As in other countries in the southern Africa region, a human development catastrophe is unfolding in Mozambique. Recently released data estimate HIV prevalence rates amongst the adult population in the year 2000 at around 12% with substantial regional variation. Due to the magnitude of the HIV/AIDS pandemic, it has become a top priority development issue in the southern Africa region, including Mozambique. The goal of this paper is to try to come to grips with the economic dimension. In this initial assessment, focus is on the implications for macroeconomic prospects. A dynamic computable general equilibrium approach is employed to quantify impacts on key macroeconomic variables and identify the major channels through which these impacts occur. Particular attention is paid to projecting implications for human capital accumulation. Policy options for blunting the major negative impact channels are then considered.

The analysis indicates that the HIV/AIDS pandemic could have large economic impacts. Projecting to 2010, cumulative per capita GDP growth rates are between 0.3% and 1.0% lower than in a fictional no AIDS scenario. The major sources of this slowdown in growth are (1) reduced productivity growth, (2) reduced population growth and human capital accumulation, and (3) reduced physical capital accumulation. All three of these effects are significant. In addition, impacts on school enrollments are potentially very large with implications for growth rates in the latter part of this decade and beyond. Among other items, the ana lysis highlights the importance of maintaining access and quality in the educational system for preserving growth trends in school enrollments and human capital stocks.

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