The international community has made extraordinary progress in the past decade in the fight against AIDS, but a funding crisis is putting those gains at risk, the United Nations health agencies said on Wednesday.

A World Health Organization-led report said the human immunodeficiency virus (HIV) that causes AIDS and now infects about 34 million people around the world has proven a “formidable challenge” for scientists and public health experts.

“But the tide is turning,” it added. “The tools to achieve an AIDS-free generation are in our hands.”

Yet a severe funding crisis at the world’s largest backer of the fight against AIDS and a decline in international donor money to battle the disease is dampening optimism in the HIV/AIDS community about an eventual end to the pandemic.

Annual funding for HIV/AIDS programs fell to $15 billion in 2010 from $15.9 billion in 2009, well below the estimated $22-24 billion the U.N. agencies say is needed by 2015 to pay for a comprehensive, effective global response.

The public-private Global Fund to Fight AIDS, Tuberculosis and Malaria, the world’s largest financial backer of HIV treatment and prevention programs, said last week it was cancelling new grants for countries battling these diseases and would make no new funding available until 2014.

In an interview with Reuters in London as the U.N agencies report was released, Gottfried Hirnschall, the WHO’s director for HIV/AIDS said great progress in bringing down the number of new HIV infections and dramatically increasing access to life-saving AIDS drugs made this a critical time in the battle.

Scientific studies in the past year have also shown that getting timely AIDS drug treatment to those with HIV can significantly cut the number of people who become newly infected with the virus.

“This is a really exciting year, because we’re seeing downward trends in those areas where we want to see downward trends - in new infections and in mortality - and we’re seeing upward trends where we’d like to see them, primarily in (treatment) coverage rates,” Hirnschall said

Latest figures in Wednesday’s report and from a UNAIDS global study last week show the number of new HIV infections fell to 2.7 million in 2010, down from 3.1 million in 2001, while the number of people getting life-saving AIDS drugs rose to 6.65 million in 2010 from just 400,000 in 2003.

Hirnschall said the data suggested the WHO’s goal - to have zero new infections, zero deaths and zero stigma associated with HIV - “could in the not too distant future become a reality.”

But the big risk lies in the funding, he said.

“We already have a $7 billion shortfall for this year and what’s even more alarming is that we also had almost a billion dollars less this year than we did last.”

With many large international donor countries struggling with recession and debt crises, Hirnschall said it was crucial for countries affected by HIV/AIDS to do all they can to fund their own programs and make limited resources go further.

Wednesday’s report, released ahead of World AIDS Day on December 1 by the WHO, the United Nations AIDS program UNAIDS and the United Nations children’s fund UNICEF, said treatment, prevention and outreach programs are becoming more efficient, with health clinics integrating services and local communities finding more effective ways to get medicines to HIV patients.

“Nevertheless, financial pressures ... are threatening the impressive progress to date,” it said, adding that declining funding was a “deeply troubling trend.”

Hirnschall said donors should recognize that stepping up investment now will save lives, and more money in the long run.

“The risk is that we carry on as we are for the next 20 years and the whole epidemic will just linger on and on. Or we could load up front and make a big investment now, and then the numbers will really start to come down and it will pay off.”

“The question is, is the world ready to do that?”

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By Kate Kelland