now to be seen as two sides of the same coin.
Based on the brief discussion of the different channels through
which the economic impacts of the HIV/AIDS epidemic could be
manifested, we now focus on the first of these impacts
the production impact.
REVIEW OF METHODOLOGIES FOR ESTIMATING ECONOMIC IMPACT
The foregoing discussion suggests that the HIV/AIDS epidemic
has the potential to negatively affect a number of key economic
sectors as well as key systemic links, thereby distorting and
disrupting the underlying economic fabric of these countries.
It is the seriousness of this potential threat that has fueled
the demand for quantification of the economic impact of the disease.
To date there have been at least two attempts to measure the
economic impact of the HIV/AIDS pandemic in the Caribbean. Included
among these are the Henry and Newton (1993) study for Trinidad
and Tobago and the more recent CAREC/UWI study (1997) which estimated
the macroeconomic impact of HIV/AIDS for Jamaica and Trinidad
and Tobago.
Inherent in both studies is the recognition that the estimated
GDP loss is driven by two key variables: the estimated number
of cases in any given year and the average loss
of income and output associated with the cases of HIV/AIDS.
In the Henry and Newton (HN) study the estimated number
of cases was derived as a simple extrapolation of the historical
incidence trends based on available data at the time of the study.
The CAREC/UWI (CU) study employed a more elaborate method
which involved the use of a mathematical model to arrive at the
number of persons in the different risk groups likely to be infected
with HIV. This was a major difference between the two studies.
With respect to the income loss estimates for Trinidad and Tobago,
the HN study made use of available sectoral productivity
and wage information. In this respect the CU study also
used a more sophisticated approach elaborating a complete
econometric model of the economies in question. Although this
more ambitious approach was not without its own limitations it
probably holds more promise than the method used in the HN
study.
Four Pillars of the CU Study
The CU study can be interpreted to rest on four main pillars:
(i) a sexual behaviour survey; (ii) Projection models (iii) an
econometric model (CARIBAIDSMOD) applied to each of the
countries in the study; and (iv) a number of key assumptions
linking the survey to the econometric model. The last pillar,
the linking assumptions, is related to three factors: the
infection risk of different population groups; the treatment
coverage of the infected population; and the unit costs
of treatment of HIV/AIDS patients.
The Sexual Behaviour Survey
The main objective of the sexual behaviour survey was to arrive
at a projection of the number of persons infected with HIV/AIDS.
The survey was based on a division of the population into three
Preference Groups: homosexuals; heterosexuals;
and bisexuals. The analysis then identified four types of Partners
each associated with a different risk of contracting HIV: casual;
regular; sex workers; and visiting. Finally, four factors describing
the sexual Practices of the population were identified:
® the type and number of partners
® the type of sexual contact;
® the frequency of sexual contact;
® and the safety of sexual contact.
Projection Model
Using this 3 x 4 x 4 or PPP model it was possible
to derive two probability values one associated with sexual
Preference and one associated jointly with the type of
sexual Partner and sexual Practices. By
applying the product of these probabilities to the gender groupings
of the three preference groups, the CAREC/UWI team derived an
estimate of the number of persons at risk of being infected.
Once these estimates were derived, three infection projection
scenarios were assumed in relation to persons at risk: a high-infection
scenario (80 percent); a median-infection scenario (50
percent); and a low-infection scenario of (10 percent).
On the assumption that nothing was done to stem the existing
trends in the epidemic, using the low- scenario the prevalence
rates for Trinidad and Tobago and Jamaica were estimated as follows:
It is interesting to note that at the time of the CU study 1997
the prevalence rates for Jamaica and Trinidad and Tobago
were already close to one percent, compared with the low
estimate for 2005 of 0.6 percent. This suggests that one
of the adjustments that will have to be made in arriving at the
new estimates is in the number of persons assumed to be infected
with HIV/AIDS.
No doubt the sexual behaviour survey itself can be improved by
a more carefully defined sampling frame and making use of a much
larger sample size. However, such modifications are unlikely
to yield results that are qualitatively different from what was
obtained through the CU study.
The Econometric Model
The econometric model used in the CU study is based on
an adaptation of the economic model, CARIBAIDSMOD Version
1, developed by Cuddington (1993a; 1993b), Cuddington and
Hancock (1994) and Cuddington, Hancock and Rogers (1994).
Based on the results from the structural equations, there
is no question that the econometric model itself can be modified
to yield more robust results. However, it is not clear whether
the coefficient values from the reduced form of the model will
be significantly different from those obtained using CARIBAIDSMOD.
The model, which is fairly standard, with the main innovation
being the inclusion of the HIV/AIDS component, comprises of five
major blocks:
(a) Output;
(b) Labour Supply and Wages
(c) Employment
(d) Savings and Investment
(e) Cost of HIV
The output of the system is driven by the supply of labour and
capital used in the different sectors. As we would expect, employment
in each of the sectors of the economy is related to the real
wage rate in the sector and the size of the labour force available
for productive employment in that sector. It is therefore not
surprising that an increase in the incidence of HIV/AIDS which
would reduce the effective labour force, would impact negatively
on the level of employment in the different sectors of the economy.
Similarly, the model assumes that savings are proportional to
income and that expenditure on HIV/AIDS is directly competitive
with savings
The main results of the study are reproduced in Table 5.
Source: CAREC/UWI. Modelling and Projecting HIV and its
Impact in the Caribbean: The Experience of Trinidad & Tobago
and Jamaica. 1997
The results are shown for the individual countries with an
average computed in the last column. The Table shows the measured
impact on four key macroeconomic quantities as well as on employment
in three sectors. For example, savings have fallen in Trinidad
and Jamaica by 10.3% and 23.5% respectively and employment has
shrunk in both countries by 5% on average. In all seven cases
the impact is negative. This contrasts with the estimated impact
on HIV/AIDS expenditure which increases significantly in both
countries.
The information in the Table is not qualitatively surprising.
The size of the GDP losses are nevertheless larger that were
expected, given the previous HN study and given other international
studies. The difference between the results is no doubt due in
part, to the difference in methodologies used. In particular,
the behavioural model seems to have biased the projected infection
rate upward. However, we need to be cautious in dismissing the
results since the behavioural model used is certainly capable
of capturing incidence that will usually escape the surveillance
net. It is noteworthy, for example, that the projected prevalence
levels for 1999 is more than 5 times the official figures for
those years. However, it is well known that in the developing
countries the ratio of estimated to reported cases is sometimes
higher than ten to one (Over and Piot, 1993 in Disease Control
Priorities in Developing Countries, Dean Jamison et. al.
OUP,1993).
UPDATE AND EXTENSION OF THE GDP IMPACT OF HIV/AIDS
As already indicated, the CAREC/UWI estimates of the GDP impact
of HIV/AIDS were based on a number of key assumptions, specifically
relating to the derivation of the number of people at risk, the
treatment coverage of persons infected with HIV/AIDS, and the
unit cost of treatment of infected persons. The study also covered
two countries Jamaica and Trinidad and Tobago. The present
paper updates the CU study using new estimates of treatment costs
and will extend the analysis to cover St. Lucia, one of the countries
of the Organization of Eastern Caribbean States (OECS). The basic
data used in the update exercise are presented in the Table below.
Notes:
1) Population level is assumed to constant over the projection
period
2) Adult prevalence estimates are taken from World Bank/HEU cost
estimation exercise, August 2000. These are to be compared with
the value of 0.9% use in the CAREC/UWI (CU) study
3) Projected Infections from CAREC/UWI (CU) study based on prevalence
rates derived from behavioural model
4) Caribbean Task Force (CTF) Projected Infections derived by
applying estimates from World Bank/HEU cost estimation exercise
The update of the CU GDP loss estimates is carried out under
two HEU scenarios. In the first HEU scenario adjustments
are made in two of the three key assumptions mentioned earlier
the adult HIV/AIDS prevalence rate and the per capita cost
of AIDS treatment. For the second scenario we add
to the first an adjustment in the treatment coverage of AIDS
patients. This second scenario uses a coverage assumption of
20%, closer to that used in the program cost estimates generated
by the HEU for the Caribbean Task Force on HIV/AIDS where an
average of 15% was assumed.
The table below juxtaposes the two new scenarios with the original
CAREC/UWI assumptions.
Finally, in the table below we present the new estimates on the GDP impact of HIV/AIDS, first extending the CAREC/UWI study to generate an estimate for St. Lucia and then updating the CAREC/UWI study under the assumptions for Scenario 1 and Scenario 2.
The key in arriving at St. Lucia estimate for the present
paper was the projection for infected cases. Since the survey
data for St Lucia were not available for this exercise it was
convenient to uplift the official St Lucia data for 1999 by the
average of the difference between the Jamaica and Trinidad and
Tobago actual and estimated figures for the same year. Using
this average as denominator and the official data as numerator
we arrived at 1999 CAREC/UWI-type estimate. We then conservatively
assumed that the number of cases would remain unchanged over
the projection period, that is, with the new cases being cancelled
out by AIDS deaths. Interestingly enough the GDP impact estimate
of 4.7% was in the range of the Jamaica and Trinidad and Tobago
estimates.
The average of the CAREC/UWI estimates was 5.0% which is consistent
with the assumption currently adopted by the Caribbean Task Force
on HIV/AIDS. What is interesting is that on average the countries
of the region are currently allocating between five and six percent
of their national income to health services.
It is also noticeable that while for both Jamaica and St. Lucia
the dramatic fall in treatment costs caused the share of GDP
lost to be reduced, in the case of Trinidad and Tobago the opposite
happened. The downward effect of the fall in treatment costs
was more than compensated for by the upward impact of the significant
increase in the number of infected individuals.
While we have not been able to replicate the sectoral impacts
the expectation is that the impacts here will remain significant.
Much of the current research aims to determine the specific impact
of the disease on key sectors of the economy.
Details on the computations are presented in the Appendix to
this paper.
INVESTING IN THE RESPONSE TO HIV/AIDS
Rationale for a Holistic Response
The economic case for mounting an effective response to HIV/AIDS
is a very compelling one. The fact is that the national product
losses due to the epidemic have been estimated at an average
of just over five (5) percent of the GDP by the year 2005 for
two countries of the region Jamaica, and Trinidad and Tobago.
The importance of this finding is compounded by the fact that
for each of these two countries this amounts to more than the
quantum being used to provide health services for the entire
nation. If this is the scale of the economic impact that will
be experienced by the rest of the region then with an estimated
income of US$ 40 billion the annual losses to the economies of
the region are likely to reach a level of just over US$ 2 billion
per year.
This is the basis on which it has been argued that what now confronts
the region is nothing short of a crippling attack on its development
process and on the quality of life of the people of this part
of the world.
Moreover, there is a range of factors which suggest that there
is no reason to expect a spontaneous abatement in the epidemic.
The disease itself is being mainly transmitted through various
forms of sexual contact and the vast movements of persons within
and into the region means that there are virtually infinite opportunities
for infection. What this means is that once the epidemic has
taken root in the society the economic system will become more
and more dependent on the exogenous factors causing national
income to increase. The GDP will itself experience more and more
significant losses, creating a larger and larger gap between
the need for resources and the availability of such resources.
In this sense the initiation of an effective response must
be seen in the light of what is in fact a race against time.
If the start of an effective response is delayed there may simply
not be enough resources within the region to carry out the activities
that are necessary.
Comprehensiveness and Sustainability of the Response
Precisely because HIV/AIDS is both infectious and chronic the
response will need to be both comprehensive
and sustainable. It will need to be comprehensive
in the sense that it will have to address all known sources of
the disease and it will have to include a broader spectrum of
sectors in the society. However, it will also need to be sustainable
because the behaviour modification that will be necessary takes
time. The Caribbean Task Force on HIV/AIDS has concluded that
the region will need to respond with a holistic health plan that
contains the elements of health promotion, HIV prevention as
well as AIDS treatment and rehabilitation. Moreover, even as
we see the need for expertise to be shared across the region
such a plan must be adopted by each country and be incorporated
into the country's National Health Plan, and by extension, into
each country's national budgeting. This willingness to make domestic
budgetary reallocations in favour of the HIV/AIDS program is
in fact a major sustainability requirement. Moreover, it will
have the effect of sending the message to the population that
the country in question is in fact dealing with a genuine crisis.
The case for responding from a solid platform of prevention activities
is well established. However, experience has shown that
as necessary as prevention is, it will not be sufficient to reverse
the deepening trend of this disease. The Caribbean Task
Force on HIV/AIDS has taken the unambiguous stance that the care,
support and treatment of infected patients are indispensable
complements to HIV/AIDS prevention programmes. This position
has been one of the major assumptions in the costing exercise.
Following the line taken by the Task Force, the program which
the region will seek to put in place will contain six distinct
elements:
i) Increasing the commitment of the governments to dealing with
the disease;
ii) Prevention of the spread of the disease by seeking to influence
the behaviour of specific population groups;
iii) Providing health care diagnostic, preventive, palliative
and therapeutic - for persons infected with HIV;
iv) Capacity building of the Ministries of Health and related
institutions like specialized NGOs, charged with the responsibility
for prevention and care activities;
v) Executing surveillance and monitoring, as well as the medical,
economic and social research which enables policy-makers to respond
more effectively to the disease; and
vi) Improving the capacity of regional institutions to support
the response of national agencies in dealing with the disease.
In preparation for the recent Caribbean Conference on HIV/AIDS
in Barbados the Health Economics Unit (HEU) of the University
of the West Indies and the World Bank used an accounting framework
employed by the World Bank in Sub-Saharan Africa to arrive at
an initial estimate of the cost of the annual response by each
country of the region to the epidemic. The estimate was developed
for twenty-four countries and the results are summarized in the
Table below.
The table shows the interesting result that while the prevention
elements of the programme account for around five
percent of the total cost, with other indirect elements accounting
for about two percent, the treatment component
accounts for about ninety-three percent. Quite
apart from the heavy bias towards treatment the outstanding feature
of the estimation exercise was the level of cost
US$ 3.4 billion.
When these estimates are considered on an individual country
basis it becomes evident that for a number of countries the individual
allocations are far in excess of their proven capacity to spend
and that the programme elements would require a health system
capability and a public sector management system which are simply
not in place. It was therefore necessary to make a number of
adjustments to reflect this reality.
Apart from the need to adjust the implicit spending capacity
assumption, the assumptions made about the total cost of the
anti-retroviral treatment included in the programme were later
shown to be inconsistent with the known situation in some parts
of Latin America, both in terms of the coverage of AIDS patients
and in terms of the unit cost of the triple therapy treatment.
While earlier data suggested that it was reasonable to use a
figure of US$ 12,000 as the annual per capita cost of treatment,
a more realistic range today will be between US$ 2,000 and US$
4,000, since production and bulk purchasing arrangements are
being actively explored in Latin America.
When the new assumptions, taking country experiences into consideration,
were incorporated into the estimation model the result was a
dramatic contraction of the "real" cost of the programme
for the twenty-four countries taken as a group. The low estimate
was close to US$ 260 million and the high
estimate was US$ 573 million.
For the three countries in this study the program cost estimates
are shown in the Table below. We also include the level of public
health expenditure in order to put the program cost is better
perspective. It should be recalled that for most countries of
the Caribbean public health expenditure is roughly one-half of
national health expenditure.
The table shows that even with the high cost scenario, the
HIV/AIDS program ranges between five and twenty-seven percent
of public health expenditure. This would be between two and a
half (2.5%) and thirteen and a half (13.5%) percent of national
health expenditure.
One benefit of an exercise of this nature is that it enables
each country to determine the size of the resource gap which
it is likely to be experiencing. From a recent brief survey of
existing AIDS programmes in the region it has been estimated
that none of the countries seems to be currently spending more
than five percent of public health expenditure
on these programmes. Applying this estimate to the three countries
we show in the next table the programme resource gaps both in
absolute and per capita terms as well as in terms of public health
expenditure shares. The resource gap estimates are presented
alongside the expected GDP loss associated with an uncontrolled
HIV/AIDS epidemic.
In per capita terms the resource gap averages less than US$ 10
annually and as share of public health expenditure the gap averages
just over 10 percent across the three countries with the Jamaica
share being a high of 23 percent.
In the context of the kind of crisis described in the early part
of the paper these gap estimates seem to be well within the range
of possibility. Certainly for the three countries discussed in
this paper where per capita income ranges between US$ 1,750 (Jamaica)
and US$ 4,520 (T&T) the per capita resource costs seem to
be miniscule. The task is to muster the political will to mobilize
the resources required and to identify the most appropriate mechanisms
for the mobilization effort.
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