# V. Summary and Policy Insights

**Bulgaria faces persistently high levels of poverty and inequality and ranks at the higher end on both indicators as compared to its EU peers.** Economic growth between 2015 and 2020 initially led to improved living standards and decreased absolute poverty, but income inequality increased from 2015 to  2018 and remained high in subsequent years. The country reported elevated levels of non-monetary poverty, such as energy poverty and the inability to afford proper meals, underscoring the need for continued efforts to address these issues. The recent policy reform aimed to increase access to social support by linking the Guaranteed minimum income (GMI) to the national relative poverty line, offering social cohesion benefits. The potential impacts and alternative policy scenarios of this reform are assessed through the Commitment to Equity Assessment (CEQ) model, revealing there is scope for improvement. The context of poverty and inequality, social protection programs, and the simulated impacts are discussed, highlighting the importance of safeguarding vulnerable households and addressing the persistently high challenges in Bulgaria.

**Bulgaria's social assistance programs for low-income families and individuals suffer from low spending compared to other European and Central Asian countries.** Despite its good targeting accuracy, the MSA program covered only a small portion of the poorest quintile, and its generosity was particularly low. The eligibility criteria for accessing the MSA were strict, contributing to low coverage and a limited impact on poverty reduction. The MSA program's inadequacy led to only a moderate reduction in poverty, and the program's design was not adaptive to macroeconomic changes. It's crucial to reform these programs to improve coverage, adequacy, and their impact on poverty reduction. While providing some relief against energy poverty, the heating allowance faced limitations regarding coverage, eligibility criteria, and overall effectiveness due to restrictions related to the MSA and strict income thresholds.

**This paper uses the Commitment to Equity (CEQ) methodology, which allows policymakers to assess various policy scenarios and their potential impact on reducing poverty and inequality** . Policymakers can identify effective interventions by modeling the effects of different policy changes on poverty and inequality indicators. The CEQ tool relies on the national poverty measure, typically comparing poverty rates with and without policy reform, using a consistent threshold, such as 60 percent of the national median adult equivalent disposable income. In this study focused on Bulgaria, we used CEQ simulations to evaluate the potential impact of policy reforms and provide insights into how policy changes might affect poverty, inequality, and social assistance programs.

**The baseline scenario presented the effectiveness and poverty reduction impact of Bulgaria's Monthly Social Allowance (MSA) scheme before the reform; our results show low coverage of the poorest households and limited effects on reducing poverty and inequality** . The heating allowance, although providing more coverage, also had limited effects. In response to these limitations, various policy scenarios were simulated, including increasing the MSA amount, enhancing the take-up rate, and adjusting eligibility conditions.

**Our analysis of the income thresholds for the Monthly Social Allowance (MSA) program post-reform reveals a concerning misalignment with the cost of the Bulgarian food basket, indicating potential inadequacies in meeting basic nutritional and sustenance needs** . Though showing improvement from the previous static thresholds, the new income eligibility thresholds remain restrictive and fall below the estimated value of the food basket for all household types. This discrepancy excludes families with

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