EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 13 April 2012  
on the State fund for guaranteeing the stability of the state pension system 
(CON/2012/29) 
 
Introduction and legal basis  
On 12 March 2012, the European Central Bank (ECB) received a request from the Bulgarian Minister for 
Finance for an opinion on a draft law amending and supplementing the Law on the State fund for 
guaranteeing the stability of the state pension system (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union (hereinafter the ‘Treaty’) and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June  1998 on the consultation of the European Central 
Bank by national authorities regard ing draft legislative provisions
1, as the draft law relates to Българска  
народна  банка  (Bulgarian National Bank) and rules applicable  to financial institutions insofar as they 
materially influence the stability of financial ins titutions and markets. In accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 
has adopted this opinion. 
 1. Purpose of the draft law 
The draft law provides for a more flexible choice of financial instruments for investing the assets of the 
State fund for guaranteeing the stability of the state pe nsion system (hereinafter the ‘Fund’), including 
investments in domestic assets
2. It is also aimed at improving the regulation of the investments and at 
introducing wider possibilities to divers ify the Fund’s investment portfolio. 
 2. General observations  2.1 The Law on the State fund for guaranteeing the stability of the state pension system
3 (hereinafter 
the ‘Law’) regulates the Fund’s status and activiti es. The Fund’s main objective is to ensure the 
sustainability of the state pension system through accumulation, investment and transfer of additional financial resources to the Pensions fund held within the state social security budget
4. The 
Fund’s resources are a separate part of the centr al budget and are managed and structured within 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  See the explanatory memo randum to the draft law. 
3 Published in Darjaven vestnik, issue 98 of 14.11.2008. 
4 See Article 1(2) of the Law. 
ECB-PUBLIC 
2 investment portfolios in accordance with the Law5. The Fund is managed by a management board 
consisting of various government ministers and ot her members representing relevant institutions or 
organisations. The Law also provides for the in struments in which the Fund’s resources may be 
invested6 and prohibits investment in a number of instruments including Bulgarian government 
securities, shares of Bulgarian companies and other assets7. In addition, according to the Law, the 
transfer of the Fund’s resources to the state so cial security budget may not take place before 2018 
and will be in an amount specified in the Law on the state budget of the Republic of Bulgaria for 
the respective year8. The ECB understands that most of th e Fund’s resources are deposited in 
Българска  народна  банка  (Bulgarian National Bank). 
2.2 Pursuant to the draft law, the prohibition of investments of the Fund’s resources into securities 
issued or guaranteed by the Republic of Bulgaria or issued by Bulgarian municipalities and certain 
other Bulgarian issuers will be removed. In a ddition, up to 70% of the Fund’s assets may be 
invested in securities issued or  guaranteed by the Republic of  Bulgaria; these liabilities comprise 
government or government guaranteed debt9. The ECB notes that the draft law does not require an 
investment grade credit rating to apply to secur ities issued by the Bulgarian government, whereas 
the other debt securities do require such a rating.10 This leads to unequal treatment of the different 
investment instruments, which could create competition and market distortions. It puts the government in a privileged position compared to othe r issuers. Furthermore, under the draft law, 
securities issued by the Bulgarian government can only be acquired in the primary market
11. To the 
extent that the draft law provides that the Fund ma y acquire debt securities issued by other Member 
States and third countries only if they have an investment grade credit rating awarded by a credit rating agency registered or certified in accordance with Regulation (EC) No 1060/2009
12, while 
investments in debt securities issued by Bulgaria ar e not subjected to such requirement, an issue of 
indirect discrimination arises that may lead to unjustified restrictions on the free movement of capital contrary to Article 63 of the Treaty. 
The ECB notes that the market for Bulgarian governme nt securities is limited in size and liquidity. 
Furthermore, no other similarly large Bulgarian public fund or body participates on that market. 
The investment of significant Fund resources in the market for Bulgarian government securities 
could have some implications fo r the volume and the yields of the Bulgarian government securities. 
Therefore, the proposed investment regime ma y distort domestic securities markets, including 
                                                 
5  See Article 1(3) of the Law. 
6  See Article 13(1) to (7) of the Law. 
7  See Article 13(8) of the Law, government securities issued  by the Bulgarian government, municipal securities issued by 
Bulgarian municipalities, shares of companies registered in the territory of the Republic of Bulgaria and any derivative 
financial instruments related thereto, shares or units in co llective investment scheme or  contractual funds, immovable 
property and precious metals. 
8 See paragraph 3 of the Transitional and final provisions of the Law. 
9  See Article 13(1)(3) of the draft law. 
10  See Article 13(1) of the draft law. 
11  See Article 14(12) of the draft law. 
12  Regulation (EC) No 1060/2009 of the European Parliame nt and of the Council of 16 September 2009 on credit rating 
agencies (OJ L 302, 17.11.2009, p. 1) 
ECB-PUBLIC 
3 primary and secondary markets for Bulgarian gove rnment securities. One implication is that 
channelling the Fund’s resources into the prim ary government securities market may skew the 
yields there, so that those will not be purely ma rket-driven. This would also affect secondary 
market yields for Bulgarian government securiti es. Thus, if the Fund purchases the envisaged 
amounts, exclusively in the primary market or in  the secondary market, the prices and yields of 
Bulgarian government securities will not reflect th e true state of the Bulgarian economy and the 
position of the country’s public finances. In additio n, some investors might stop participating in a 
debt securities market dominated by a public sector fund, which is under the control of the issuer. This would reduce the depth and liquidity of this market. 
2.3. In accordance with Article 5 of the Act con cerning the conditions of accession of the Republic of 
Bulgaria and Romania and the adjustments to the treaties on which the European Union is 
founded
13, Bulgaria shall participate in Economic and Monetary Union from the date of accession 
as a Member State with a derogation within the m eaning of Article 122 of the EC Treaty. Before a 
Member State may adopt the euro it must achie ve a high degree of sustainable convergence 
assessed on the basis of the criteria provided in the Treaty14 and detailed in Protocol No 13 on the 
convergence criteria annexed to the Treaty. Th e ECB notes that the assessment on Bulgaria’s 
progress in fulfilling the criterion related to long-term  interest-rate levels provided for in the fourth 
indent of Article 140(1) of the Treaty could be influenced by the operations of the Fund in the 
Bulgarian market for government securities. The pot ential distortion of this market, as a result of 
the predominant participation of the Fund ac quiring high volume of government securities on a 
small market with low liquidity could undermine th e credibility and accuracy of the fulfilment of 
the long-term interest rates criterion. The ECB will  closely monitor Bulgaria’s progress in fulfilling 
the convergence criteria and will report as pr ovided in Article 140(1) of the Treaty. 
 3. Specific observation The draft law provides that the Fund’s management board determines the types, structure, investment 
horizon and parameters for measuring, evaluating and controlling yield and risk related to the Fund’s 
investments in deposits and other accounts at Българска  народна  банка  (Bulgarian National Bank)
15. 
The ECB understands that this provision aims to empower the Fund’s mana gement board to take 
decisions on all important aspects of th e Fund’s investment portfolio and to standardise the approach used 
in Article 5(3) of the Law. For reasons of lega l certainty and to avoid any ambiguities that could 
undermine the independence of the Българска  народна  банка  (Bulgarian National Bank), Article 5(9) of 
the draft law should be amended. 
 This opinion will be published on the ECB’s website. 
                                                 
13  OJ L 157, 21.6.2005, p. 203. 
14  See Article 140(1) of the Treaty. 
15  See the Article 5(9) of the draft law. 
ECB-PUBLIC 
4  
 Done at Frankfurt am Main, 13 April 2012. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI