Debt crisis choking SSA countries, jeopardising progress on ending AIDS

Debt. IMF

Penang, 20 Sep (Kanaga Raja) — Growing public debt is choking sub-Saharan African (SSA) countries, putting in jeopardy the progress made towards ending AIDS, according to the Joint United Nations Programme on HIV/ AIDS (UNAIDS).

In a new report, titled “Domestic revenues, debt relief and development aid: Transformative pathways for ending AIDS by 2030,” UNAIDS said that the debt crisis is leaving SSA countries with little fiscal room to finance their health and critical HIV services.

According to UNAIDS, sub-Saharan Africa accounts for the largest number of people living with HIV, with more than 25.9 million people of the 39.9 million living with HIV globally.

The region’s success in having reduced new HIV infections by 56% since 2010 will not be sustained if fiscal space is constrained, it said.

UNAIDS found that the combination of growing public debt payments and spending cuts set out in International Monetary Fund (IMF) agreements in the next three to five years will, if unaddressed, leave countries dangerously under-resourced to fund their HIV responses.

For instance, it said that debt servicing now exceeds 50% of government revenues in Angola, Kenya, Malawi, Rwanda, Uganda, and Zambia.

Even after debt relief measures, Zambia will still be paying two-thirds of its budget on debt servicing between 2024 and 2026, it pointed out.

“When countries cannot effectively look after the health care needs of their people because of debt payments, global health security is put at risk,” said UNAIDS Executive Director Winnie Byanyima.

“Public debt needs to be urgently reduced and domestic resource mobilization strengthened to enable the fiscal space to fully fund the global HIV response and end AIDS,” she added.

According to the UNAIDS report, which highlights the eastern and southern Africa as well as the western and central Africa regions, the COVID-19 pandemic and the poly-crises of 2023-2024 have undermined decades of progress on global health and slowed progress in response to HIV.

It said even prior to COVID-19, the United Nations target to achieve a 75% reduction in the number of new HIV infections between 2010 and 2020 was significantly off-track.

Highlighting the key challenge of financing, the report said that globally, US$20.8 billion was made available in 2022 for HIV programmes in low- and middle-income countries from both domestic and international sources.

This funding – already on the decline relative to previous years – is under increasing pressure, it added.

It said that when it comes to international donor support, other priorities such as the need to respond to urgent humanitarian crises, climate change and other natural disasters, the need to support refugees in donor countries, and growing shortfalls in funding for almost all of the UN Sustainable Development Goals (SDGs), threaten to re-direct much-needed international funds away from health and the HIV response.

Domestic tax revenues also face competing priorities, especially diversion to pay rapidly rising debt service, with 60% of low-income countries at high risk of debt distress or already in a situation of debt distress.

These developments threaten to undermine the internationally agreed goal of ending AIDS as a public health threat by 2030, said the report.

EASTERN & SOUTHERN AFRICA

As for the eastern and southern Africa region, the report said that of all world regions, a renewed commitment to respond to HIV and fully fund the HIV response could have the greatest impact in eastern and southern Africa.

The region remains the epicentre of the HIV epidemic, with 52% of all people living with HIV in the world.

It said that in 2023, there were 20.8 million people in the region living with HIV, of whom 12.9 million were women and 800,000 were children.

In the same year, the virus claimed the lives of an estimated 260,000 people and infected 500,000 more.

Despite these challenges and the disruptions to HIV programmes caused by the COVID-19 pandemic, the region has made the most substantial progress against HIV since 2010.

New infections declined by 57% overall from 2010 to 2022, with a 70% decline registered among children.

Overall, there were 58% fewer deaths due to AIDS-related causes in 2022 compared with a decade earlier.

Financing needs for the HIV response in eastern and southern Africa are extremely high. Of the total resources available in 2022 ($9.8 billion), $5.19 billion (or 61%) came from international donors, while $3.9 billion was domestically funded (public and private), said the report.

It said just two donors provide the majority of aid funds for the HIV response: the US President’s Emergency Plan for AIDS Relief (PEPFAR) programme and the Global Fund to Fight AIDS, Tuberculosis and Malaria (which is also heavily supported by the US government).

In 2022, these two donors provided 52.5% of all international development assistance resources to the region for the HIV response. All other donors combined provided under $1 billion ($760 million) in aid funds to the region in 2022.

Not only is the region far from meeting its annual HIV response financing needs, but the amounts allocated have also declined in recent years, said the report.

In 2022, funds for the HIV response were 1% lower than they were the previous year, and they have decreased almost 12% since 2017.

Overall, it said that the region remains heavily reliant on international aid to fund the HIV response, with several countries in the region, including Ethiopia, Madagascar, Malawi, Mozambique, Rwanda, Somalia, South Sudan, Uganda and Zambia dependent on development assistance to fund almost all of their prevention and treatment interventions.

Tax revenues declined sharply in nominal terms from $180 billion in 2019 to $154.4 billion in 2020 and $165.3 billion in 2021 for the region as a whole, said the report.

It said Ethiopia, Kenya, Malawi, Namibia and South Africa have not yet seen a return to pre-pandemic levels of revenues.

The report said the failure to mobilize more tax revenues and the continued great dependence on development partner resources to fund the HIV response is of particular concern at a time when development assistance is in decline – both overall, and in eastern and southern Africa.

The amount of government spending on the HIV response as a proportion of GDP is also on the decline in the region, it added.

The region as a whole spent 1.13% of GDP on the HIV response in 2019, but this fell to 0.96% in 2020 and fell again in 2021 to 0.79%. This represents a decline of over 50% between 2017 and 2021.

A substantial drop was seen in Kenya, where government spending on the HIV response declined from 1.43% of GDP in 2017 to just 0.55% in 2022. Zambia also saw a sharp decline following the pandemic – from 1.34% of GDP in 2019 to 0.32% in 2021. Similarly, Malawi also saw a fall from 2.33% of GDP in 2019 to 1.66% in 2021.

No country within the region has significantly increased the amount spent on the HIV response as a percentage of GDP, said the report.

On a per capita basis, total spending on the HIV response (from all sources) fell from an average of $33.2 in 2017 to $13.9 in 2020.

Only the United Republic of Tanzania managed to significantly increase its expenditure on the HIV response, though this was from a low overall starting point – from just under $5 per capita in 2017 to $9.62 in 2020.

The report also said spending on health varies widely within the region.

In 2023, government budgets for health amounted to an average of 2.47% of GDP and have remained largely stagnant at this level over the last five years.

In a few (mostly) higher-income countries within the region, government budgets for health are over 3% of GDP, including Botswana, Eswatini, Namibia, South Africa and Zambia.

However, the report said in many others, government budgets are less than 2% of GDP, and sometimes far less.

These include Ethiopia, Kenya, Madagascar, Malawi, Somalia, South Sudan, the United Republic of Tanzania, Uganda and Zimbabwe, all of which have a significant HIV prevalence, except Madagascar.

High public debt is compounding this challenging financing landscape. The COVID-19 pandemic, which stifled economic activity and growth, also led governments – worldwide and within the region – to take on extra debt to tackle the pandemic, compounding a pre-pandemic trend of high government borrowing, said UNAIDS.

The Brookings Institution estimates that to finance their pandemic responses, sub-Saharan African governments borrowed 4.5% more than predicted had the pandemic not occurred.

Furthermore, UNAIDS said that the public debt picture in eastern and southern Africa is challenging.

Five of the low- and middle-income countries that receive a debt risk rank from the IMF are classified as “in debt distress” (Malawi, Mozambique, Somalia, Zambia and Zimbabwe).

A further three are considered at “high risk” (Ethiopia, Kenya and South Sudan), while five are classified as being at “moderate risk” (Lesotho, Madagascar, Rwanda, United Republic of Tanzania and Uganda). None are considered low risk.

The IMF also reports debt vulnerabilities in the region’s “market access” countries. Debt has climbed steadily in Eswatini, Namibia and South Africa, and the IMF has pointed to elevated risks of debt distress in Eswatini, in particular, which has built up substantial payment arrears on its domestic debt.

“As public debt has risen, so has the cost of servicing this debt. The data show that while revenues have declined slightly due to the pandemic, debt servicing has significantly increased.”

Between 2017 and 2023, total public debt service had risen from 5% to over 8% on average, said UNAIDS.

According to the report, the amount now spent on public debt service is almost 3.3 times the government budget allocated to public health on average in the region as a percentage of GDP, while in 2017, it was about 2.3 times the amount.

“The amount spent on debt service is also almost six times the amount spent on the HIV response.”

Public debt service is consuming increasingly large shares of government revenue across the region, said the report.

Total public debt service as a percentage of government revenues rose significantly between 2017 and 2023, from 29.7% to 42.7%, it added.

The largest increases are seen in Eswatini, Kenya, Madagascar, Malawi, Namibia, Rwanda, Somalia, Uganda and Zambia.

It said in Angola, Kenya, Malawi, Rwanda, Uganda, and Zambia, debt service now exceeds 50% of government revenues.

Similarly, debt service represents an increasingly large share of public expenditure across the region. Total debt service as a percentage of public expenditure amounted to an average of 21% in 2017, but had climbed to 30.8% by 2023.

In eastern and southern Africa, seven countries spent more on interest repayments on their public debt than on health in 2022 as a percentage of GDP: Angola, Kenya, Malawi, South Africa, South Sudan, United Republic of Tanzania, Uganda and Zambia, said UNAIDS.

Adjusted for inflation, eastern and southern Africa will need to mobilize $10.5 billion in 2024 to fully fund the HIV response. This will climb to $15.84 billion by 2030, it added.

The greatest financing needs are in Ethiopia, Mozambique, South Africa, South Sudan and United Republic of Tanzania, which will all need to mobilize at least $1 billion in resources annually in 2030 to fund HIV prevention and treatment services.

In 2024, the region will need to spend an average of 1.91% of GDP on the HIV response, rising to 2.06% by 2030. This compares with only 0.79% spent in 2021.

Spending will, therefore, need to treble as a proportion of GDP by 2030 if the region is to end AIDS as a public health threat, said the report.

However, it said that under a business-as-usual financing scenario, achieving these spending increases will be difficult.

Tax revenues are projected to rise marginally from about 15.9% of GDP to about 16.8% by 2030. Debt service will remain above 8% of GDP between 2024 and 2030.

Debt service is also projected to consume, on average, over 54% of tax revenues over this period. Due to these challenges, expenditure on the HIV response is projected to fall from 1.38% of GDP in 2024 to only 0.84% by 2030.

At the same time, the report said eastern and southern Africa remains extremely vulnerable to a wide variety of downside pressures and risks, including an aid shock and another pandemic shock.

It said in a scenario in which development assistance stagnates between 2024 and 2030 relative to its 2022 levels, countries would need to increase domestic financing by 17% a year to fully fund the HIV response.

However, in a scenario in which development assistance declines by 5% annually relative to 2022, domestic revenue funding would need to increase by more than 20% annually to fund target spending of $15.8 billion, it added.

WESTERN & CENTRAL AFRICA

As for the western and central Africa region, the report said financing needs for the HIV response in western and central Africa are not as great as in eastern and southern Africa (which has a higher burden of the disease), but remain extremely high in a region which is home to several of the world’s poorest and most vulnerable countries.

In 2022, financing needs for the HIV response (adjusted for inflation since 2019) amounted to $2.98 billion for the region as a whole.

In comparison, $2.03 billion of actual funding was disbursed, leaving a funding gap of approximately $950 million or 32%.

The report said that the region has depended heavily on development assistance to fund the HIV response.

Since 2017, international donor funds have amounted to more than 60% of the region’s expenditure on the HIV response.

In 2022, international donors provided a total of $1.24 billion to the region, of which over half was provided by the USA and the Global Fund.

While many countries within western and central Africa acknowledge the need to mobilize more domestic funds to fund the HIV response, the region has significant domestic resource mobilization challenges, said UNAIDS.

It said its tax revenues have fallen over recent years and are still below pre-pandemic levels when measured as a proportion of GDP.

In 2017, tax revenues averaged 13.2% of GDP across the region, but this had fallen to only 11.9% by 2022. In 2023, tax revenues are projected to rise only slightly to 12.2% of GDP.

The report said that only four countries increased their tax revenues by more than 1% of GDP over this period – Burkina Faso, Burundi, Democratic Republic of the Congo and Senegal.

Cameroon, Chad, Guinea-Bissau and Nigeria all saw revenues stagnate between 2017 and 2023, while all other countries within the region saw tax revenues fall – sometimes significantly.

The Gambia, Central African Republic, Cote d’Ivoire and Ghana also saw declines of at least 3% of GDP, and five more exceeded 2%.

Due to recent pressures on development assistance and domestic tax revenues, the data shows that the amount spent on the HIV response as a proportion of GDP is in decline.

Though data are not comprehensive across the region, they show that expenditure on the HIV response declined from 0.3% of GDP in 2017 to just 0.12% of GDP in 2022, said the report.

Crucially, no country within the region registered an increase in spending on the HIV response when measured as a proportion of GDP.

It also said that spending on health has declined in western and central Africa since 2017. In 2017, government budgets for health amounted to an average of 1.86% of GDP.

They increased slightly, to just over 2.1% of GDP in 2020 and 2021 in the midst of the COVID-19 pandemic, but have dropped since then and will amount to only 1.81% of GDP in 2023.

It said that a key source of pressure on financing for the HIV response and social sectors is high public debt. The public debt picture in western and central Africa is extremely challenging: 11 countries have already restructured their debt in recent years or are currently restructuring or in arrears, while Sierra Leone is at a “high” risk of debt distress.

A further nine are at “moderate” risk of debt distress, and none are at low risk of debt problems.

“Debt has climbed rapidly, by almost 10% of GDP between 2018 and 2023 – from just over 53.2% of GDP on average to over 62% in 2023.”

The report said that particularly large increases in debt accumulation over this period are seen in Burkina Faso, Burundi, the Republic of the Congo, Cote d’Ivoire, Ghana, Liberia, Senegal and Sierra Leone, which all saw debt increase by at least 15% of GDP.

“Recent rises in debt stock, higher inflation, and interest rates have all dramatically increased the burden of servicing this debt.”

The data show that while revenues declined by 1% of GDP in the region between 2017 and 2023, public debt service has, in contrast, risen as a percentage of GDP from 6.4% to over 10% on average.

The amount now spent on public debt service is over 5.5 times the government budget allocated to public health on average in the region as a percentage of GDP, said the report.

Debt service has risen particularly sharply in Burkina Faso, Burundi, Chad, the Republic of the Congo, Cote d’Ivoire, Ghana, Guinea and Sierra Leone, which all saw increases in debt service as a percentage of GDP of more than 4% between 2018 and 2023, it added.

Only six countries in the region have seen debt service/GDP fall between 2017 and 2023: Benin, Cabo Verde, Mauritania, Nigeria, The Gambia and Togo.

Consequently, public debt service is consuming increasingly large shares of tax revenues across the region. Debt service consumed just over 31% of revenues in 2017, rising to a projected 46.6% in 2023, it added.

Similarly, debt service represents an increasingly large share of public expenditure, increasing from 46% in 2017 to an expected 61.5% in 2023.

“Substantial rises in debt service as a percentage of revenues are seen in Burkina Faso, Cameroon, Chad, the Republic of the Congo, Cote d’Ivoire, Ghana, Guinea, Mali, Sao Tome and Principe and Sierra Leone.”

In 2024, adjusted for forecast inflation, western and central Africa will need to mobilize $4.18 billion to fully fund the HIV response. This will climb to $7.9 billion by 2030.

Nigeria alone accounts for over $4.5 billion of the $7.9 billion total amount required in 2030 by the region, said the report.

Adjusted for inflation, in 2024, the western and central Africa region will need to spend an average of 0.67% of GDP on the HIV response, rising to 0.79% of GDP by 2030. This compares with only 0.12% in 2022.

Under a business-as-usual financing scenario, achieving these spending increases will be difficult. Tax revenues are projected to rise by almost 2% of GDP, from 12.84% in 2024 to 14.8% by 2030, it noted.

“Despite these increases, this still leaves the region lagging far behind many other world regions in terms of domestic revenue mobilization.”

At the same time, debt service will remain above 10% of GDP on average every year between 2024 and 2030.

Debt service is also projected to consume, on average, almost 55.5% of tax revenues and represent over 50% of public expenditure by 2030, said UNAIDS.

At the same time, it said western and central Africa remains extremely vulnerable to a wide variety of downside pressures and risks, including an aid shock and another pandemic shock.

In a scenario in which development assistance levels remain stagnant in US dollar terms between 2024 and 2030 relative to the levels seen in 2022, the amount of domestic public and private financing would need to rise by a massive 23% annually until 2030 to fully fund the HIV response, it added.

However, it said in a situation in which international donor funds for the HIV response declines by 5% annually relative to the levels seen in 2022, countries would need to increase domestic financing by 35% a year to close the additional financing gap.

Even in a highly optimistic scenario in which development cooperation for HIV increases by 5% annually from 2022 levels, it would mobilize only $1.74 billion by 2030, leaving the region needing to mobilize $6.16 billion by 2030 from other sources, it concluded. – Third World Network