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Social Protection in Central Asia

Elena Gaia, Sitora Rashidova, UNICEF

UNICEF/NYHQ2006-2921/Giacomo Pirozzi

Overview
In preparation for the Central Asia Regional Risk Assessment meeting held in Almaty 14-15 April 2011, UNICEF sponsored a background paper to provide an overview of the social and economic vulnerabilities of families and assess the ability of national social protection systems to address these in the five Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The paper contributes to the discussion on social policy effectiveness particularly in terms of mitigating the impact of high food and energy prices on vulnerable households. The key messages of this policy brief are: More effective social protection mechanisms can help combat structural vulnerabilities and poverty. They are more easily scaled up. They can temporarily channel resources to the most vulnerable during times of volatile commodity, food and energy prices, in the aftermath of a crisis or in the recovery from natural or man-made disasters. The most recent economic crisis represents opportunities for governments to transform social protection schemes, improve design and implementation of social assistance, introduce new programmes and equalize spending for social protection with other social policies such as health and education. 1

The findings of this research are meant to support the CARRA process by identifying priority areas for future coordinated action in the field of social protection and risk mitigation.

Family well-being and vulnerability to crises


Over the last decade, poverty rates have declined significantly and living standards improved in Central Asia due to real growth in income and consumption, though disparities within and among countries have persisted. The recent global financial crisis, however, considerably reduced those positive gains and increased the vulnerabilities of many households and children. Table 1: Absolute Poverty in Central Asia (%)
ABSOLUTE POVERTY Year Total Urban Rural HH with children % total 53% 7% 30% 27% Poor as % of HH with children 62% 15% 44% 62%

Tajikistan Kazakhstan Uzbekistan Kyrgyzstan

2009 2008 2007 2008

47% 16% 24% 32%

42% 12% 18% 23%

49% 21% 27% 37%

Source: Gassmann/UNICEF (2011)

The most vulnerable in Central Asia are working adults with low incomes, households with many children, single parent homes, families with disabled children, and migrant families. Lack of adequate social safety nets and access to employment opportunities is prevalent across this region and contributes to increased poverty risk and vulnerability. Those living in rural areas, as well as at higher altitudes in the mountainous regions of Kyrgyzstan and Tajikistan, face even higher risks of poverty (Table 1). The regions susceptibility to natural hazards such as earthquakes, landslides, floods and extreme cold contribute to household vulnerabilities. For example, hydropower shortages during the 2007-2008 winter in Tajikistan led to reduced access to education, social services and winter heating while costing millions of dollars to the countrys economy. The region has experienced two waves of food price inflation, and even though global food prices dropped sharply after mid-2008, no similar decline was apparent in food prices in Kyrgyzstan and Tajikistan. In general terms, food prices across the region are much higher today than they were in 2007. This has reduced purchasing power of already vulnerable families, leaving them with difficult choices to make. Families must adopt various coping 2

strategies such as adjusting their consumption to deal with high food prices. Higher food (and energy) costs may mean that less nutritious food is being purchased. For poor households such choices are much more limited; less is spent on essentials as well as health and education, with detrimental effects on human capital. The effects on the wellbeing of individuals can take the form not only of chronic poverty, but also of the transmission of poverty across generations.

Current social protection systems


Current social protection systems in the region vary by country, but remain ineffective and weak. The impact of existing social cash transfers on poverty is limited. Social assistance schemes are not always a priority for governments in the region and they receive limited funding, even in countries running fiscal surpluses. The available budgets for these programmes are low, with countries spending between 0.4 and 1.4 percent of their GDP on social assistance programmes. Existing social assistance systems in Central Asia are not able to reach those in need and the amounts are too low to reduce poverty levels. For example, in Kyrgyzstan, coverage from the Monthly Benefit (MB) targeted at poor families, reaches only 18 percent of the poorest consumption quintile. In these households, the MB accounts for just 7 percent of total consumption. In Tajikistan, social assistance benefits made up less than 3 percent of total household consumption per capita for beneficiaries in the poorest 20 percent of the population. Administrative barriers also prevent many eligible households from accessing social assistance. In some countries, local administrators have little incentives to allocate and administer social transfers, due to high caseloads and low salaries. Local administrators may also show favouritism for certain beneficiaries. Some of the poor may be considered undeserving due to their behavior or status in the community. In Uzbekistan, communitybased targeting is used for distributing assistance. However, local differences in welfare levels are not taken into account and the danger of bias in the selection of beneficiaries exists. Instead, pensions and remittances play a greater role in ensuring the living standard of families. In Tajikistan with 24 percent of households having at least one migrant in 2007, 60 percent of the countrys consumption was financed by remittances. Remittances have had a significant effect on poverty reduction in the region.1 However, they do not reach all households and are volatile. Remittances, as well as pensions, are not adequate for addressing income shocks from temporary loss of employment, variable incomes such as those from farming, or changes in family composition. Even more importantly for risk-prone Central Asia, they cannot be immediately mobilized as safety nets in the event of macro-economic shocks or natural disasters.

In Tajikistan, migration and related remittances are estimated to have accounted for about 50% of the decrease in poverty between 2003 and 2007 (World Bank 2009a).

UNICEF/NYHQ2008-1795/Giacomo Pirozzi

Social protection responses to the financial crisis


From the onset of the food and fuel price crises in late 2007, countries in the region were faced with the challenge of using social protection measures to mitigate the impacts of the crises. Kazakhstan was the first country in Central Asia to adopt such measures. The government there responded with expansionary monetary and fiscal policy in order to stimulate economic growth and protect employment. The response programme focused on employment and created 252,277 new jobs. Public sector wages were also increased (Chart 1).

Chart 1: Fiscal balance as percent of GDP, 2006-20111


15

10

5 2006 2007 2008 2009 2010 2011

percent of GDP

-5

-10

-15 Kazakhstan Turkmenistan Uzbekistan Kyrgyzstan Tajikistan

1\Projections for 2010 and 2011 Source: IMF (2010a)

New energy tariffs implemented in Kyrgyzstan and Tajikistan were not counterbalanced with adequate social protection measures for those who could not afford them. With help from the World Bank, the European Commission and the IMF, the government of Kyrgyzstan increased the amount of the Monthly Benefit in 2008, though coverage of the programme continued to be low. The government also increased pensions and other cash allowances, though these failed to compensate for the effects of higher food and fuel prices. The situation was especially critical in Tajikistan due to the absence of effective and reliable social assistance programmes. Donors were unable to find avenues to transfer funds to the most vulnerable households using existing transfer schemes. Instead, food provided by the WFP remained the only major crisis response. Clearly, current social transfer schemes in Central Asia are not designed, funded, or administered so as to effectively protect and improve the living standards of poor and vulnerable households. As the case of Tajikistan demonstrates, this is a missed opportunity: improved and more effective social protection mechanisms not only help to combat structural vulnerabilities and poverty; they can also more easily be scaled up and used as vehicles for temporarily channelling more resources to the most vulnerable in times of volatile commodity, food and energy prices, in the aftermath of a crisis or in the recovery from disastrous events.

The way forward


Social protection programmes play an important role in the protection of vulnerable households during crises. Because they help households maintain consumption and access to food and other necessities, governments need to equalize spending for social protection with other social policies such as health and education. To encourage governments in Central Asia to better use social protection instruments for poverty reduction and crisis mitigation, several potential avenues for reforms aimed at improving the protection of vulnerable families and children are proposed. The most recent economic crisis gives the region an opportunity to transform social protection schemes or to introduce new programmes. However, if such programmes are poorly designed or hastily implemented, governments may not be able to withdraw them later, and they may fail to respond to future crises. Opportunities for such reforms are more limited in the regions poorest countries, Kyrgyzstan and Tajikistan, but are feasible for the energy-exporting economies. Thus, improved design and implementation of social assistance schemes are vital in a region that is routinely exposed to natural hazards and economic shocks. In order to achieve this goal, the paper makes the following recommendations: Financing: Eliminate programmes, subsidies and other privileges that benefit richer groups of the population to generate savings for measures that benefit the poor. Various programmes could be unified into one benefit that would better reach families and children in most need, raising and extending coverage. However, such reforms would require a political strategy against protests from the non-poor who would be losing their benefits and entitlements. Spending on social protection measures should be prioritized as a centralized item in government budgets to ensure sustained and predictable funding. Inequalities are especially likely when benefits are dependent on local budgets, as poorer districts are not able raise as much funding as others. Thus, decentralized budgets may create a paradox where poor localities that are most in need receive the least financial support.

Reorganization of existing social protection measures: Replace benefits that do not necessarily target the needy with transfers directed at poor and vulnerable households. Unify different benefits schemes into a single cash transfer benefit using one eligibility methodology and a consolidated registry of beneficiaries to prevent duplication of recipients. Create an integrated and comprehensive safety net system to tackle different types of vulnerabilities, including: Social pensions, especially for elderly and disabled without other pension entitlements based on employment contributions. Pensions have been

shown to be effective in reducing poverty for all members of the household, especially in multigenerational households. Family allowances, to help meet the higher consumption needs in the presence of children and in the case of falling incomes. Last resort cash transfers, for households below a certain threshold or not covered by other transfers.

Identification of beneficiaries: Extend the coverage of existing programmes, by proactively reaching out to poor households and carrying out informational campaigns. Application procedures and documentation requirements should also be simplified. Change income- or consumption-based formulas for calculating who is eligible for the benefits to include factors that are strongly correlated with poverty and easier to ascertain; these could be: number of children in the household, children or adults with disabilities, place of living and level of exposure to natural hazards. Targeting measures based on categories, such as geography or a disability, can be a better and cheaper alternative where income and needs based targeting methods fail. Such problems are likely to occur in highly informal economies where it is difficult to establish household incomes.

Administration, monitoring, and evaluation: Introduce systematic monitoring and evaluation at both the local and central government levels. Household budget surveys should also be conducted on a regular basis to help with policy evaluation.

Potential Responses to specific crises: Food price crisis: provide social cash transfers, cash for income support and food stamps or food subsidies to increase food consumption. Energy price crisis: provide direct income transfers. Tariff-based subsidies are an effective alternative only where connection of the poor to the energy infrastructure is high, and appropriate billing and metering systems are in place. Employment crisis: prioritize labour-intensive investments in infrastructure, such as rural road projects, reforestation, dikes or irrigation system rehabilitation. Public works programmes can mitigate the negative effects of a crisis while investing in the countrys future. However, they should offer low wages so that only those in need participate. They should also be supported with affordable childcare services to ensure womens participation, and be complemented with other interventions for those who cannot work.