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)
Date: 2012-04-13
Institutions: European Central Bank
Subjects: Bulgaria, investment, national law, pension fund, pension scheme, securities

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 regarding draft legislative provisions1, 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  institutions  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  pension  system  (hereinafter  the  ‘Fund’),  including 
investments  in  domestic  assets2.  It  is  also  aimed  at  improving  the  regulation  of  the  investments  and  at 

introducing wider possibilities to diversify the Fund’s investment portfolio. 

2. 

General observations  

2.1  The Law on the State fund for guaranteeing the stability of the state pension system3 (hereinafter 

the  ‘Law’)  regulates  the  Fund’s  status  and  activities.  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 budget4. The 

Fund’s resources are a separate part of the central budget and are managed and structured within 

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4 

OJ L 189, 3.7.1998, p. 42.  
See the explanatory memorandum to the draft law. 
Published in Darjaven vestnik, issue 98 of 14.11.2008. 
See Article 1(2) of the Law. 

 
 
 
 
 
                                                 
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investment portfolios in accordance with the Law5. The Fund is managed by a management board 

consisting of various government ministers and other members representing relevant institutions or 

organisations.  The  Law  also  provides  for  the  instruments  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 social 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  the  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  addition,  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 securities 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  other  issuers.  Furthermore,  under  the  draft  law, 
securities issued by the Bulgarian government can only be acquired in the primary market11. To the 

extent that the draft law provides that the Fund may 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  1060/200912,  while 

investments in debt securities issued by Bulgaria are 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 government 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 for the volume and the yields of the Bulgarian government securities. 

Therefore,  the  proposed  investment  regime  may  distort  domestic  securities  markets,  including 

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See Article 1(3) of the Law. 
See Article 13(1) to (7) of the Law. 
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  collective  investment  scheme  or  contractual  funds,  immovable 
property and precious metals. 
See paragraph 3 of the Transitional and final provisions of the Law. 
See Article 13(1)(3) of the draft law. 
See Article 13(1) of the draft law. 
See Article 14(12) of the draft law. 
Regulation  (EC)  No  1060/2009  of  the  European  Parliament  and  of  the  Council of  16  September  2009  on  credit rating 
agencies (OJ L 302, 17.11.2009, p. 1) 

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primary  and  secondary  markets  for  Bulgarian  government  securities.  One  implication  is  that 

channelling  the  Fund’s  resources  into  the  primary  government  securities  market  may  skew  the 

yields  there,  so  that  those  will  not  be  purely  market-driven.  This  would  also  affect  secondary 

market  yields  for  Bulgarian  government  securities.  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  the  true  state  of  the  Bulgarian  economy  and  the 

position of the country’s public finances. In addition, 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 concerning the conditions of accession of the Republic of 

Bulgaria  and  Romania  and  the  adjustments  to  the  treaties  on  which  the  European  Union  is 
founded13, Bulgaria shall participate in Economic and Monetary Union from the date of accession 

as a Member State with a derogation within the meaning of Article 122 of the EC Treaty. Before a 

Member  State  may  adopt  the  euro  it  must  achieve  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.  The  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 potential distortion of this market, as a result of 

the  predominant  participation  of  the  Fund  acquiring  high  volume  of  government  securities  on  a 

small market with low liquidity could undermine the 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 provided 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  management  board  to  take 

decisions on all important aspects of the Fund’s investment portfolio and to standardise the approach used 

in  Article  5(3)  of  the  Law.  For  reasons  of  legal  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. 

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15  

OJ L 157, 21.6.2005, p. 203. 
See Article 140(1) of the Treaty. 
See the Article 5(9) of the draft law. 

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Done at Frankfurt am Main, 13 April 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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