The Unsustainable Welfare State

As discussed in Chapter 1, Kazakhstan was economically unprepared for independence when it came in 1991. Table 2.1 provides key macroeconomic indicators from 1990 to 1997. The years 1992-93 were characterized by economic collapse: by 1995, Kazakhstan’s real GDP had fallen to 52.6% of its 1990 level, and the number of formal sector workers (and especially the number making regular social insurance contributions) fell rapidly and steadily. Formal sector employment was 30% lower in 1995 than in 1991; by 1997 the decline was by more than 50%. Thus, while real wages were fairly stable from 1994, when Kazakhstan became financially independent, to the onset of pension reform in 1998, this stability pertained only to a rapidly dwindling share of Kazakhstan’s labor force (Becker and Urzhumova, 1998).