Economic and Social Effects of Hiv/Aids

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Financial Effects of HIV/AIDS on National Social Protection Schemes PIERRE PLAMONDON, MICHAEL CICHON, AND PASCAL ANNYCKE

T

hrough its demographic and economic effects, the HIV/AIDS pandemic poses a huge challenge to the financial management of national social protection systems. For example, increased mortality owing to HIV/AIDS may reduce the number of contributors to pension schemes. And although the share of contributors reaching retirement age declines, the number of surviving dependents entitled to benefits increases. At the same time, the demand for health services increases. Using a simplified social budget model, this chapter tries to assess the potential financial effects of HIV/AIDS on national social protection schemes. The institutional arrangements and coverage of social insurance schemes differ substantially across developing countries, and often only a small proportion of the population is covered by formal schemes. The chapter therefore begins with an overview of social protection arrangements and coverage in low-income developing countries. The next section discusses the demographic and economic impact of HIV/AIDS, using the hypothetical case of a country (“Demoland”) hard hit by HIV/AIDS. The concluding section assesses the impacts of HIV/AIDS on different elements of social protection schemes, on the social budget, and on the fiscal balance.

Social Protection Arrangements and Coverage in Developing Countries Formal public social protection systems cover only a minority of the population in developing countries, particularly in Africa. Typically, such 259

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PIERRE PLAMONDON, MICHAEL CICHON, AND PASCAL ANNYCKE

Table 8.1. Total Public Social Expenditure by Major Function in Six World Regions, 1990–93 (Percent of GDP) Region All countries Africa Asia Europe Latin America and Caribbean North America Oceania Total Expenditure 14.5 4.3 6.4 24.8 8.8 16.6 16.1 Pensions 6.6 1.4 3.0 12.1 2.1 7.1 4.9 Health Care 4.9 1.7 2.7 6.3 2.8 7.5 5.6 Other 3.0 1.2 0.7 6.4 3.9 2.0 5.6

Sources: International Labour Organization (1999 and forthcoming).

protection in developing countries (that is, transfers organized by the state or by social partners) consists of pension schemes for formal sector workers, public health care systems, and a variety of other benefits of lesser financial importance. Health care systems in developing countries are built around state delivery systems, which are often co-financed by out-of-pocket co-payments by patients at the point of delivery. As regards pensions, the majority of countries follow the social insurance approach, but four countries in Africa— Botswana, Mauritius, Namibia, and South Africa—have noncontributory pension schemes. Means-tested antipoverty benefits are rather rare and mostly of an ad hoc nature. The availability of data is notoriously bad. Table 8.1 describes in highly aggregated fashion the composition of overall national social protection expenditure in the major regions of the world. In the early 1990s pension and health expenditure accounted for more than 70 percent of total social expenditure in most regions. Africa spends considerably less on social protection than the other regions. In Africa, where ratios of total public expenditure to GDP have been substantially lower, and fiscal deficits higher, than in other regions, the percentage of public expenditure going into the social protection sector also appears to be lower than elsewhere.1 There is little reason to believe that the situation has changed markedly over the last decade, but no recent comprehensive data exist.2

World Bank (2000, Table 14). data situation on social expenditure will improve when the International Labour Organization resumes its inquiry into the cost of social security in 2004 or 2005. 2The

1See

Financial Effects of HIV/AIDS on National Social Protection Schemes

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Data on coverage are even scantier than data on expenditure. The following subsections...
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