Kyrgyzstan: Bishkek Faces Pension Bomb

Originally published by EurasiaNet.org
Kyrgyzstan: Bishkek Faces Pension Bomb

by Chris Rickleton EurasiaNet.org

Twenty-seven years of arduous and often risky work in state-run factories have bequeathed Olga Kovalenko, a 71-year-old former electrical engineer, a monthly pension of 5,020 soms, or just over $100. “It is enough to buy bread, and almost enough to butter it,” she jokes.

Kovalenko can afford to maintain a sense of humor. In a village outside Kyrgyzstan’s capital, she lives with her daughter and son-in-law, who both are employed. Her neighbor Alina Romazanova, 60, is less fortunate. Only able to prove she worked eight years as a school janitor, her pension is 2,400 soms, or around $50, and she relies on irregular donations from her nephew, who works in Russia, for sustenance. On one occasion, when Romazanova received a court order threatening to cut off her gas as a result of unpaid utilities, Kovalenko’s family stepped in to foot the bill.

Had either woman lived out their lives in the Soviet Union, where employment was close to 100 percent, they would have died in relative comfort. In today’s Kyrgyzstan the situation is different. The government agency for providing contributory pensions, the Social Fund, is hamstrung because less than a third of the country’s working age population pays into it. And if life is hard for the roughly half a million citizens who claim some form of state pension now, it will probably be a lot worse in the future, with fewer benefits to go around for a swelling mass of informal workers reach retirement age (currently 63 for men and 58 for women).

According to figures released in a recent report by the charity Help Age International, 6.4 percent of Kyrgyzstan’s population is over 60. But this figure could rise to 17.3 percent by 2050. With many Kyrgyz currently engaged in black-market trading and work abroad, many will be unable to provide tax records and other documentation needed to be eligible for benefits. A thoroughly reformed pension system could encompass that expanding demographic, but it would require far-sighted actions by policy-makers who seem inclined to plan for the short term.

An essential feature of any reform would be broadening taxable income to incorporate workers in the country’s shadow economy. Roza Rayapova, Help Age International’s Social Protection Adviser, and a consultant at Kyrgyzstan’s Social Fund, says this must happen as soon as possible. “While much of the workforce is still young, we have a window of opportunity [to reform pensions],” Rayapova told EurasiaNet.org. “We will begin to feel this shift in the next 10-15 years.”

In addition to persuading informal workers to contribute to the Social Fund (Kyrgyzstan has only one private pension fund, compared to over a hundred in Kazakhstan), the government must also negotiate a troubled budget to improve living standards for current pensioners. The average pensioner currently receives 3,167 soms, or $65 per month – $25 less than what the government deems sufficient to survive. Although the Finance Ministry announced plans to increase pensions on October 1, the raise was put off until November, and will amount to little over $4 on average. That modest bump won’t be enough to keep pace with inflation, which the World Bank predicts will rise in 2013 at a rate between 6 percent and 8 percent.

In addition to inflationary and deficit concerns raised by the World Bank, which will pledge $30 million to Kyrgyzstan in budgetary support next year, domestic opponents of pension increases include Akylbek Japarov, who served as Kyrgyz Finance Minister prior to a recent cabinet reshuffle. In August, Japarov was quoted by news agencies as suggesting that pensioners who were claiming benefits while working could have their pensions revoked, a statement subsequently refuted by then Prime Minister Omurbek Babanov.

“Of course our elderly folk were outraged – when a man of means like Japarov is reported as saying something like that,” said Svetlana Bashtavenko, president of the Resource Center for the Elderly, a Bishkek-based non-profit. “We all understand that state finances have holes – but why should they be filled by working pensioners who are still making state contributions?”

Japarov later claimed to have been misquoted, but Bashtavenko maintains that such attitudes represent society’s tendency to view old people as a financial burden. Recalling that some pensioners received monthly pensions of less than $2 per month in real terms following the collapse of the Soviet Union – a state that provided citizens with holiday allowances, heavily subsidized health care and other benefits in old age – Bashtavenko argues Kyrgyzstan’s elderly have consistently picked up the tab for the country’s frail economy: “Sovereign Kyrgyzstan was built on the sacrifices of pensioners.”

These days, Kyrgyzstan’s economy is dependent on migrant remittances and the re-export trade, which often occurs off the books. Under the current system, citizens without formal employment histories are eligible for a pension of 1,000 soms a month, or $20. Yet even that bare minimum may come to look unfeasible as the number of retiring migrants, traders and tax-evading taxi drivers continues to grow.

For Help Age’s Rayapova, the challenge is clear. “If these people are to have any stability at all in old age [the state] must act systematically. The informal sector, as far as possible, needs to be formalized,” she said.

Editor's note: Chris Rickleton is a Bishkek-based journalist.