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Reserves help Singapore weather crises and keep economy stable: Heng Swee Keat

Minister says reserves built up over many years and should not be tapped on lightly even as spending needs grow

Mr Heng giving his speech at The Straits Times Global Outlook Forum 2018: Facing the challenges of a new world order.


SINGAPORE'S reserves give the nation long-term economic stability and also firepower to weather crises such as the global financial crisis, something many other economies do not possess, said Finance Minister Heng Swee Keat.

Mr Heng said the reserves have been accumulated over many years as a result of prudent spending by past generations, and suggestions to tap it for Singapore's growing spending needs should not be taken lightly.

He was responding to a question from Bank of Singapore chief economist Richard Jerram at The Straits Times Global Outlook Forum held on Tuesday at the Ritz-Carlton Millenia Singapore.

Mr Jerram asked why recent talk about raising taxes has not been accompanied by discussions about tapping earnings from Singapore's significant reserves.

In the last Budget, the Government spent over S$15 billion from the returns generated on past savings, Mr Heng said.

"This is equivalent to several percentage points of GST, corporate income tax, personal income tax and so on.

"How did we as a country with no natural resources accumulate that?"

Mr Heng said he is "humbled" by earlier generations who prudently set aside money for the future when the economy was growing rapidly and government revenues were rising.

In addition, the net investment returns framework was put in place to allow the Government to spend up to half of the long-term expected real returns from the assets managed by three entities - GIC, the Monetary Authority of Singapore (MAS) and Temasek Holdings.

The net investment returns contribution overtook corporate income tax as the No. 1 contributor to government coffers for the first time in the 2016 financial year.

Explaining the role of Singapore's reserves in a crisis, Mr Heng recounted his experience at the MAS during the global financial crisis.

"My first concern was that the Singapore dollar would come under attack and it would go under," he said, citing American investor George Soros's US$10 billion shorting of the pound sterling and walking away with profits of US$1 billion in 1992.

"If that attack had come to Singapore we would not be sitting here today discussing this," added Mr Heng.

A second concern was the potential for large outflows of funds from Singapore, said the minister.

"At that point money was flowing all over the world at an alarming rate. But people knew that if they try to attack the Singdollar, we have the firepower to deal with it."

Mr Heng added: "Having those reserves gives our economic long-term stability and allows us to weather crises in a way that many other economies cannot.

"We need to leave it (the reserves) to future generations so that their future is more secure," he said, adding that demographics would be very different 15 years from now, with one in four Singaporeans aged over 65, compared with one in eight now.

In his speech at the forum, Mr Heng also reiterated that fiscal sustainability will be key to coping with future challenges. Singapore must make sure government spending remains sustainable even as needs grow and it becomes tougher to raise revenue, he said. This comes as the country ramps up investment in key areas, such as defence and economic development, to prepare for an increasingly uncertain future.

The minister said: "This is about staying responsible and spending within our means. As expenditure increases and revenue growth slows, we must think of ways to manage expenditures and raise revenues."

It also means the Government must prepare for revenue risks in the face of technological changes and evolving business models.

This involves making sure Singapore's tax system remains pro-growth and progressive, while maintaining a diversified revenue base.

Titled 'Facing the challenges of a new world order', this year's ST Global Outlook Forum was attended by more than 320 participants.