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Fortitude Budget: Govt will not take advantage of low interest rates to borrow

THE government will not borrow for current spending out of prudence and fairness to future generations, but also because there is no certainty that Singapore will be able to repay accumulated debt given today's uncertain economic outlook, said Deputy Prime Minister and Finance Minister Heng Swee Keat in Parliament on Friday. 

Member of Parliament Saktiandi Supaat had asked if the government should take advantage of the lower interest rates now, to borrow more to fund expenditure. This also comes as Singapore is setting aside unprecedented sums - almost S$100 billion, or close to 20 per cent of gross domestic product - to tackle the economic crisis caused by the Covid-19 pandemic. 

In response, Mr Heng said: "While interest rates may be low now, there is no certainty that we will be able to repay accumulated debt obligations in the future. This is especially so with the uncertain economic outlook, where all countries, including Singapore, will be operating in a tighter fiscal space."

The government typically seeks to spend within its means, with a "value-for-money" culture. It also seeks to spend equitably, such that each generation bears the cost of the benefits that it enjoys, said Mr Heng. 

But for long-term purposes, the government is using debt "productively and equitably" to generate long-term returns for Singapore.

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For one, it issues debt securities domestically. An aim of this is to develop the domestic debt market. 

The government will also guarantee the borrowing by Changi Airport Group to fund the development of Changi East, including Terminal 5. This is to leverage the strength of the government’s balance sheet to reduce borrowing costs, Mr Heng said. 

Finally, the government is considering borrowing for major long-term infrastructure, as announced in last year's Budget.

Long-term infrastructure requires hefty upfront investments and the costs are lumpy, Mr Heng noted. But once built, "they benefit many generations of Singaporeans". 

Borrowing for such developments also allows costs to be spread equitably across current and future generations, without the need for sharp increases in taxes, he added.

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