_Source:_ Own estimates from official poverty lines reported by the Bulgarian National Statistics Office and OECD Tax Ben data estimates. Poverty lines reflect income year, not survey year. For example, the 2021 poverty line is estimated with the 2022 EUSILC.

**The government reformed the MSA scheme by introducing a new “base/benchmark for assistance,” equal to 30% of the poverty line, aiming to increase the coverage and adequacy of the benefits linked to it** . While this reform could affect other programs linked to the GMI, this paper focuses on two critical programs designed to assist low-income families and individuals: the Monthly Social Allowance (MSA) scheme and the targeted heating allowance **.** The MSA is the main poverty-targeted program in the country, and the heating allowance is also critical to protect the energy poor, which is critical in the current context of rising energy prices. The Monthly Social Allowance (MSA) program is specifically crafted to address the modern social risks of poverty and social exclusion, offering a critical last resort benefit to ensure subsistence while still incentivizing employment. The primary objective of the MSA scheme is to provide households with an income sufficient to shield them from poverty.

# Monthly Social Allowance Scheme

## **The Monthly Social Allowance Scheme (MSA) is a means- and asset-tested national non-contributory**

**scheme that grants non-contributory allowance to low-income households.** The means test seeks to establish and measure the need of an individual or a Bulgarian family for benefits. Principal eligibility for income support is established by assessing a family's income level and potential sources (such as support for family members or potential revenues from the sale of assets). The allowance is given to households whose average gross income per member is below the Differentiated Minimum Income (DMI) threshold. The DMI threshold varies based on age, health, family, and educational status and is calculated as a proportion of the GMI threshold.<sup>11</sup> Certain types of income are not considered in the means test of the GMI. The benefit amount is the difference between the DMI and the gross family income from all sources, net of specific exceptions. The Council of Ministers set the GMI amount in 2018 at BGN 75 per month (38 Euros), and the level was not adjusted until mid-2023 with the reform. It is important to note that GMI and DMI were not adjusted for price levels or cost of living (Coady et al., 2021; Vaughn & Cabrera, 2022; World Bank, 2020, 2021). Additional eligibility conditions include restrictions on assets, which are also subject to a test, and registration of the unemployed in the Employment Agency (see Annex 2 for details).

**Previous evidence suggests that before the reform, the MSA in Bulgaria had limitations in terms of low spending, limited coverage and generosity due to restrictive eligibility criteria, and limited impact on poverty reduction.**

**Social assistance spending in Bulgaria for low-income families and individuals was low compared to other European and Central Asian countries.** Social assistance spending for low-income families and individuals is at most 0.17 percent of GDP, which is lower than similar social assistance schemes in lowspending ECA countries such as Serbia, Montenegro, or North Macedonia (World Bank, 2020, based on SPEED data). According to estimates based on National Statistical Office information, MSA benefits for 2018 were only 0.03% of GDP. Furthermore, spending on the MSA program has been decreasing in recent years.

**The MSA program in Bulgaria was small, covering only a small percentage of the poorest quintile, and while targeting accuracy was good, the scheme's generosity was particularly low.** In 2020, coverage

> 11 See Annex 1 for parameters in 2018.

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