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A quarterly magazine of the IMF
December 2005, Volume 42, Number 4

A War Chest for Fighting HIV/AIDS
Maureen Lewis

With billions of dollars mobilized, the challenge is how to spend the money wisely

After close to two decades of neglect, battling the HIV/AIDS epidemic has become one of the highest priorities on the global agenda. UNAIDS estimates that some 40 million people are living with HIV—25 million of them in sub-Saharan Africa and 8 million in Asia—with close to 5 million people newly infected in 2004 alone. AIDS-related deaths total about 3 million people each year, with adults and children in Africa dying at the rate of 7,000 per day. In the short term, the loss of a large segment of adults in their prime, particularly women, devastates households. Over the long term, losses in human capital formation pose a further risk by decreasing the intergenerational transfer of knowledge and creating macroeconomic threats, especially in the hardest-hit countries. Prevention through behavioral change has proved difficult, and a vaccine remains elusive.

In response, the international community has mobilized billions of dollars for HIV/AIDS, with many low-income countries already receiving, or pledged to receive, huge sums. However, the recipients of these funds find themselves grappling with tough dilemmas. Could the size of the inflows be so large as to undermine macroeconomic stability or fiscal management? Can they—in a short period—effectively utilize the resources made available, or even the amounts already pledged and committed, given the institutional capacity and governance problems that often plague their health care systems? And can they mobilize the needed "collateral" domestic resources (such as labor, infrastructure, and an institutional base) to rapidly scale up services?

Who's paying?

Although aid for combating HIV/AIDS is rising rapidly (see Chart 1), there is still expected to be a large gap between what is needed and what is provided in the coming years. UNAIDS estimates that between $9.6 billion and $11.3 billion will be required for low- and middle-income countries in 2005 to fight the pandemic, rising to between $14.1 billion and $18.8 billion by 2007, with further increases in the years ahead as the numbers of infected rise (UNAIDS, 2005). In 2004, the OECD estimates that some $6 billion was allocated in the developing world to HIV/AIDS, including about $3.7 billion from international sources. This contrasts with about $7 billion in annual commitments to overall development assistance (ODA) for health, which excludes earmarked HIV/AIDS funding.

Chart 1. Global conscience

Donors are currently supporting activities in 140 countries, with about 72 percent of this funding allocated to 25 of them—mostly in highly affected countries in Africa and the Caribbean. For some of these countries, funding is growing so rapidly that the concentration of funds effectively replaces health budgets. The key sources of AIDS funding are domestic public spending; bilateral and multilateral assistance; the Global Fund to Fight AIDS, Tuberculosis and Malaria (financed by bilateral donors and private foundations); the private sector; and household out-of-pocket spending. Bilateral assistance is projected to grow faster than the other sources over the next few years.

The strong international response to HIV/AIDS can be seen at the country level in some of the nine hardest-hit sub-Saharan African countries (see Chart 2). From 2000–02 to 2002–04, the average level of external funding increased significantly in Lesotho (1,100 percent), Swaziland (951 percent), Tanzania (394 percent), and Zambia (698 percent). Only Kenya saw less than a doubling of aid for HIV/AIDS, and it was the country with the largest external commitments in 2000–02.

Chart  2. Uneven balance

Economic ramifications

Do recipients need to worry about the macroeconomic effects of higher HIV/AIDS funding? In 2002–04, the size of these flows represented some 3 to 25 percent of overall aid flows in 8 of these 9 countries (the exception being Swaziland, with almost 90 percent). These limited proportions suggest that HIV/AIDS funding alone is unlikely to derail overall macroeconomic policy, although it could exacerbate any macroeconomic problems caused by large aid inflows. The macroeconomic effects obviously depend on the size of the economy and on the level of imports, with smaller economies being more vulnerable to the external environment. The larger the aid dependence relative to GDP, the greater the vulnerability to unanticipated shifts in donor flows, because countries lack the discretionary resources to compensate for lost resources.

Recent experiences in Ethiopia and Ghana (Aiyar, Berg, and Hussain, 2005) demonstrate that governments can mitigate these negative effects with creative policies—notably through increasing reserves during periods of donor largesse, thereby saving rather than spending assistance. However, the more common pattern is for governments to ratchet up spending based on aid inflows, thereby making them permanent budget commitments.

As for fiscal impacts—which overshadow the macroeconomic ones—the key factors include the level and sustainability of external aid, competing demands for scarce budget resources, the ability of governments to absorb sharp increases in funding, and the threat of corruption and waste when too much money must be spent in too short a time.

At this point, external HIV/AIDS resources are beginning to dwarf public health allocations (see Chart 2). Dramatic increases have occurred in HIV/AIDS financing, while public health budgets have changed little and in some cases (for example, Mozambique and Zambia) have actually declined. As a result, HIV/AIDS monies exceed overall public health budgets in some countries. In 2003/04, Ethiopia's external flows were equal to the government's health budget, but in both Uganda and Zambia, AIDS funds exceeded all public health spending by almost 185 percent. For most countries, the sharp increases between 2000/01 and 2003/04 have necessitated rapid changes in the scale and scope of health services. What is puzzling is how countries can accommodate and wisely allocate new resources for HIV/AIDS while their overall health spending declines or only rises modestly.

The volatility and unpredictability of funding will further complicate matters. To begin with, any big improvement in services will require additional hiring. With uncertain flows, expanding the civil service would border on folly, given inflexible public sector labor markets and the inability to downsize when funding contracts or priorities shift. Countries must also rely on imported drugs for HIV/AIDS patients. If the resources or in-kind donations should dry up, the government would need to take over funding, or life-saving treatments would cease. And treatment levels would have to be maintained. Given that AIDS patients are dependent on continued therapy for survival, interruptions in antiretroviral therapy (ART) caused by funding gaps would mean scores of patients succumbing to AIDS.

Institutions and health care systems

Simply having good intentions and the right priorities does not guarantee effective programs. It is risky to assume that the complementary inputs will be available and deployed immediately once external funding becomes available. Where delays occur because of lack of any critical input—such as staffing, infrastructure, management, warehousing, logistics, and information on performance and output—productivity is reduced and impact falters. For example, imported drugs that expire on the wharf because of lack of trucks to transport products to warehouses render ART programs useless and waste scarce resources. The infrastructure may be available and the staffing complete, but a missing input leaves programs unable to be productive. Countries need the capacity to manage, spend, and monitor additional donor inflows, despite significant institutional and governance constraints (see box).

Dysfunctional health systems

A recent review of institutions and governance in the health sector points to the severity of the institutional challenges (Lewis, 2005b). Absenteeism among medical staff shows rates averaging between 28 and 42 percent at primary health care clinics, jumping to 68 percent in Uganda and 74 percent in Bangladesh. An exercise in tracking public funds from ministries of finance to points of service shows that local capture, leakage, and bureaucratic impediments resulted in 80 percent of non-salary budgets never reaching frontline clinics in Ghana, 70 percent in Uganda, and 40 percent in Tanzania. Household surveys show that in the majority of countries, patients are paying under the table for treatment at public clinics, a violation of free health care mandates and a symbol of poor governance. These governance challenges raise doubts about the value of simply increasing funding, or of the need for just more health workers.

Shortages of staffing for expanding ARV treatment that have raised hackles in the international community have as much to do with limitations of government management as they do with external pressures from the international financial institutions to limit hiring. The working conditions of civil servants where there are missing supplies and drugs, few opportunities for advancement, and poor management contribute to low morale and to out-migration. In Zimbabwe, prior to the disintegration of the health system, the well-run civil service retained workers, including those in the health sector. As working conditions deteriorated, the quality of management eroded, and the political and economic environment became more uncertain, the higher salaries and better management outside the country became attractive options.

A potentially pernicious effect of poorly functioning health care systems are badly designed or under-resourced AIDS treatment programs that lead to low levels of adherence to complex treatment regimes. A recent World Bank study of India (Over and others, 2004) shows that if drugs are not administered according to strict protocols, resistant strains of the virus can develop, jeopardizing treatment options for all. Some degree of chaos and a period of adjustment generally accompany major expansions or shifts of service delivery in scaling up. ART services would be no exception. But the ability of the virus to constantly mutate and adapt to changing circumstances, and the public-good nature of minimizing resistant strains, suggest the need for particular care and attention to protocols, ART management, and health system effectiveness.

In the end, the best way to boost aid effectiveness and marginal returns of a given level of aid (absorptive capacity) is to bolster the health care delivery system. That means strengthening the public entities that deliver and finance health care. The problem is that donors have shown an increasing preference for off-budget and "vertical" public health programs that solely attack specific problems and are divorced from the health system. Why do they prefer this route? It is a logical extension of fund-raising campaigns to link spending with specific diseases. It enables them to ring fence their contributions to allow attribution of their spending. It avoids both the aggravation of ministry of finance oversight as well as the bureaucratic hurdles associated with competing for public funds. And it circumvents the messy integration with health systems, where inputs and outputs are hard to align and outcomes difficult to measure.

Granted, these strategies may achieve quick results, but they also undermine other development objectives. Vertical funds lead to poaching of public sector workers, bidding up wages in the sector, and weakening the existing system. They also bypass orderly budgeting and allocation processes of the government—areas upon which improvements in good governance hinge—removing budget discipline and undermining institutional strengthening. HIV/AIDS programs already rely on the existing infrastructure of physical and human capital, directly and indirectly. Even where HIV/AIDS programs are vertical, stand-alone initiatives, they remain part of the broader public health delivery effort, since diagnosis, referrals, and treatment of opportunistic infections, as well as side effects of ART, continue to be provided by the health system.

Managing the war chest

So what can be done to ensure that the monies are used and absorbed effectively—achieving positive outcomes both in containing HIV/AIDS and in macroeconomic management? The following options would certainly be a start.

Establish an HIV/AIDS Stabilization Fund. The rapid rise in HIV/AIDS funding requires an instant response in service delivery scale-up. Rigidities in supply responses and the need to compensate for irregularity of donor pledges over time call for alternative arrangements. A stabilization fund that treats large aid inflows as akin to a natural resource boon would allow countries to absorb new resources and save them until circumstances permit their effective use. Because pledges have already been made, the stabilization fund would simply function as a repository of donor contributions—whether bilateral or multilateral. Terms of trade and exchange rate problems could be better managed, big annual disbursements achieved, and productivity and impact enhanced. Transparent reporting and appropriate management would be key. Such a fund would imitate the sequestered oil funds of countries like Azerbaijan and Norway, and Botswana, with its diamond earnings. The international financial institutions have experience in helping countries undertake such efforts, and they could simply add oversight in helping countries set up such a fund.

"Tax" incoming funds. A tax of, say, 10 percent on all incoming funds could be levied to pay for the upgrading of the health care system. This is a cost donors have been reluctant to underwrite, even though the bulk of new monies would need to rely on the health system to be effective. Such a tax would spread the cost of scaling up among donors and ensure that governments alone were not paying out of their already scarce funds. It would have to be combined with more concerted efforts on health system upgrading, preferably in concert with the options below, which allow the effective integration and application of new resources.

Attack poor health system performance. Health systems have been effectively overlooked in the drive to respond to the HIV/AIDS crisis, but it is the systems and their ability to function that determine whether services can be delivered, patients referred for treatment, and side effects treated. Civil service reform, budget management changes, and greater accountability for policies, programs, and fiduciary functions not only deserve attention but are also critical to effective scaling up in health care and HIV/AIDS. Policymakers can improve delivery while husbanding scarce resources by both addressing governance problems and improving efficiency through such actions as using day beds in clinics; contracting out ancillary and direct service provision; issuing vouchers for AIDS patients; and using supervised paraprofessionals.

Step up nongovernmental involvement. Delivery of prevention and treatment should expand beyond the government. This is not to suggest that governments abrogate their responsibilities, but that they continue to coordinate and find innovative means of service delivery. Take the model in Haiti, where minimally trained outreach workers can reach out to low-income communities with the backing of highly technical management and oversight. Greater reliance on NGOs in delivery, hiring temporary workers for government programs, or government sponsorship of joint training offer possible solutions to some of the bottlenecks.

* * * * *

The AIDS pandemic's devastation has spurred an overwhelming response from the international community, and after years of limited funding, donors are rapidly making up for past shortfalls. The question is how well and how fast low-income countries can respond to the new, and possibly uncertain, flow of funds for a single, albeit devastating, disease. Weak institutions and fragile budgeting undermine absorption of funds. And the focus on strong and well-funded HIV/AIDS programs without requisite attention paid to the broader health delivery system is neither sustainable nor good policy.


Aiyar, Shekhar, Andrew Berg, and Mumtaz Hussain, 2005, "The Macroeconomic Challenge of More Aid," Finance & Development, Vol. 42 (September), pp. 28–31.

Lewis, Maureen, 2005a, "Addressing the Challenge of HIV/AIDS: Macroeconomic, Fiscal and Institutional Issues," CDG Working Paper 58 (Washington: Center for Global Development).

Lewis, Maureen, 2005b, "Governance, Institutions and Corruption in Health Care Delivery: a Review," draft Working Paper (Washington: Center for Global Development).

Organization for Economic Cooperation and Development, 2005, International Development Statistics online: Databases on aid and other resource flows. Available on the Internet: dataoecd/50/17/5037721.htm.

Over, Mead, Peter Heywood, Julian Gold, Indrani Gupta, Subhash Hira, and Elliot Marseille, 2004, HIV/AIDS Treatment and Prevention in India: Modeling the Cost and Consequences (Washington: World Bank).

UNAIDS, 2005, Resource Needs for an Expanded Response to AIDS in Low- and Middle-Income Countries (Geneva: United Nations).

Maureen Lewis is a Senior Fellow at the Washington-based Center for Global Development.