Reserves have been bulwark to see Singapore through moments of crisis: PM Lee

EVEN as GIC celebrates its many achievements over the last 4 decades, Singapore's sovereign wealth fund must continue to anticipate and prepare for the challenges that lie ahead, said Prime Minister Lee Hsien Loong on Tuesday (Nov 16).

Speaking at a dinner to mark the fund manager's 40th anniversary, he noted that the economic uncertainties today are "only too apparent", including the impact of prolonged low interest rates and record fiscal deficits.

"Everyone hopes that governments and central banks can unwind these actions without destabilising markets, but nobody can be sure of this," said PM Lee, who is also GIC's current chairman.

"Inflation, long been dormant globally, is stirring again. It may yet prove less transient than the current complacent conventional wisdom holds," he told an audience at the Shangri-La Hotel.

Among those present were GIC chief executive Lim Chow Kiat, Senior Minister and GIC deputy chairman Tharman Shanmugaratnam, and former Singapore president and GIC special advisor, Tony Tan.

In his speech, PM Lee made the point that the biggest uncertainties are not necessarily economic ones.

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GIC invests in assets and markets around the world, and the value of these investments depends on functional global financial markets. This, in turn, requires the international system to hold together in good order and not split apart, he added.

The prime minister said geopolitics will play a big role. He cited the strained tensions between the United States and China, which are already affecting global supply chains.

"Countries are also rethinking the downside of unfettered free flow of trade and investments, and putting new emphasis on supply-chain security and resilience," he said. "This is sensible, but carried to excess, it can easily lead to deep bifurcation of global trade and technology.

Beyond this, he noted that the tensions and rivalry between the world's two largest economies "could cripple markets and investments, even short of full-on conflict".

The virtual summit between US President Joe Biden and his Chinese counterpart Xi Jinping on Tuesday was thus "an encouraging early step" towards stabilising US-China relations.

PM Lee said that GIC's portfolio is also exposed to other external challenges such as climate change, with the shift towards a greener and lower carbon economy in the medium term affecting the fund's investment strategy.

He added that GIC will seek out new investment opportunities in green technologies, which are needed in this transition to a more sustainable world.

"In the longer term, if countries' efforts to decarbonise collectively prove inadequate, environmental deterioration and climate-related disasters will have severe consequences for the global economy, and thus GIC's portfolio," he said.

"This is why GIC has developed its own sustainability framework, and is watching the climate issue very carefully."

In Singapore, he said, there are evolving domestic conditions to watch out for, including an increased spending on social and healthcare policies, and a growing pressure on the government to draw more from the country's reserves instead of raising taxes to pay for the higher expenditure.

Earlier in his speech, he paid tribute to GIC for living up to its mission of generating long-term real returns on Singapore's reserves. "GIC has protected, preserved and enhanced the value of the reserves. This has enabled us to build up a valuable nest egg to make up for the oil, gems, timber and all the other natural resources that we do not have," he said.

"Our reserves have become a strategic resource for Singapore. During critical moments, this has made all the difference."

PM Lee stressed how Singapore's reserves have been a "bulwark" to see the nation safely through three key moments - the 1997 Asian Financial Crisis, the Global Financial Crisis a decade later, and the ongoing Covid-19 pandemic.

He also said that the reserves also play an important role, even in ordinary times, as they provide a steady stream of income to the government of the day. Up to 50 per cent of investment returns from the reserves contribute to the government’s annual budget, which equates to about 20 per cent of the government's annual revenue.

This, said PM Lee, is much more than what is collected from the Goods and Services Tax or corporate income tax, which are the biggest income sources after the investment returns.

"This provides the government additional fiscal space to invest in priority areas such as education, healthcare and infrastructure. This is why GIC's mission is such a vital one," he said.

"If Singapore did not have substantial, well-managed reserves, our situation - whether in crisis or in peace time - would be much more difficult."