Kyrgyzstan

Reforming the pension system is key to ensure better social protection coverage across the population in Kyrgyzstan, says new OECD Development Centre report

 

Bishkek, 13 June 2018 -  Kyrgyzstan spends more on social protection than any other item of public expenditure but the benefits reach mainly the elderly, according to a Social Protection Systems Review (SPSR) of Kyrgyzstan produced by the OECD Development Centre as part of the European Union Social Protection Systems Programme (EU-SPS). Accelerating the decline in poverty and capitalising on the potential of social protection to deliver long-term gains in productivity and well-being require a restructuring of social protection based on a systems approach.

 

The SPSR was launched today in Bishkek by the OECD Development Centre in collaboration with Kyrgyzstan’s Ministry of Labour and Social Development in the presence of Charlotte Adriaen, Head of Cooperation at the European Union Delegation to Kyrgyzstan. The report finds that Kyrgyzstan has made important strides in enhancing social protection since gaining independence in 1991.

 

Not only has Kyrgyzstan established a range of new programmes to protect the population through the country’s transition to a market economy but it has also honoured pension entitlements generated prior to independence. As a result, social protection programmes exist to cover a wide range of risks and more than 90% of the population aged 65 receives a pension. However, severe fiscal constraints have limited the coverage and effectiveness of new programmes, which have emerged and evolved in a fragmented manner.

 

The SPSR shows that spending on social protection in 2015 was equal to 10.7% of gross domestic product (GDP) – more than public spending on health and education combined - and grew at an annual rate of 5.7% per year in real terms between 2011 and 2015. Contributory old-age pensions accounted for 68.4% of total spending (up from 62.8% in 2011) and were equal to 6.4% of GDP. In the same year, spending by the Monthly Benefit for Poor Families with Children (MBPF), which is the only poverty-targeted social assistance programme, was equal to 0.6% of GDP.

 

The limited scope of social assistance programmes means that impact on poverty is low. In 2016, the poverty rate stood at 25.4% of the population. The SPSR finds that 45% of the poor population in the previous year had no access to social protection. Pensions are a critical source of income for some 40% of poor households but the proportion of households receiving social assistance is much lower.

 

The Government of Kyrgyzstan is in the process of reforming the MBPF to increase coverage but the SPSR shows that the cost of establishing a universal grant are high, even if it is only for children up to age two. This cost also has to be balanced against the need to scale up other critical components of the social protection system, such as active labour market policies and social services, which play a key role in promoting the development of vulnerable individuals.

 

The SPSR recommends a number of reforms to social protection in Kyrgyzstan based a systematic approach that seeks to enhance coherence and co-ordination across the sector, not only between programmes but also between the institutions that manage them and the information infrastructure on which they rely.

 

Restructuring the pension system is a critical component of such an approach. The current system is increasingly dependent on transfers from the national budget and is not sustainable over the long term in a context of rising informality, high rates of emigration, declining female labour force participation and an ageing population.

 

Introducing a large-scale non-contributory social pension and reducing the size of contributory programmes would safeguard universal social protection coverage in old age. It would also allow the Government of Kyrgyzstan to balance expenditure across the system to maximise its impact for the population as a whole and ensure coverage across an individual’s lifecycle.

 

The EU-SPS is co-financed by the European Union, the OECD and the Government of Finland.

 

For more information, please contact Alexander Pick Alexander.Pick@oecd.org

Telephone: +(33-1) 45 24 87 27

 

 

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