The economy wide impact of HIV/AIDS and the funding dilemma in Africa: Evidence from a dynamic life cycle horizon of Uganda

HIV/AIDS compared to the rest of the word. This paper analyses the long-term economic effects of HIV/AIDS using a computable general equilibrium (CGE) model. Taking Uganda as a case study for analysis, the paper aims to predict the economic impact of HIV/AIDS through: (i) the human resource channel and, (ii) the source of fiscal space for HIV/AIDS channel, and proposes policy options for funding HIV interventions in the long-term. The paper shows that if the government intervenes by scaling up treatment and prevention of HIV, the negative economic impacts of HIV/AIDS – including the soaring cost of production due to rising wages, declining GDP growth rates relative to the base, and the rising domestic debt as share of GDP – are reversed. The economy thrives from a growing labour force supply and resource flows to HIV interventions. Foreign-aid and direct taxation are both potential sources of fiscal space for HIV albeit with differential impacts on sectoral growth and government debt levels. The study demonstrates that low-income-countries (LICs) like Uganda have the capacity to mobilise domestic resources to fund HIV interventions by increasing revenues from direct taxes. It is recommended that policymakers – in Uganda and other LICs grappling with similar challenges – devise means to increase revenue from direct taxes particularly by tapping into the large informal sector. The paper also proposes that in the short to medium term, development-aid for health be increased in order for government to meet the future HIV/AIDS obligations. Overall, the research findings strengthen the case for policy makers to frontload investment in HIV treatment and prevention.