Under The Angsana Tree: Singapore’s National Debt and Reserves

Singapore government is in DEBT!!

And what a wonderful thing that is!

Someone (who runs a fake news site, so let’s not link there) recently published an article saying that the Singapore government is in debt. The offending article concluded that as a result of this borrowing, we need to raise the GST in order to refinance our debt.

I couldn’t believe it. So I went to check. And to my shock and horror, it is true!

Our government is indeed in debt. And heck of a lot of it!

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NATIONAL DEBT OF SINGAPORE

You could wrap $1 bills around the Earth 1,391 times with the debt amount!

If you lay $1 bills on top of each other they would make a pile 39,018 km, or 24,245 miles high!

That's equivalent to 0.10 trips to the Moon!

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COUNTRY COMPARISON :: PUBLIC DEBT

Public debt compares the cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt.

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Country List Government Debt to GDP

This page displays a table with actual values, consensus figures, forecasts, statistics and historical data charts for - Country List Government Debt to GDP. This page provides values for Government Debt to GDP reported in several countries. The table has current values for Government Debt to GDP, previous releases, historical highs and record lows, release frequency, reported unit and currency plus links to historical data charts.

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Singapore Government Debt to GDP

Singapore recorded a government debt equivalent to 110.60 percent of the country's Gross Domestic Product in 2017. Government Debt to GDP in Singapore averaged 90.11 percent from 1993 until 2017, reaching an all time high of 111.50 percent in 2016 and a record low of 67.40 percent in 1995

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SINGAPORE: Economy - overview

Singapore has a highly developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP higher than that of most developed countries. Unemployment is very low. The economy depends heavily on exports, particularly of electronics, petroleum products, chemicals, medical and optical devices, pharmaceuticals, and on Singapore’s vibrant transportation, business, and financial services sectors.

The economy contracted 0.6% in 2009 as a result of the global financial crisis, but has continued to grow since 2010. Growth from 2012-2017 was slower than during the previous decade, a result of slowing structural growth - as Singapore reached high-income levels - and soft global demand for exports. Growth recovered to 3.6% in 2017 with a strengthening global economy.

The government is attempting to restructure Singapore’s economy to reduce its dependence on foreign labor, raise productivity growth, and increase wages amid slowing labor force growth and an aging population. Singapore has attracted major investments in advanced manufacturing, pharmaceuticals, and medical technology production and will continue efforts to strengthen its position as Southeast Asia's leading financial and technology hub. Singapore is a signatory of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and a party to the Regional Comprehensive Economic Partnership (RCEP) negotiations with nine other ASEAN members plus Australia, China, India, Japan, South Korea, and New Zealand. In 2015, Singapore formed, with the other ASEAN members, the ASEAN Economic Community.

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CIA World Factbook: SG ranks 11th, MY ranks 95 in Public Debt

Indeed, according to the information recorded in CIA World Factbook, the public debt of Singapore is 114.6% of GDP while Malaysia's is 52.5% (about the same as what Chris has calculated).

The CIA World Factbook compares the cumulative total of all government borrowings less repayments that are denominated in a country's home currency. In other words, it is the accumulated level of debt owed by the government of a country.

As revealed by Chris, Malaysian government's debt mainly came from external financial institutions while Singaporean government largely borrowed from Singaporeans, that is, the CPF holders.

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WHY DOES SINGAPORE HAVE AN EXTERNAL DEBT OF US$1.766 TRILLION?

As of March this year, the total outstanding Government borrowings stood at S$436 billion.

The Government issues three types of domestic debts:

Singapore Government Securities to develop the domestic debt market
Special Singapore Government Securities to meet the investment needs of the Central Provident Fund
Singapore Saving Bonds to provide individual investors with a long-term saving option that offers safe returns.

What is also important to note is that unlike some other countries which have to raise funds in currencies such as the US dollar or euro to balance their books, the Government does not have any foreign currency debts.

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Debt Definition

Economics 101 -- "How the Economic Machine Works."

This is the gross government debt, this means the amount of money (the repayment value) owed by government today calculated according to the SDDS 2014 and The Maastricht Treaty guidelines.

In keeping with the aforementioned guidelines we do not subtract from the debt any financial assets the government may own.

Please also note the debt figures do not take into account any government future payments e.g. pensions payable next year. Or business and private borrowing e.g. you buying a car with a loan, buying a house with a mortgage or a business buying a machine with a bank loan.

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Is it fiscally sustainable for Singapore to have such a high level of debt?

Some international reports list Singapore as having high levels of Government debt. These include the CIA Public Debt Factbook and the World Economic Forum report. Some are puzzled why this is so, as the Government runs a balanced budget. Some ask if it is fiscally sustainable to have such a high level of debt.

The answer is ‘Yes’. This situation is fiscally sustainable. This is because these reports only look at gross debt. Taking into account our assets, we have in fact no net debt. Having debt means that we have liabilities. However, looking only at the liabilities alone (i.e. gross debt) does not discriminate between two countries with the same level of debt but with very different levels of assets.

In Singapore’s case, we do not borrow to spend. We instead invest all borrowing proceeds. All borrowings are thus backed by assets. What we earn in investment income from our assets is more than sufficient to cover the debt servicing costs. The Singapore Government in fact has a strong balance sheet with assets well in excess of our liabilities. This makes us a net creditor country, not a net debtor country.

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Understanding Singapore Government’s borrowing and its purposes

This write-up provides the public and analysts with an understanding of the
Singapore Government’s borrowing portfolio and its purposes.

Purpose of Borrowing - The Singapore Government issues three types of domestic debt securities, all for reasons unrelated to the Government’s fiscal needs:

Singapore Government Securities are issued to develop the domestic debt market
Special Singapore Government Securities are non-tradable bonds issued primarily to meet the investment needs of the Central Provident Fund (CPF), Singapore’s national pension fund
Singapore Saving Bonds are introduced to provide individual investors with a long term saving option that offers safe returns.

Under the Protection of Reserves Framework in the Constitution of the Republic of Singapore, borrowing proceeds are not revenues that the Government is allowed to spend. All the proceeds from the Government’s borrowing are therefore invested.

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MOFsg @MOFsg 5:11 PM - Feb 19, 2018

Govt is looking at borrowing by Stat Boards & Govt-owned companies which build infrastructure. This helps spread the cost of investment over a number of years.

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OUR NATION'S RESERVES

Our reserves are a critical resource for Singapore’s future. As a strategic asset, our reserves serve two key purposes:

(a) They provide a key defence for Singapore in times of crisis. We cannot tell what crises ‒ natural calamities, war or economic crisis – will hit us in future and what the scale of the damage will be. Our reserves are a strategic asset should a major crisis occur, allowing us to mount a decisive and effective response.
(b) The investment of our reserves also provides a valuable stream of income for the Government Budget, which can be spent or invested for the benefit of current as well as future generations.

The sections below elaborate on the Government’s reserves management framework:

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National reserves

Singapore’s national reserves are the net assets (assets minus liabilities) of the country. Being a small nation lacking in natural resources and relying heavily on external trade, Singapore requires ample reserves as its security net to ensure a stable currency and to provide a cushion in times of crisis. The reserves also provide a continual stream of income for current and future generations. Recognising its strategic importance, the government has been building up the national reserves over the last few decades. To protect this nest egg from potential misuse, the government needs the consent of the president before it can draw on past reserves.In October 2008, the president’s approval was sought for a S$150-million guarantee on all local bank deposits to be backed by past reserves. Then in January 2009, for the first time in the history of the elected presidency, former President S. R. Nathan gave his approval for the government’s proposal to withdraw S$4.9 billion from the reserves to fund the Budget.

Definition

The Constitution of Singapore defines reserves as “the excess of assets over liabilities of the Government, statutory board or Government company”. The reserves comprise financial assets such as cash and shares as well as physical assets like land and buildings. Apart from the Monetary Authority of Singapore (MAS) managing the reserves, government-linked companies GIC Private Limited (previously known as Government of Singapore Investment Corporation) and Temasek Holdings (Private) Limited have been given the mandate to invest some of the reserves with the objective of maximising the long-term value of the assets.
The Constitution also provides the definition of past reserves as “those that were not accumulated by the government during its current term of office, including relevant accretions”.

Size and management of the reserves

The government has never revealed the actual amount in Singapore’s reserves for strategic reasons.For a rough idea of how much it could be, analysts often look at the amount of foreign reserves held by the MAS to maintain the stability of the Singapore dollar as well as the assets managed by GIC and Temasek. According to a report by the Ministry of Finance, Singapore’s official foreign reserves managed by the MAS totalled S$343 billion and Temasek’s portfolio was S$223 billion as at 31 March 2014, while GIC manages “well over US$100 billion”.

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Singapore’s national reserves: Is the Government excessively prudent?

There have been suggestions that the Government is excessively prudent and that too much investment income is put back into the national reserves. Some have cited the International Monetary Fund’s (IMF) general guidance on reserves adequacy, which appear to advocate a less conservative approach than what Singapore is practising.

What is the IMF’s guidance on reserves? IMF’s recommendation is meant to cater only for one a specific risk: the risk of capital flight. This refers to the risk of a large scale exodus of financial assets from a country, due to a loss of confidence in the national currency. IMF’s recommendation does not address other risks.

However, we need to be ready for crises that go beyond capital flight risks. Singapore is a small and open economy. This means that we will always be vulnerable to fluctuations in the global economy and financial markets. We must be prepared to deal with unforeseen events and crises which can have a very significant impact on Singapore.

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Is there something wrong with our Reserves?

From time to time, there are claims that the Singapore Government is covering up losses in our reserves, or that Singaporean CPF monies are not safe. Some recent online postings have even claimed that GIC and/or Temasek are reporting false returns to cover up losses, or that the Government siphons monies from its Budget or from Government borrowings so as to pad up GIC and Temasek’s books.

The Government does not publish the size of assets managed by GIC, although the asset size of MAS and Temasek are published. On the basis of the information that the Government has published, as well as the full system of checks and balances, these recent claims are baseless. Indeed, they are fantastical, but let’s look at some basic facts.

For more information, watch this:

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What comprises our reserves?

Our reserves refer to the total assets minus liabilities of the Government and other entities specified in the Fifth Schedule [1] under the Constitution.

Who manages our reserves? - Singapore’s reserves are managed by three agencies – the Government of Singapore Investment Corporation (GIC), Temasek Holdings (Temasek) and the Monetary Authority of Singapore (MAS).

Why doesn’t Government reveal the overall size of our reserves? - It is not in our national interest to disclose the full amount of Singapore’s Financial Reserves. Full disclosure will make it easier for markets to mount speculative attacks on the Singapore dollar during periods of vulnerability. Furthermore, as a small country with no natural resources or other assets, our reserves are a key defence for Singapore in times of crisis. It would be unwise to reveal the full and exact resources at our disposal. Thus, confidential information of the exact figures must remain undisclosed as this is crucial to the survival of Singapore, especially in times of crisis.

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MAS Official Foreign Reserves

Last Update: 7 May 2018

19/05/2018

Singapore’s National Debt and Reserves