Singapore’s household debt, public finances healthy despite volatile high-rate environment: Chee Hong Tat

AMID rising interest rates, Singapore’s household and corporate debt situation remains healthy, as does the government’s financial position, said Senior Minister of State for Finance Chee Hong Tat in Parliament on Tuesday (Oct 4).

While market uncertainties have made for a weaker investment environment, the impact of short-term volatility on the government’s finances is mitigated by how the net investment returns (NIR) framework is designed, he said, in response to an adjournment motion on how Singapore should adjust to the high interest rate environment.

The NIR contribution (NIRC) is the single largest source of government revenue, letting the government spend up to half the long-term expected real returns on invested reserves. The framework is “designed to provide stability in an uncertain investment environment” by smoothing out asset bases over the long term and calculating the NIRC based on the expected long-term real rate of return, said Chee.

But he warned that current high interest rates “may not be a passing phenomenon”, with average rates “over the next five years or more” likely to be higher than in the last 15 to 20 years.

Still, the household debt situation in Singapore remains healthy, and the Monetary Authority of Singapore (MAS) has assessed that most businesses in Singapore “are currently able to manage debt-related risks with sufficient liquidity holdings, alongside the post-Covid earnings recovery”, he added.

The adjournment motion had been filed by Member of Parliament Saktiandi Supaat, who had four suggestions for helping Singaporeans adjust to the “new normal or new ‘abnormal’ of high interest rates”.

The first is to do more to fill the “information gap” on higher interest rates, particularly for the less financially savvy.

The second is to improve flexibility, such as letting eligible households make a one-time transfer from a bank loan to a Housing Development Board loan, despite prevailing policy not allowing this.

Noting that United States mortgage rates have hit 6 per cent for the first time since 2008, Saktiandi asked if the government has contingency plans to ensure rates do not spiral out of control.

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Support for businesses, including small and medium enterprises (SME), was his third suggestion. He proposed a sector-specific approach, with the construction and manufacturing sectors particularly sensitive to interest rate hikes. Such help could include extending the pandemic-era Temporary Bridging Loan Programme as well as the Temporary Electricity Contracting Support Scheme.

“For the sake of fiscal prudence, I do not mean that we should commit to subsidising firms for a prolonged duration,” he said. “What I have in mind is simply a temporary measure, to help our vulnerable firms and SMEs deal with interest rates that have doubled and may perhaps triple in just over a period of months.”

His final suggestion was for the government to adjust how it measures systemic risk. For instance, the MAS has just raised the interest rates used to calculate repayments under the total debt servicing ratio framework, which caps the share of a borrower’s income that can go towards repaying loans.

But Saktiandi asked whether this was sufficient: “Given the rate of global interest rate increases and their potential landing points at up to 5 per cent, is the MAS prepared to raise this again, potentially in a matter of a few months’ time?” 

Chee replied that the government will look into Saktiandi’s suggestions and “provide assistance to cushion the impact on households and businesses”. Whether interest rates are high or low, essential areas such as public housing, healthcare and education will remain affordable and accessible, he said.

As for businesses, Chee said that economic agencies have assessed that there are available credit facilities, noting that SME loan volumes have remained stable in recent months. “Our economic agencies will monitor the situation closely and review the need for further adjustments,” he added.