The European Central Bank (ECB) warned Bulgaria that its plans for active management of the state pension reserve fund, the so called Silver Fund, create a risk of market distortions and will place the government in a privileged position as compared to other issuers.
ECB's comments follow a request by finance minister Simeon Dyankov for an opinion on revisions to the Silver Fund law which the government approved earlier this month.
"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. This leads to unequal treatment of the different investment instruments, which could create competition and market distortions," ECB said in a statement published on its website.
The bank also noted that the market for Bulgarian government securities is limited in terms of size and liquidity and no other state public fund is represented on it, which could skew the achieved yields.
"[...] some investors might stop participating in a debt securities market dominated by a public sector fund, which is under the control of the issuer," the statement added.
The Silver Fund was established in 2008 as a reserve fund accumulating proceeds from privatisation deals and state concessions for payment of pensions in the future when retired Bulgarians are expected to outnumber those in active working age. The 1.7 billion levs ($1.14 billion/869 million euro) the fund has accumulated so far are kept in short-term deposits with the central bank.