The extraordinary nature of the HIV/AIDS epidemic requires exceptional measures. What these measures should be, however, remains a subject of ongoing debate. The general consensus is that massive resources are needed, but sharply higher funding may complicate macroeconomic and fiscal management in hard-hit countries.
What can be done? An April 18 panel discussion in Washington, D.C., sponsored by the Center for Global Development (CGD), drew on the views of African finance ministers, members of the advocacy community, and senior IMF and World Bank officials to explore how the aid absorption dilemma could be addressed.
The discussion, moderated by Nancy Birdsall, Founding President of the CGD, examined both the urgent need for resources and the risks posed by sudden and massive new funding. With Zambia’s funding for AIDS having risen about 700 percent between 2001 and 2003, and Lesotho’s and Swaziland’s about 1,000 percent, there is no question that this new money is swamping health budgets, Maureen Lewis (CGD) said. Clearly, bottlenecks pose a real worry for both donors and recipients. Lewis, citing a global survey of perceptions of HIV/AIDS bottlenecks, said that 74 percent of respondents favored suspending or downplaying macroeconomic and fiscal constraints to accommodate higher HIV/AIDS spending. But only a tiny number (1 percent) blamed IMF-suggested caps. Of greater concern was a lack of political will (29 percent), poor national coordination (28 percent), and shortcomings in health care delivery (14 percent).
Staggering health care needs
The need for more resources is not in question. As Ugandan Finance Minister Ezra Suruma underscored, medicine is urgently needed to treat HIV/AIDS patients. Something is wrong, he argued, if a country cannot absorb the money it receives for HIV/AIDS treatment. It is the “job of the technical people, the macroeconomic experts, to solve the problem so that suffering can end,” he said. Finance Minister Donald Kaberuka from Rwanda said a recent IMF paper on fiscal space (Peter S. Heller’s “Understanding Fiscal Space,” IMF Policy Discussion Paper No. 05/4) “may provide a way of technically managing the increased resources.” If there is a macroeconomic breakdown, it is the very poor who suffer, he said.
Holly Burkhalter (Physicians for Human Rights) pointed out that, unlike other epidemics, HIV/AIDS attacks the “core of adults in their productive and reproductive years” who typically keep a country going. She suggested that the huge economic cost of HIV/AIDS calls for a more radical approach to finding solutions. “Too much money,” she said, “is not Africa’s biggest problem.” One possible solution raised by participants is “importing” a health care sector to expand the delivery of services while minimizing the macroeconomic impact on prices and the exchange rate. Another option could be to establish an AIDS fund similar to oil funds. This would allow money to be used over time and thus help keep AIDS programs going.
As Peter S. Heller (IMF Fiscal Affairs Department) explained, countries that are struggling to absorb large increases in aid are facing real macroeconomic challenges. Addressing these challenges will require not just technical solutions but hard policy choices. The IMF can advise countries, he said, “however, it has to be the ministry of finance, the government as a whole, that has to make the ultimate decisions as to which trade-offs they’re willing to accept.” IMF economist David Andrews (African Department, mission chief for Zambia) said since Zambia reached the HIPC decision point, annual debt-service payments have fallen from about 4 percent of GDP to 2 percent of GDP, refuting claims that wage payments had been limited to finance debt-service payments to the IMF. Zambia’s domestically financed annual health expenditures are about 2 percent of GDP, and it receives at least 8 percent of GDP a year in new external aid monies.
In the end, Jean-Louis Sarbib (World Bank) was hopeful that “we’re going to find a solution that respects both the urgency and the good economic management” that Africa needs.