Singapore’s reserves: A refresher
Jeanette Tan
PARLIAMENT on Feb 7 debated for seven hours the question of Singapore’s national reserves and how much should be spent from them to meet today’s needs. BT summarises below the who, what and why of the reserves from an earlier interview PM Lee Hsien Loong gave:
1. What asset classes are the reserves in?
Cash, shares, bonds, private equity, financial instruments, stakes in companies, and fixed assets like land and buildings. “All the things which mattered... big things which you could touch and convert and spend.”
2. Who holds the reserves?
Six different places, or the “Fifth Schedule” entities, are protected by “the second key” held by the President:
- The Monetary Authority of Singapore (MAS) has money.
- Temasek has companies that “readily can be converted to money”.
- GIC manages money.
- CPF money – Singaporeans savings. PM qualifies: “It is not really the government’s money. But if the government is not completely straight with you, they could do something there. And that money can be at risk, so those things have to be covered.”
- JTC has land – industrial estates; land to be developed; reclaimed land.
- HDB has factory land and “land which is people’s houses”.
Other than the above, the government also has reserves in statutory boards like the National Library and collections held by the National Museum, Sports Hub, Central Fire Station, the Botanic Gardens and ITE, but the list above covers the “big pieces”.
3. A short history
In Singapore’s early years, the government had to start many companies to kickstart Singapore’s industrial journey because nobody else did. Some examples:
- DBS, originally “a financing piece of EDB” that grew and split off to become a bank
- Sembawang and Keppel Shipyards
- United Industrial Corporation (now known as Singapore Land)
- Neptune Orient Lines, Singapore’s national shipping line that was later sold to CMA CGM
- Malaysia-Singapore Airlines, now Singapore Airlines after Singapore split from Malaysia
- Singapore Cable Car – yes, for tourism
TEMASEK: The government subsequently moved these companies out of the ministries in charge into Temasek Holdings, set up in 1974 to centralise them all. As Singapore’s investment company, it could grow and nurture companies where it made sense, and sell or even wind up those that have lost relevance. It could also take stakes in new industries and businesses beyond Singapore.
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MAS: The central bank was set up to manage Singapore’s foreign reserves and exchange rate, but its reserves built up signifantly thanks to surpluses and double-digit economic growth. As it’s not meant to be a fund manager, the late Goh Keng Swee set up a separate entity, GIC, in 1981 to perform this function.
GIC: The long-term global investor
- invests money for MAS and the Ministry of Finance;
- manages a major part of Singapore’s foreign reserves; and
- manages a major part of the government’s financial reserves.
There is great interest from world leaders in how Temasek operates, because it is “very unique”, as well as how we manage our reserves, with our Elected President having a second key on them. “That is very unique to us, and they listen very carefully when I talk about it. But then they look at me and say, ‘no’, that is in Singapore, it cannot happen anywhere else.”
Why is the Prime Minister of the day chairman of GIC? This isn’t “automatic”. It doesn’t have to be PM, but it must be somebody whom the PM will trust and who will carry enough weight. PM Lee says GIC’s board, unlike other companies, does not go into individual investment decisions. It sets overall mandate, risk limits, strategy, and chooses people and professionals. “But my job is to be there so that there is political accountability.”
4. What is the 50-50 formula?
The 50-50 formula, introduced in 2000, sets aside half the returns on investment of the reserves (net investment income), and releases the other half for government spending.
The late president Ong Teng Cheong asked why the government was not saving any of the income earned. The Constitution was subsequently amended to put the formula in place.
Years later, the rule was refined to bring in capital gains from investments (i.e. returns, not just income), and MAS, GIC and Temasek were brought into this 50-50 framework, so that every year, if things go well, Singapore’s reserves can grow by about 2 per cent.
5. When and why did the government draw on the reserves?
In 2009, to introduce the Jobs Credit Scheme to keep people at work, and the Special Risk-Sharing initiative, to ensure companies could get the lines of credit they needed. S$4.9 billion was withdrawn for this.
The second, third and fourth times were to tackle Covid-19. A total of S$40 billion was spent from the first and supplementary Budgets in 2020, as well as those that followed in 2021 and 2022.
6. How important is the Net Investment Returns Contribution (NIRC)?
It accounts for one-fifth of the government’s revenues, 3.5 per cent of GDP. This is equivalent to corporate income tax revenues, 1.4 times personal income tax revenues and 1.3 times GST revenues. It’s more money than what is spent on any ministry – even for health.
Some possibilities to replace NIRC:
- Doubling corporate income tax
- More than doubling personal income tax (i.e. from 21 per cent to perhaps 42 per cent at the top)
- Pushing GST up by 10 percentage points (i.e. 19 per cent instead of 9 per cent next year)
8. What worries PM Lee most about our reserves?
That it will be gone, because it cannot be built back up again. Singapore no longer grows at the rate it used to in the 1970s and early 80s, and no longer has the possibility of putting aside as much as it used to be able to do.
“I think we need to be very, very conscious that this is a Garden of Eden state. You are here, it is marvellous. You may not always feel great, but please be aware this is the Garden of Eden because if you come out from it, you cannot go back in again by the sweat of your brow.”
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