According to  IMF Working Papers research absolute poverty has dropped markedly in Bulgaria but income inequality has increased substantially in the aftermath of the GFC. COVID-19 crisis is likely to deepen income inequality, increasing the room for redistributive policies.

Poverty is likely to increase as the pandemic and containment measures result in revenue loss due to an increase in unemployment and underemployment. Bulgaria experienced an increase of 2.2 percentage points in the unemployment rate between February and April 2020. This is more than the 0.2 percentage point increase for the EU average (Eurostat, 2020). Moreover, as the revenue loss will differ across segments of the population (e.g., affecting working age population more than retirees, younger workers more than older workers, and unskilled workers more than skilled ones), it is also expected to deepen income inequality. Indeed, the increase in unemployment differs across age and gender groups and the necessary containment measures constrain differently the capacity to work of some segments of the population (for example single parents may not be able to work when schools are closed).

However, the poverty and inequality impact of the pandemic can be mitigated by fiscal measures.  The Bulgarian government is supplementing the social protection system with various fiscal measures. Notably, it dedicates BGN 800,000 to provide food to people affected by the crisis and provides a one-off means-tested cash transfer of BGN 375 to parents who have been forced to take unpaid leave to care for their children during the state of emergency. Other measures aim at supporting employment and limiting dismissals. This is the case of the scheme under which the state covers 60 percent of the wages and social insurance for a three-month period and the support scheme for freelancers.

As many other countries Bulgaria experienced an increase in regional income disparity. The difference in the average annual total income per household member between the richest and the poorest regions has increased in recent years.

How we can change the situation?

–IMF recommends multiple ways to reduce inequality and poverty.

Adequate spending on education and health as well as appropriate labor-market regulations would foster an environment for a less unequal distribution of market income in the future. This could be complemented by measures to increase fiscal redistribution such as increasing the redistributive role of taxation;  addressing issues with the means-testing of social benefits to increase efficiency; and  reversing the recent decline in social protection spending.

Source: IMF WORKING PAPERS : Poverty and Social Protection in Bulgaria

Author: Jean-Jacques Hallaert

Publication date: July 31, 2020

Link to full research: https://www.imf.org/en/Publications/WP/Issues/2020/07/31/Poverty-and-Social-Protection-in-Bulgaria-49552