Safeguards in place to ensure responsible borrowing under SINGA: MOF

TO ensure that proceeds are used responsibly and sustainably, the Significant Infrastructure Government Loan Act (SINGA) will include strict legislative safeguards on qualifying projects and the amount of borrowings that can be raised.

Deputy Prime Minister, Coordinating Minister for Economic Policies, and Minister for Finance Heng Swee Keat on Monday introduced the Significant Infrastructure Government Loan Bill in Parliament.

In a fact sheet on Monday, the Ministry of Finance (MOF) said that proceeds will be used to finance nationally significant infrastructure, such as new Mass Rapid Transit lines.

Mr Heng had said in his FY2021 Budget statement that borrowing under the SINGA will allow the government to spread out the lumpy costs of infrastructure across generations.

This would be fair, because payments are borne by the generations who benefit from the infrastructure, and efficient, because with Singapore's AAA rating and the current market environment, interest rates in the debt market would be favourable.

But to qualify, infrastructure projects have to be owned by the government, and controlled by or on behalf of the government, and the expected total project cost should be at least S$4 billion.

They should also be long term and available for use for at least 50 years, and should support national productivity or Singapore's economic, environmental or social sustainability.

It cited eligible projects such as the Cross Island Line, Jurong Regional Line and the Deep Tunnel Sewerage System.

To ensure a sustainable debt level and interest burden for future generations, the SINGA includes the a gross borrowing limit of S$90 billion. In other words, the government cannot raise more than S$90 billion of loans under the SINGA.

"The $90 billion limit is sized based on expected development expenditure on nationally significant infrastructure over the next 15 years," he said.

There will also be an annual interest threshold of S$5 billion, such that the government may not raise any more loans under the SINGA if the total interest costs for existing loans under the SINGA has crossed S$5 billion in the previous financial year.

"This will avoid imposing overly onerous financing costs on future generations," it said.

Any future changes to the gross borrowing limit or the annual interest threshold will require the government of the day to pass a new Bill in Parliament to amend the SINGA, it added. This will hold the government accountable if they want to borrow beyond the prescribed limits.

Currently, the Monetary Authority of Singapore (MAS) issues Singapore Government Securities (SGS) under the Government Securities Act to develop the domestic debt market.

MAS intends for bonds under the SINGA to be issued as a new category of SGS, named SGS (Infrastructure). The existing SGS will be renamed SGS (Market Development), and both categories of SGS will rank pari passu for them to be priced along the same yield curve.

In addition, the same tax and regulatory treatment would apply to both categories of SGS.

MAS said it will also manage the classes of SGS holistically to ensure that the overall issuance supply is calibrated to market demand.

The first issuance of SGS (Infrastructure) is expected to take place in the fourth quarter this year.

The Bill introduced on Monday will make related amendments to the Financial Procedure Act to provide for capitalisation of the portion of nationally significant infrastructure financed through borrowings under the SINGA.

This capitalisation will allow the government to convert upfront development expenditure into a stream of annual depreciation, and spread the development costs across the generations.

The annual depreciation, together with the annual interest costs, are to be met from the annual budget.

"Even after accounting for such costs, we will still have to have an overall balanced budget over each term of government," MOF said.

The Bill will also repeal the dormant Development Loan Act and Development Loan (1987) Act to streamline borrowing for infrastructure under one Act (ie the SINGA).