Welfare System Faltering as Workers Shirk Payments

Kyrgyz government spending on welfare and pensions is under pressure because most of the working population do not pay into the system. Economists interviewed by NBCentralAsia say the answer lies in imposing harsher penalties on non-payers, bringing labour migrants abroad into the system, and encouraging the creation of private pension funds. However, another effective measure would be to reduce the size of the social payments that people have to make, they say.



The government’s audit and accounting agency recently issued a report suggesting that three-quarters of the able-bodied population failed to contribute to the Social Fund last year.



Depending on the pay scale, payments to the Social Fund should average 21 per cent of salary paid by the employer and eight per cent from the employee.



The government relies largely on these wage deductions to fund pensions for about half a million senior citizens.



Jypara Duyshembieva of the Social Fund’s department for registering those liable to pay told NBCentralAsia that only 1.1 million of the 3.7 people registered actually pay in contributions. About 70,000 people are officially registered as unemployed and are thus not liable.



Duyshembieva suggested that one way to increase the contributions base would be to draw the hundreds of thousands of people working abroad into the Kyrgyz welfare system. “We need agreements that would mean [some of] the funds that migrants working legally abroad contribute to the national budget of in Russia, for example, would be transferred back here so that the money would go towards their cumulative pensions,” she said.



Meanwhile, those working in Kyrgyzstan should face stiffer fines and other penalties for failing to pay welfare contributions, Duyshembieva said.



Avazbek Momunkulov, a former director of Kyrgyzstan’s tax office, recommends the creation of private pension funds. “There need to be awareness-raising campaigns to persuade people to believe in these pension funds and that they will get their contributions back once they retire,” he said.



Momenkulov said there would be more of an incentive to pay contributions if total payments were reduced to the level of income tax (now at a flat rate of 10 per cent) or at least to 20 per cent of salary. Employers who create large numbers of jobs should be encouraged to continue by reducing the level of their contributions.



Sapar Orozbakov, director of the Bishkek-based Centre for Economic Analysis, sounding a note of caution, saying the government could run into difficulties with paying out pensions if the contribution rate is lowered. But he accepted that some reduction will be necessary since the current scale is too high for many businesses, which opt instead to conceal payroll and staffing information.



In late December, the government announced that employer contributions were to be reduced by two per cent.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)