A new law will abolish Kyrgyzstan's poor relief scheme. Photo: Thomas Depenbusch (Depi) In April 2018, a new law will enter into force in Kyrgyzstan which abolishes its main poor relief scheme and replaces it with a system of universal child benefits. This is a major step forward in Kyrgyzstan’s attempt to build an inclusive, lifecycle social protection system, since the nation already offers universal old age pension coverage and disability benefits. However, it is a progressive move that has not gone unnoticed by the IMF and World Bank, writes Stephen Kidd.
Kyrgyzstan’s Monthly Benefit for Poor Families (MBPF) is a classic poor relief scheme, offering around US$13 per month to families with children living in poverty. In 2015, it reached around 14 per cent of children (with coverage having fallen from 21 per cent of children in 2005, a clear sign of the programme’s weak political support). The MBPF uses a proxy means test (PMT) to identify recipients. A report by the OECD (2017) indicates that the PMT is of particularly poor quality. Figure 1, left, indicates the coverage of the MBPF, showing that the PMT performs little better than random selection, with less than 20 per cent of the poorest decile of the population accessing the benefit.
The Government of Kyrgyzstan proposal is to replace the MBPF with three types of child benefit:
- A lump-sum benefit for every new-born child, equivalent to US$58;
- A universal benefit for children under the age of three years: a monthly transfer of US$10 per child per month;
- A universal monthly grant for families with three or more children between the ages of three and sixteen: a monthly benefit of US$7.25 per child per month, commencing with each family’s third child.
According to the OECD, the universal child benefits will be much more effective in reaching households living in poverty than the poverty-targeted MBPF. As Figure 2 indicates, the two regular universal transfers would reach over 40 per cent of households in the poorest decile, more the double the coverage of the MBPF. This is in line with the evidence from many other areas of the world that universal benefits are much more effective in reaching people living in poverty than poverty-targeted benefits.
In addition, the universal child benefits will be much more effective in tackling poverty than the poverty-targeted MBPF. The three universal benefits would reduce the poverty gap by 22 per cent while the MBPF only reduces the poverty gap by 5 per cent.[1]
Of course, the universal child benefits will require a higher level of investment than the MBPF. While the MBPF had a budget of 0.6 per cent of GDP in 2015, the universal child benefits will require an investment of 1.3 per cent of GDP.[2] This, however, should not be viewed as a disadvantage. The higher level of investment should bring greater impacts, not only to reduce poverty but across a wide range of other areas, including employment and economic growth.
However, a little bird has told me that the World Bank and IMF are not happy with the introduction of the universal benefits, despite their impacts on poverty and higher effectiveness in reaching households living in poverty. In fact, this month – January 2018 – a mission from the IMF is expected to arrive in Kyrgyzstan with the aim of persuading the Government to reverse the decision to introduce the universal benefits. It is to be hoped that the IMF’s arguments are not accompanied by threats, as has happened in other countries.
Hopefully, the Government will resist the IMF’s advocacy for the continuation of a 19th Century model of poor relief in Kyrgyzstan and hold firm in its intention to move towards a more inclusive and effective social protection system, based on a citizenship model. The World Bank (2011) had already demonstrated that Kyrgyzstan’s universal old age pension system was much more effective than the poverty targeted schemes in reducing poverty. By incorporating universal child benefits into the national social protection system, Kyrgyzstan will take a further significant step forward in building a comprehensive and inclusive social protection floor.
Bibliography
OECD Development Centre. (unpublished). Analysis of a reform to state benefits in Kyrgyzstan.
World Bank. (2011). The Kyrgyz Republic Profile and Dynamics of Poverty and Inequality, 2009. Washington, D.C.
[1] OECD (2017).
[2] OECD (2017).