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WEEKLY NEWSLETTER
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Kyrgyzstan
Index
Like the other former Soviet republics, Kyrgyzstan inherited a social
welfare system that allocated benefits very broadly without targeting
needy groups in society. In this system, nearly half of society received
some sort of benefit, and many benefit payments were excessive. By
necessity, the post-Soviet government has sought to make substantial
reductions in state social protection payments, emphasizing identification
of the most vulnerable members of society.
The Soviet Heritage
In 1991, the last year of the Soviet Union, the payment of pensions,
child allowances, and other forms of support amounted to 18 percent of the
Kyrgyz Republic's gross domestic product (GDP--see Glossary). At that
point, about 600,000 pensioners and 1.6 million children received some
form of payment. Eligibility requirements were extremely liberal, defined
mainly by age and work history rather than by social position or
contributions to a pension fund. This generous system failed to eliminate
poverty, however; according to a 1989 Soviet survey, 35 percent of the
population fell below the official income line for "poorly supplied"
members of society. Thus poverty, which became an increasingly urgent
problem during the economic decline of the transition period of the early
1990s, already was rooted firmly in Kyrgyzstan when independence was
achieved.
Reforming Social Welfare
The Akayev government addressed the overpayment problem by reducing
categorical subsidies and government price controls; by indexing benefits
only partially as inflation raised the cost of living; and by targeting
benefits to the most needy parts of society. Under the new program, child
allowances went only to people with incomes below a fixed level, and bread
price compensation went only to groups such as pensioners who lacked
earning power. By 1993 such measures had cut government welfare expenses
by more than half, from 57 percent of the state budget to 25 percent.
Nevertheless, the percentage of citizens below the poverty line grew
rapidly in the early 1990s as the population felt the impact of the
government's economic stabilization program (see Economic Reform, this
ch.). In addition, the Soviet system delegated delivery of many social
services, including health, to state enterprises, which in the post-Soviet
era no longer had the means to guarantee services to employees (or, in
many cases, even to continue employing them). The state's Pension Fund (a
government agency with the relatively independent status of a state
committee) went into debt in 1994 because workers who retired early or
worked only for a short period remained eligible for pensions and the poor
financial state of enterprises made revenue collection difficult. The
pension system is supported by payroll taxes of 33 percent on industries
and 26 percent on collective and state farms. Besides retirement pensions,
disability and survivors' benefits also are paid. Of the amount collected,
14 percent goes to the labor unions' Social Insurance Fund and the
remainder to the Pension Fund. The standard pension eligibility age is
sixty for men and fifty-five for women, but in 1992 an estimated 156,000
people were receiving benefits at earlier ages. In 1994 the minimum
pension amount was raised to forty-five som (for value of the som--see
Glossary) per month, the latest in a long series of adjustments that did
not nearly keep pace with inflation's impact on the real value of the
pension.
New pension legislation prepared in 1994 made enterprises responsible
for the costs of early retirement; established a five-year minimum for
pension eligibility; clearly separated the categories of work pensions
from social assistance payments; abolished supplementary pension payments
for recipients needing additional support; eliminated the possibility of
receiving a pension while continuing to work (the position of an estimated
49,000 workers in 1992); and provided for long-term linkage of
contributions made to pensions later received.
Child allowances are paid for children up to the age of eighteen, and a
lump sum payment is made on the birth of a child. In 1991 child allowances
consumed 6.7 percent of GDP; since that time, targeting of benefits has
been a major concern in this category to reduce spending but cover
vulnerable groups. The first alteration of eligibility standards occurred
in 1993. Cash for this category is provided by direct transfers from the
state budget combined with Pension Fund contributions.
Besides pensions and family allowances, Kyrgyzstani citizens also
receive maternity benefits and sick pay covered by the Social Insurance
Fund, which is managed by the Federation of Independent Labor Unions and
the individual unions; it receives money only from its 14 percent share of
payroll taxes, not from the state budget or individual contributions. All
public and private employees are eligible for sick leave, with payments
depending on length of service. The maternity allowance is a single
payment equal to two months' minimum wage. World Bank experts consider the
sick and maternity benefits excessive in relation to the state of the
economy and the state budget.
In assessing the future of social assistance in Kyrgyzstan, experts
predict that economic restructuring through the 1990s will increase the
number of citizens requiring assistance from the state system. To meet
such needs, thorough reform of the system--aimed mainly at tightening
eligibility standards--will be necessary. It is also expected that
Kyrgyzstan will require other methods of social assistance to provide for
individuals who do not fall into existing categories, or for whom
inflation erodes excessively the value of payments now received. The
officially and unofficially unemployed (together estimated at 300,000 at
the end of 1994) are an especially vulnerable group because of the
unlikelihood of workers being reabsorbed rapidly into the country's
faltering economy. (Unemployment benefits are paid for twenty-six weeks to
those who register, but the number of "non-participants" is much
greater than the number of registered unemployed.)
Data as of March 1996
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