compared to 22.5 percent among the overall population.<sup>6</sup> Human capital and living conditions for these communities continue to lag behind the population average by a large margin.

**Though no more recent estimates of absolute poverty are available,**<sup>**7**</sup> **poverty and inequality were expected to face significant downside risks in 2022 as Bulgaria grappled with the Russian Federation’s invasion of Ukraine and supply chain disruptions; amid rising food and fuel inflation, Bulgarian households faced substantial financial pressure through both direct and second-order impacts.** Food price inflation – 22 percent on average in 2022 - disproportionately impacted poorer households as they spend significantly higher shares of their income on food items. Higher heating prices are likely to be particularly challenging, especially since even before the fuel crisis, just under a quarter of Bulgarians could not keep their homes adequately warm. Results from microsimulations show that international poverty ($6.85 2017- PPP) can increase by up to 1 percentage point due to higher food and energy inflation in the short term (Prasad et al., 2023). Effects could be higher in the medium term if inflationary pressures are prolonged.

**The main poverty-targeted program serves as a critical mechanism for mitigating the adverse impacts of economic shocks on vulnerable population segments, particularly in countries characterized by high poverty and inequality levels, such as Bulgaria.** The main poverty-targeted program in the country, the Guaranteed Minimum Income program (henceforth, Monthly Social Allowance), assumes a pivotal role in such a context by acting as a vital lifeline for those grappling with poverty. Ensuring individuals and families maintain a minimum income is a buffer against sudden income losses. This is especially vital when economic downturns or crises unfold, as the program provides a fundamental safety net that helps shield individuals and families from the dire consequences of sudden income loss. Likewise, heating subsidies, particularly in countries with high income inequality and energy poverty, are essential for protecting the poor. If well-designed, they help address the reality that vulnerable households often struggle to afford the basic necessity of keeping their homes warm during the colder months. These subsidies, if well designed, might alleviate some of the burden of energy poverty, ensuring that low-income families can access the warmth they need for their well-being, health, and overall standard of living, even amid challenging financial circumstances. International evidence also supports the implementation of income support programs (guaranteed minimum income schemes or basic income to address food insecurity, as insufficient income can be a driver of food insecurity (Deschner (2018), Penne (2020), Emery (2013)).

**Yet, previous evidence (Hallaert, 2020) shows significant scope for improving the effectiveness of the social protection system in Bulgaria, as it has limited mechanisms to protect the population from certain social risks.** One of the risks associated with low levels of protection is the last resort mechanism of income support or a guaranteed minimum income scheme. The evidence shows low coverage for the bottom 20% of the population and limited adequacy of the last resort income support program (World Bank, 2021). As a result, this can result in limited marginal poverty impacts.

**The Bulgarian government implemented a reform to expand the outreach and effectiveness of social support programs by shifting the benchmark for basic social assistance from the former Guaranteed Minimum Income (GMI) indicator to the national poverty line (30% of the relative poverty line),**

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