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Georgia: IMF Team Says Safety Net Is 'Unsustainable'

  • Robert Lyle

Washington, 6 August 1997 (RFE/RL) -- A team of experts from the International Monetary Fund (IMF) has told Georgian authorities that the country's social support system is "unsustainable" because it is not providing adequate protection to the most vulnerable.

The team came to that conclusion after working with the government at its request to help design a better social support mechanism.

In its report, a summary of which was released by the fund, the IMF team said Georgia had already made great strides by scrapping its old social system when it gained its independence and instituting pay-as-you-go systems for social security, unemployment and health.

The Georgia safety net currently costs the equivalent of about 3 percent of GDP (gross domestic product, the size of the economy) or about one-third of the state budget. To better concentrate its limited resources on the needy, the IMF team points to the rise in retirement age which eventually will reduce the number of pensions by about 40 percent.

At the same time, the team said that by targeting social benefits on the poorest and most vulnerable of the population, Georgia has been able to increase benefits generally in line with government wages, including a 15 percent increase in benefits last January 1, increasing payments on average by about 100 percent in real terms.

Still, says the team, benefit levels remain low, with the standard monthly rate of 9.8 lari ($7.70) only one-tenth the official minimum subsistence level. According to that standard, said the team, "all employees of the public sector, for whom the monthly average wage is only lari 35, are destitute."

However, the team added, the official poverty standard is "misleading" because it is based on the situation before reforms and before the major price adjustments since 1992. First, it said, an alternative basket of food with the same calorie content can be assembled easily for 35 lari a month.

More importantly, the IMF team said a recent household survey indicates that cash incomes constitute only a "small proportion of total household incomes," especially among the poorest.

"It is therefore misleading to base poverty assessments solely on cash incomes, which are generally very low," the team said. When allowance is made for in-kind income -- trading of goods, etc. -- the income distribution for the country becomes much more even.

With this, the team said it estimates that about 25 to 30 percent of the Georgian population is living below the poverty line, considerably fewer than the official estimate of 65 percent of the people.

Nevertheless, the team said there is reason for concern because the "considerable reliance" among the population on subsistence production and other informal activities "confirms the stresses the population has experienced since transformation to a market-based system."

The IMF experts said that many people in Georgia have managed to maintain living standards at about subsistence levels with support from relatives and by depleting their assets -- remedies the team says provide "only short term relief."

"This situation is unsustainable," the IMF team concluded, and requires improvements in the size and coverage of benefits.

The team recommended further modifications to better target vulnerable groups which have been missed by the present system, for example large families and single mothers.

To better concentrate the benefits on the most needy, and provide enough to make it true protection, the IMF team recommended further tightening of eligibility criteria, using income tests to weed-out people with high incomes, and improved benefit administration.

The team also gave government officials ideas about redesigning the country's pension system so that it can be put on a sound financial footing without compromising the state budget.

As to the country's economy in general, the IMF team said Georgia has made "major strides in stabilization and structure reform after a period of acute economic crisis," and said it expects economic growth this year to reach 10 percent.