Potential economic
impacts of an HIV/AIDS
epidemic in Papua New
Guinea
Prepared for AusAID
By the
Centre for International Economics
February 2002

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Contents
Glossary
iv
Summary
v
HIV/AIDS imposes economic as well as personal costs on a country
v
The evidence on HIV/AIDS in PNG suggests the potential for a
serious epidemic
vii
The macroeconomic effects — results from the CGE model
x
Microeconomic effects and implications for development
xii
Future research needs
xv
1 Understanding the economic impact of HIV/AIDS
1
A conceptual framework
2
2 HIV/AIDS in PNG: now and in the future
12
Current knowledge about the PNG epidemic
12
The prevalence of HIV: estimating the number of PLWHA
16
Projecting the progress of the epidemic
20
Scenarios for the future
28
3 HIV/AIDS and the PNG economy — projections of the
macroeconomic impact
36
The PNG economy
36
Estimating the economic impacts of a change in the labour supply
42
4 Sectoral and other economic impacts
55
Impacts that the modelling could not take into account
55
The sectoral effects
56
The impact on poverty and gender
68
Key parameters affecting the impact of HIV — what indicators to look
for
71
A Progression of HIV/AIDS since 1987
81
B Projecting demographic effects of HIV/AIDS
84
Conventional projections
84
An alternative approach
86
Methodology
87
References
88
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Contents
Charts
Chart 1 Summary of the economic impacts and the three issues
vi
Chart 2 Impact of HIV/AIDS on population aged 15–49, 2000–20
ix
Chart 1.1 Major channels for economic impact of HIV/AIDS
4
Chart 1.2 Impact of HIV/AIDS on subsistence farming households
7
Chart 2.1 Number of reported HIV and AIDS cases by year of detection,
1987–2000
12
Chart 2.2 Cumulative reported HIV & AIDS, by year 1987–2000
13
Chart 2.3 Ratios of reported AIDS and HIV in PNG, 1987–2000
18
Chart 2.4 Rate of incidence of reported HIV and AIDS in PNG, 1989–2000
19
Chart 2.5 HIV estimates (1986–2000) and AIDS estimates and projections
(1986–2005)
21
Chart 2.6 Difficulty of predicting from limited epidemiological data the
prevalence curve of an HIV epidemic
31
Chart 2.7 HIV prevalence in women aged 15-49 in three African countries,
by year
33
Chart 2.8 Impact of HIV/AIDS on population aged 15–49, 2000–20
35
Chart 3.1 Sources of government revenue, 2000
40
Chart 3.2 Estimated time path of real GDP for the three scenarios
compared to the baseline scenario of no transmission of HIV/AIDS,
2000–20
48
Chart 3.3 Impact of HIV/AIDS on the level of real GDP per capita of
working age population for the three scenarios, 2000–20
50
Chart B.1 Adult HIV Prevalence Assumption Prevalence in 1999 at 0.15
per cent
86
Chart B.2 Adult HIV Prevalence Assumption Prevalence in 1999 at 0.345
per cent
86
Tables
Table 1
Impact of HIV/AIDS on the main economic indicators —
deviation from baseline in 2020
x
Table 2.1 Expected prevalence of HIV in PNG, 1999
16
Table 2.2 Measurements of HIV prevalence, 1999
17
Table 2.3 Prevalence of sexually transmitted infections, from surveys,
1998
26
Table 2.4 General demographic effects approximately 10, 20 and 30 years
after onset of HIV, selected countries
29
Table 2.5 Possible future adult deaths in PNG, based on Kenya, South
Africa and Zimbabwe prevalence patterns
34
Table 3.1 Average rates of economic growth, 1975–2000
36
Table 3.2 Sectoral composition of the economy and labour force
38
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Contents
Table 3.3 Government expenditures on health, education, infrastructure
and law and order, 1998
41
Table 3.4 Projections of PNG’s adult population aged 15–49, 2005–2020
45
Table 3.5 Comparison of employment distribution across skill categories
with distribution of people living with HIV/AIDS (1987–2000)
46
Table 3.6 Impact of HIV/AIDS on the main economic indicators —
deviation from baseline in 2020
47
Table 3.7 Baseline and the three scenarios growth in real GDP projections
47
Table 3.8 Percentage deviation from baseline for real GDP and GDP per
worker
49
Table 3.9 Impact on real wage rates
51
Table 3.10 Accumulated impact of HIV/AIDS on the level of gross
production output by sector in 2020
54
Table 4.1 Health service resources
56
Table 4.2 Key health status indicators
57
Table 4.3 Some guidelines to factors influencing the impact of HIV/AIDS
73
Table A.1
Pattern of reported HIV and AIDS in PNG1987–2000
81
Table A.2
Cumulative reported HIV and AIDS in PNG1987–2000
81
Table A.3
Age and sex distribution of reported HIV-positive people
PNG 1987 to June 2001
82
Table A.4
Probable means of transmission for recorded HIV-positive
people
82
Table A.5
Province of origin (as at June 2001) and province of detection
(as at June 2001) of HIV-positive people PNG 1987
83
Table A.6
Percentage of HIV cases by occupational group as at June
2000 83
iii

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Glossary
AIDS
Acquired Immune Deficiency Syndrome
AusAID
Australian Agency for International Development
CGE
computable general equilibrium
GDP
gross domestic product
GNP
gross national product
HCW
health care workers
HIV
Human Immunodeficiency Virus
MTCT
mother to child transmissions
ODA
official development assistance
PLWHA
People living with HIV/AIDS
PMGH
Port Moresby General Hospital
PNG
Papua New Guinea
STD
sexually transmitted disease
STI
sexually transmitted infection
WHO
World Health Organization
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Summary
Summary
HIV/AIDS imposes economic as well as personal
costs on a country
Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome
(HIV/AIDS) is a problem impacting on all countries around the world. A recent
Asia Pacific Ministerial Meeting on HIV/AIDS focused on the economic and
security aspects of the escalating epidemic in the region. It was recognised in the
discussions that HIV/AIDS could come to place unaffordable demands on
countries in the region if the spread of the disease goes unchecked. This makes
prevention an essential reaction to this threat (Asia Pacific Ministerial Meeting,
October 2001). Papua New Guinea (PNG) is facing one of the greatest potential
epidemics if actions are not undertaken or are not successful in controlling the
spread of the virus. This study explores the potential economic impact of
HIV/AIDS in PNG. It focuses on the macroeconomic and sectoral impacts for
PNG if an epidemic should follow along the paths of selected countries in sub-
Saharan Africa. The results demonstrate the potential for HIV/AIDS to
exacerbate poverty in PNG, an issue of great concern to the PNG government
and its development partners.
The economic impacts are diverse
There are three main avenues in the medium term for economic impacts
HIV/AIDS impacts on the economy at the household, firm and economy–wide
levels through three key avenues. The first is through a reduction in the capacity
of the labour force — with a decline in numbers of workers and worker
productivity and a rise in the cost of employment. Despite considerable under
employment in PNG, loss of skilled labour will impose significant costs
especially on the manufacturing and services sectors. The second avenue is
through shifts in the composition of demand as households, and possibly
government, shift expenditure toward the health and medical sector and meeting
funeral costs. A final avenue is through domestic savings feeding through to
lower investment. Savings are expected to fall as household resources are used to
deal with the consequences of the disease. This final avenue of impact is likely to
be relatively unimportant for PNG given the low domestic savings rate and
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Summary
reliance on foreign capital for investment. Chart 1 provides a framework to
capture the principle sources of impact.
Chart 1
Summary of the economic impacts and the three issues
HIV/AIDS
Government
Institutions
epidemic — how
what is their policy
are they vulnerable to the
prevalent will it become?
reaction in prevention, in
epidemic?
medical services and in
financing these
expenditures?
Households
Household — loss of income
Shift in expenditure to health,
Decline in savings and possibly
medical and funeral
investment in education
expenditures and decline in
expenditure
Firms
Decline in the effective
Increasing costs of
Shift in demand by
Substitutions of capital for
supply of labour
employment
households and decline in
labour affected by cost of
§ skill shortages
§ health insurance
demand in some sectors
capital
§ rising real wages
§ training
§ absenteeism
§ recruitment
§ productivity impacts
Economy
Impacts
Shift in sectoral composition
Impact on access to funds for
§ decline in GDP
§ minerals hardly impacted
investment depends on international
reaction and willingness to lend.
§ increase in real wages but decline
§ large decline in subsistence
in private consumption
agriculture
§ per capita GDP rises but per
capita gross national product falls
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Summary
Falling investment in children can have profound impacts on long term growth
HIV/AIDS also impacts on long-term growth potential if children are removed
from school, if nutrition falls to critical levels for significant parts of the
population, and if institutions that provide social services and essential
infrastructure deteriorate. It is quite possible for HIV/AIDS to both lower a
country’s total GDP and to raise its GDP per capita. The key to this
counterintuitive result is capital replacing labour so that the decline in
production is less than the decline in labour inputs. Such a result is quite likely in
a labour surplus economy such as PNG and this potential outcome is indicated
by the modelling undertaken in this study.
But an economic perspective does not capture all the costs
A study of the economic impact of HIV/AIDS does not capture the true cost of
the epidemic to a country. It is only a partial measure and ignores the social
impacts (pain and suffering) that result from the spread of this fatal disease.
However, economic measures do help the government and its development
partners to plan strategies to mitigate the consequences of an HIV/AIDS
epidemic. Economic measures also allow the net benefits of strategies focused on
addressing HIV/AIDS to be compared with strategies on issues in areas such as
primary health care and education. And they allow the interactions between HIV
and other strategies to be explored.
The evidence on HIV/AIDS in PNG suggests the
potential for a serious epidemic
HIV and AIDS cases are rising rapidly
PNG is poised on the brink of a serious epidemic. Current estimates of
prevalence are 0.6 per cent of the population, or around 14 000 people. At the end
of 2000, a total of 3421 cases of HIV, including 1155 cases of AIDS and 237 AIDS
deaths had been reported. The most recent surveillance update at June 2001 puts
the cumulative number of HIV cases reported at 4075, with 464 cases reported in
the six months to June, a 48 per cent increase over the same period in the
previous year. Estimates of the number of people in PNG infected with HIV
range from 5 500 to 22 000, with the National Consensus Workshop in 2000
estimating the likely range as 10 000 to 15 000.
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Summary
There are similarities in behaviour between PNG and some of the
countries that have experienced serious epidemics
Incidence rates in some population groups and indicators of high-risk behaviours
such as the high prevalence of STIs suggest that the disease could spread rapidly
in PNG. As in other developing countries, the initial incidence appears higher in
higher skilled groups and in urban areas, but there is evidence that the virus is
not geographically isolated, and as in other countries HIV/AIDS will be a disease
that impacts predominantly on the poorer members of society.
Measures of HIV/AIDS incidence in PNG are partial in nature and routine
detection is biased towards detection in urban and higher income groups. Sero-
surveillance has focused on high risk groups or easily surveyed members of the
population (pregnant women, defense forces and police, prison population,
blood donors) which may not be representative.
Box 1 summarises the main information available on the prevalence and
incidence of HIV/AIDS in PNG.
The potential impact on the working age population is large
Three scenarios were developed for the spread of HIV/AIDS in PNG based on
the actual and predicted paths of the disease in Kenya (low), South Africa
(medium) and Zimbabwe (high). The prevalence pathways in these countries
were used to predict the impact on the population aged 15 to 49 in PNG. As most
of the deaths due to HIV/AIDS occur in this working age population cohort an
epidemic has major ramifications for the size of the labour force.
If PNG follows the low scenario the working age population will be 13 per cent
smaller than it would otherwise have been by 2020. If PNG follows the medium
pathway the working age cohort will be smaller by 34 per cent and if it follows
the high scenario, it will be smaller by almost 38 per cent by 2020. Chart 2
summarises the impact on the working age population under the 3 scenarios.
viii

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Document Outline

• Cover
• Contents
• Glossary
• Summary
• 1 Understanding the economic impact of HIV/AIDS
• 2 HIV/AIDS in PNG
• 3 HIV/AIDS and the PNG economy
• 4 Sectoral and other economic impacts
• Appendixes
• A Progression of HIV/AIDS since 1987
• B Projecting demographic effects of HIV/AIDS
• References

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