Despite its strong growth record, Botswana faces two prominent development challenges:
the onslaught of HIV/AIDS and the slowdown in diamond mining. This study estimates the
growth and distributional impact of the HIV/AIDS pandemic and considers its implications for
the country’s development prospects, using a dynamic computable general equilibrium and
microsimulation model that accounts for the cost of treatment. The results of this analysis indicate
that HIV/AIDS reduces GDP growth by 1.6 percent, increases the absolute poverty headcount by
1.5 percentage points and disproportionately hurts labor-intensive manufacturing. Therefore,
while mining has dominated the recent slowdown in Botswana’s growth, the present findings
suggest that HIV/AIDS is undermining economic diversification. Although providing treatment is
projected to reclaim a quarter of the lost growth and a third of the poverty caused by the
pandemic, the fiscal burden of treatment will constrain diversification, thus underscoring
Botswana’s need for development assistance. Furthermore, focusing resources toward treatment
may worsen inequality, since the primary beneficiaries will be middle-income and urban
households. Therefore, while HIV/AIDS is undermining Botswana’s success story, both
unemployment and a stagnant rural economy will remain binding constraints against further propoor
development.