SINGAPORE will not be able to build up its reserves again if they are exhausted, as growth is slower now and the country no longer runs such large budget surpluses, said Prime Minister Lee Hsien Loong.

“Once it is gone, it will never come back again. It is finished. You cannot build it up again,” he said in an interview with CNA on Singapore’s national reserves, released on Wednesday (Aug 16).

In three video clips, he explained about the reserves, addressed misconceptions and detailed how the government balances spending with investment returns.

The issue of Singapore’s reserves – and how they are managed – has resurfaced ahead of the upcoming presidential election. The president holds the second “key” to the reserves, meaning that his approval is needed if the government wants to draw on past reserves.

Singapore’s unique approach to its reserves was enabled partly by how it could “create an elected president specifically for this purpose”, PM Lee noted in the interview.

He stressed that Singapore would be unable to rebuild its coffers if they are exhausted, as the economy no longer grows at the rates of the 1970s and early 1980s, of 8 per cent to 12 per cent year on year. Nor does the country still run budget surpluses of “5 per cent, sometimes 10 per cent” of gross domestic product.

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Under those circumstances, it was possible to put aside “some of this prosperity for a future rainy day”, said PM Lee. But today, growth has slowed while Singapore’s expectations and needs have expanded.

“So to say today, you put aside systematically 2 per cent, 3 per cent of GDP and build up a sovereign fund from scratch – I think it is very hard,” he said.

“I think we need to be very, very conscious that this is a Garden of Eden state. You may not always feel great, but please be aware this is the Garden of Eden because if you come out of it, you can’t go back in again.”

The biggest misconception about the reserves is that “there is such a thing as enough”, he said. “I don’t know how much is enough.” There is “no such idea”, PM Lee added, because the government cannot predict how much Singapore might need in the future, especially during a crisis.

“Can I predict whether the stock market will go up or go down next year? Will there be a war next year? I don’t know. I can make a guess, but bad things happen.”

“Before the Global Financial Crisis, we did not think we would need anything. But when (it) came, it turned out we needed four, five billion dollars,” he added. The same happened with Covid-19, when Singapore had to draw around S$40 billion from the reserves to support households and businesses.

“So you have no idea how much you will need, because Covid is far from the worst thing that can happen to us,” he said.

Singapore should see the reserves as “rainy day money”, not to be touched unless there is an emergency, he added. “However much there is, I keep on having this attitude that I would like to build it up a little bit more when I can, so that the next generation will be in a more secure position than I am.”

The fourth generation (4G) political leaders are “very conscious” that the returns on Singapore’s investments “are not going to grow sharply” even as the country’s spending needs do, said PM Lee.

This is also why the government decided to raise the goods and services tax to 8 per cent this year, and 9 per cent next January. “But it will not be the last call because our spending needs will continue to grow... And we have to make sure that we provide for ourselves in a sustainable way.”

The 4G leaders’ challenge is to ensure that Singaporeans understand this, and act early so the country can be financially secure in the face of an ageing population. This is also to avoid falling into debt of 80 per cent or even over 100 per cent of GDP, like other countries.

In the interview, PM Lee laid out the history of the reserves and what they comprise: financial assets such as cash, shares, bonds, private equity, and companies; and fixed assets such as land and buildings.

This is not all of what the government has – such as other stat boards and valuable assets – but the “big pieces” are covered, said PM Lee.

He also addressed the future of the reserves, such as whether Singapore would set up another GIC, or change the proportion of returns that can be used for government spending, known as the Net Investment Return Contribution (NIRC).

“From time to time, we have asked ourselves, should we have two GICs?” he said, adding that they could then compete. While this is debated every few years, the conclusion is that “building one team is hard enough” and that it is better to concentrate on having one entity succeed.

Under the NIRC framework, half of the investment returns go into the reserves and half can be spent. Asked if the government would ever consider changing this 50:50 proportion, PM Lee replied that this is something that Singapore should keep.

“You could say nothing is forever, that is true. But when you have made a commitment, I will not come back and reopen the subject the next day.”