Social Protection Modernization and Economic Inclusion Project

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Despite a steady reduction in poverty over the last 20 years, a significant share of households remains vulnerable to falling below the poverty line. First, a substantial proportion of the population live close to the poverty line. Second, the informal economy employs over 40 percent of the working age population (and up to 95 percent in sectors like agriculture, trade, and construction), which means that even though workers and their families make enough to live above the poverty line, they are unprotected and therefore exposed to shocks. Such vulnerability means that small changes of income may result in households falling into poverty with much larger consequences; once households fall below the poverty line, they tend to follow undesirable coping strategies which long-lasting effects, such as, reducing availability of food, selling assets, withdraw children from school and send them to work. According to the SCD, labor earnings and remittances were the main driving forces behind poverty reduction in Tajikistan. Tajikistan is one of the world’s most remittance-dependent economies, supporting rural and poor families as well (Tajikistan receives one of the highest levels of remittances in the world - equivalent to a third of GDP). It is estimated that 44 percent of the households in Tajikistan had a least one migrant. Most remittances come from labor migrants working in Russia (over 90 percent of Tajik labor migrants are in Russia). In 2022, it was estimated that the majority of households receiving remittances report using them to food consumption (over 80 percent according to Listening to Tajikistan Survey [L2T]) and other basic needs, such as housing, health, and education (over 10 percent), suggesting both that labor migrants are poor or highly vulnerable to be poor, and that poverty in Tajikistan would be much higher without remittances.The economic slowdown of the Russian economy may have a major negative impact among the poor and vulnerable population in Tajikistan. It was expected that Tajikistan’s economy will contract to about 4.2 in 2022 as a result of the Russian-Ukraine crisis, the worse economic performance in two decades. However, the growth projections in Central Asia (3.7 percent in 2022) as of fall 2022 are above the June ones – the countries have benefited from better external demand than envisioned, reflecting a shallower-than-expected recession in Russia. Although it is expected that output in Tajikistan will substantially exceed the previous projections – owing to stronger-than-expected remittances from Russia – renewed border tensions between Tajikistan and Kyrgyz Republic pose considerable downside risks. The main and immediate impact of the economic downturn in Russia expected to be on labor migration and remittances – due to the risks of loss of employment caused by the decline in demand, and fluctuations of the Russian Ruble and/or the difficulties associated with exchanging rubles for other currencies and money transfers. However, according to the L2T, as of July 2022, there had not been a substantial increase in return migration. The number of Tajik migrants abroad was even above pre-war level. Between January and July 2022, the share of households with a migrant rose from 41 percent to 50 percent; employment among these migrants reached 97 percent. In Q1-2022, the share of households receiving any remittance transfer fell from 33 percent to 23 percent (31 percent decline), and the value of typical transfer fell as much as 57 percent in Tajikistan due to both exchange rate fluctuations and amounts migrants chose to send. While starting from Q2-2022 the Russian ruble quickly recovered and led to a strong rise in the purchasing power of remittances in receiving country, the overall citizens’ wellbeing and purchasing power declined. In July 2022, the share of those who self-classified themselves as “poor” reached 42 percent (compared to 39 in June). During the first 7 months of the year, household wages and self-employment income declined – from 14 to 10 percent for those receiving income, and from 12 to 7 percent for self-employed and agricultural income (L2T data). Although food insecurity overall improved during the same period, most food insecure are concentrated among low-income respondents of the L2T survey. But unpredictability of the conflicts requires the GoT and country social protection system to be prepared to respond to the increase of returning labor migrants and decline of remittances. Since this latest crisis follows the Covid-19 pandemic and the refugee influx from Afghanistan, the social protection system must increase its coverage while at the same time ensure efficient deployment of scarce public resources.The Government is in the process of modernizing the social assistance system to better contribute to poverty reduction and support the poorest and vulnerable to mitigate the impact of shocks. The Targeted Social Assistance program (TSA), an unconditional cash transfer implemented by the Ministry of Health and Social Protection (MHSP), is the government’s flagship consolidated social assistance program. While being a robust instrument to support poor and vulnerable population in the presence of shocks affecting their income, there is scope for further improvements. A recent assessment suggests that the program’s objectives and components incorporate many elements of preparedness to assist vulnerable populations in response to disasters and emergencies, and its rules and implementation procedures are flexible enough to quickly respond to such urgent needs. However, the program does not have an advance package of benefits or specific funds allocated to respond to unforeseen needs.Labor market programs comprise passive and active interventions but still face several challenges to be effective. The challenges especially are for activation of vulnerable individuals: (i) slow pace of creation of new jobs, and – in many cases – poor quality of the available jobs (seasonal, occasional and temporary, with irregular pay, largely in the informal sector, and without access to social insurance); (ii) high unemployment; (iii) disincentives to work which are built in the TSA design and absence of enabling and demanding conditions for work-able recipients to move out of SA to work; (iv) low funding for and limited offer of active labor market programs (ALMPs), along with absence of programs and measures which are specifically tailored to the needs and constraints of TSA beneficiaries; (v) weak labor market and social assistance institutions and little coordination among them to promote activation; and (vi) weak monitoring and evaluation (M&E) system for the ALMPs. Labor migration has been considered as an option to alleviate the pressure of labor force growth, but the deteriorating conditions in Russia may create a major shock in labor migration. Given the number of labor migrants working in Russia and the amount of remittances flowing into the country every year, any shock affecting labor migration will have direct consequences on households’ welfare and income. The Government lacks a comprehensive strategy to support and protect labor migration including measures to improve their opportunities, protect them and their families during migration, and enhance options for returning migrants (e.g., systems to register and profile migrants, interventions such as activation, skills development, wage subsidies to support them, matching tools to link them to existing vacancies and other opportunities and provide them with [temporary] benefits). The Government of Tajikistan is aware that a slowdown in the Russian economy will affect the most vulnerable population on the country starting with labor migrants and has formulated a comprehensive plan in which social protection measures are part of it and has requested the Bank to provide support to enhance such measures and ensure that a comprehensive approach is defined and rolle