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.)

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Source: U.S. Library of Congress