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Successful implementation of President Ilham Aliyev`s strategy paves the way for the formation of flexible social security mechanisms

Interview with  Chairman of the State Social Protection Fund Elman Mehdiyev



What differs us is that we address economic and social issues in one package. The citizen of Azerbaijan lies at the heart of our policy.

President of the Republic of Azerbaijan
Ilham Aliyev



Q: What dideconomic and social reforms resulted in?

A: After the restoration of the sovereignty, realization of the state-building and organization of the national economy based on the free market relations became an objective necessity in the Republic of Azerbaijan.

But the first years of the independence was serious trial period for Azerbaijan. So, at the beginning of the 90s collapse of the Soviet Union, breach of existing relations among the enterprises, incompetence of the political administration of that time, the Armenian-Azerbaijan Nagorno-Karabakh conflict, over 1 million countrymen being displaced from their motherlands, Azerbaijan being in the  economic, political, information blockade resulted in chaos in socio-economic life of the country.

Only after National Leader Heydar Aliyev's return to the power by virtue of the insistent demand of the people political stability was established, the cease-fire was achieved; large-scale economic reforms began in the country. In virtue of this, the financial situation of the country stabilized, volume of investments attracted to the economy increased year by year, better quality of welfare of people was gained.

Gained achievements created a strong basis for the sustainable and dynamic development of the country's economy in the coming years.

Pursuant to the socio-economic policy pursued by the President of the Republic of Azerbaijan Mr. Ilham Aliyev gained successes was further strengthened, macroeconomic stability preserved, economic diversification, development of non-oil sectors and districts accelerated, efficient use of strategic currency reserves ensured, stability of national currency, reliability of the banking system increased, strategy of  conservative strategy foreign debt implemented, state support of entrepreneurship enhanced, social welfare of the population improved steadily.

In order to gain these objectives some State Programs on social-economic development of the regions, poverty reduction and sustainable development, reliable food supply of population and other programs were passed and are carried out successfully.

Implementation of complex state support measures in stimulating production of agricultural products, allocation of subsides and tax concession for meeting needs of the population for food by means of local production and expansion export, boosting leasing services influenced development of agrarian sector positively and food security was ensured.

As known, for several years, Azerbaijan has been leading among the CIS countries in terms of GDP growth and other indicators. On the backdrop of a nine-percent drop in the GDP across the CIS, Azerbaijan has shown a 6.1-percent increase; Azerbaijan was declared the number-one reformer among 181 countries in the world according to the World Bank`s Doing Business Report 2009, which evaluated the business climate in countries across the globe.

Q: How would you characterize the development of the insurance and pension system in the country?

A: As known, during the USSR period the social insurance and pension issues in Azerbaijan developed not in the framework of the legislation of an independent republic, but in the framework of the all-union legislation.

The Soviet pension provision system was arranged by the “insurance without contribution” principle. Necessary financial resources were drawn only from the state budget or the payments from organizations.

The financial model of this type of pension provision, as well as the regular increase in the number of pensioners had a negative impact on the steady functioning of the existent pension system. Changes in the forms of economy in the eighties, transition of most of the organizations to self-supporting management and self-financing was complicating the future provision of the employees working there.

The measures taken during 2001–2005 with the aim of fulfilling “The Concept of Pension Reform in Azerbaijan Republic” approved by the order of the President of Azerbaijan Republic dated 17th July, 2001 intended for the complete formation of the social insurance and provision of pension issues in the country according to European standards conditioned the qualitative reconstruction of the State Social Protection Fund activities.

Reconstruction of the pension system inherited from Soviet times and absolutely inadequate to the present-day demands has started with implementation of the Pension Reform Concept of Azerbaijan for 2001-2005. During that period important steps have been made to bring insurance and pension system in line with contemporary standards and activities have been implemented to introduce insurance principles in the pension system. The core of those activities included separation of the insurance and pension system from the system of social assistance benefits and coordination of social insurance contributions with the quoted pension amounts.

Since 2006 a new labour pension system based on internationally well-taken 3-staged structure (basic, insurance and savings parts) has been functioning in the country. Gained experience indicates on high social efficiency of the new system. During functioning of new system both minimum (basic) part and average monthly pension have been significantly increased. Running of the pensions’ growth mechanism in line with market economy requirements allowed distributing current funds among pensioners in more equitable way. Personal accounting system has been established in mandatory state social insurance area, provision of pensions for beneficiaries has been based on data from personal accounting and transition to insurance principles in pension provision has been arranged. Additionally in this period the management in the mandatory state social insurance area, the introduction of personal accounting for the insured and the pension payment issues have been handled by a single pension agency and the advanced technologies-based activities have been implemented to improve and restore these areas. A card system has been successfully introduced to facilitate the payment of pensions. In addition to all these achievements it is important to ensure sustainable and autonomous development of the insurance and pension system and to identify from this prospective main goals and duties as well as activities to be implemented. The State Program on the Insurance and Pension System Development in the Republic of Azerbaijan for 2009-2015 is aimed at comprehensive solution of the above mentioned problems and specifies next phase of reforms to be implemented in the insurance and pensions system of the country with consideration strategic objectives, targets and indicators reflected in the State Program on Poverty Reduction and Sustainable Development in the Republic of Azerbaijan for 2008-2015.

Q: What are further priorities in terms of the development of the pension system?

A: The government has significantly reformed and improved the governance of Azerbaijan’s pension system. In addition to strengthening its first ‘pay-as-you-go’ pillar, the government has introduced a second funded pillar based on notionally defined contributions, to increase the pension system’s long-term sustainability. There can be no doubt that these governance reforms have significantly improved the quality of services received by Azerbaijani pensioners.

In 2001 the government adopted a reform concept that sought to ensure the pension system’s financial sustainability, strengthen links between social insurance contributions and pension benefits, improve transparency and access to information for taxpayers and beneficiaries, and reduce incentives for avoiding the social security taxes that fund the pension system. In 2003-2004 agreements were concluded with UNDP on the joint ‘Capacity Building for the State Social Protection Fund’3 project and then with the World Bank for the ‘Pension and Social Assistance’ project. These projects worked to significantly increase the SSPF’s managerial capacity by introducing e-governance instruments, in order to automate payments and data processing, improve transparency and access to information (for beneficiaries and the general public), improve the flow of information between the SSPF’s head office and local branches, and create the technological and financial preconditions for the subsequent introduction of the pension system’s funded pillar. These factors allowed Azerbaijan to ‘leapfrog’ over governance problems found in many other countries in the region, and adopt cutting-edge technological solutions to social policy reform challenges. This experience also underscores the importance of investments in basic IT awareness, as well as of structural reforms in the banking and telecommunications sectors.

Q: So what are main targets of the new phase of pension reforms?

A:We should take into account that pension systems are faced with global challenges. In Azerbaijan, the main targets of the net phase of pension reforms are ensuring the formation of financial sustainability and social pension principles, and building mechanisms paving the way for the creation of additional opportunities for pension provision.