If Foreign Aid Contracts, AIDS Treatment Jobs are a Safe Bet (Development Impacts of Financial Crisis)

September 22, 2008

Among the likely but unanticipated consequences of the U.S. financial crisis: AIDS treatment jobs could become a "safe haven" for people whose current employment depends on foreign assistance funds that are currently expended for other purposes.

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Why? The assets and the revenues of bilateral, multilateral and private donors have been hit by the crisis and are not likely to fully recover for several years. It will be months before they have all figured out how much poorer they are and more months before they figure out how to adjust to these lower budgets. Private donors will be able to assess their losses most rapidly and cut their commitments almost immediately. Bilateral foreign assistance, which is already authorized and appropriated or otherwise committed, will not be greatly affected in 2009, but will, I predict, take a hit in 2010. The lag until pain is felt at the multilaterals like the World Bank and Global Fund for AIDS TB & Malaria may be another year or two, depending on how recently they have received infusions of capital and how conservatively that capital has been invested.The result of decreased assets and revenues of all of these donors will be a decline in funding for foreign assistance relative to the levels that would have been available in the absence of this crisis. I suspect that two years from now in 2010 real aggregate foreign assistance will have fallen in absolute terms from its current level of $100 billion a year, that it will reach its lowest point in 2011 and then begin to recover. Perhaps we will experience a 10% drop to $90 billion by 2011 and then a gradual recovery to $100 billion worth of foreign assistance by the year 2013 or 2014.Supposing this to be the future for aggregate assistance, the question of what happens to AIDS funding is whether it will decline by the same percentage as aggregate foreign assistance, by more or by less.One possible way to approach that question is by positing an "expenditure elasticity of AIDS funding." Such an elasticity would represent the number of percentage points change in AIDS funding for every 10 percentage points change in total foreign assistance funding. Over the past ten years, as total assistance has risen, AIDS spending has risen much faster. Perhaps the elasticity of AIDS spending has been as high as 2.0. While the assistance data is not broken out between AIDS treatment and HIV prevention, I would guess that the expenditure elasticity of treatment has been much higher than that for prevention. Perhaps the treatment elasticity has been as high as 4 while the prevention elasticity has been closer to one.A simple model of donor behavior would be that elasticities that are observed when resources increase will also characterize a time when resources are contracting. If this is the case then a possible ten percent reduction in aggregate foreign assistance (from, say, $100 billion to $90 billion per year) would be associated with a 40% decline in AIDS treatment funding and a 10% decline in HIV prevention funding for a net decline of 20% in overall AIDS funding.The major exception for this simple model is in the case of expenditure categories that are viewed as "entitlements." As I have recently argued (see Prevention Failure: The Ballooning Entitlement Burden of U.S. Global AIDS Treatment Spending and What to Do About It), U.S. funding for treatment of about two million AIDS patients is effectively a new "international entitlement" program, since discontinuing treatment would consign most of these patients to death within a few months.The U.S. government and other donors are likely to respond to this reality by preserving AIDS treatment funding while cutting other parts of the assistance budget. Other donors will do the same. The result will be that while the number of patients receiving AIDS treatment stalls at close to current levels, funding for HIV prevention and for other parts of the health sector will fall by more than 10% and AIDS treatment expenditure will become an even larger portion of the total assistance budget in 2012 than it is today.Just as financiers are diverting their resources to U.S. Treasury bills as a "safe haven" in this time of financial uncertainty, those working in HIV prevention or other non-AIDS treatment jobs dependent on foreign assistance may want to think about switching into AIDS treatment jobs as a labor market "safe haven."


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