Why the president is Singapore’s key to tapping the reserves

WITH Singapore’s next presidential election just around the corner, there is renewed interest in what powers the president has and, in particular, the role that the Head of State plays in safeguarding the reserves.

Here’s a quick rundown of the Singapore president’s discretionary powers:

How does the president safeguard Singapore’s reserves?

Prior to 1991, the role of the president was largely ceremonial. That year, amendments were made to the Singapore Constitution to make the president’s office an elected one with powers to safeguard the national reserves and protect the integrity of the public service.

This “two-key” system, where the president and the government each hold a key to the reserves, took effect from Nov 30, 1991. This means that the Singapore government can tap past reserves only with the president’s approval.

For each year’s Budget, the president may veto the budgets of the government and fifth schedule entities – key statutory boards and government companies, such as Temasek and the Monetary Authority of Singapore – if he or she is of the opinion that their budgets are likely to draw on past reserves.

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The president’s assent to each year’s Budget is thus an important safeguard that ensures that there is no draw on past reserves without his or her agreement.

Aside from these veto powers, the president also has powers over how investment returns from Singapore’s past reserves – also known as the Net Investment Return Contribution (NIRC) – can be taken into each year’s Budget for spending.

The NIRC framework allows the government to use up to 50 per cent of the long-term expected real returns on the net assets invested by Singapore’s investment entities, after deducting government liabilities.

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Any changes to the expected rates of return have to be approved by the president each year. Should the government and the president disagree, then the 20-year historical average rate of return will be used to compute how much the government can spend.

When have these powers been exercised?

Singapore first dipped into the past reserves in 2009.

In the wake of the Global Financial Crisis, then President S R Nathan gave his approval to draw down S$4.9 billion from the reserves to fund two special schemes in light of Singapore’s worst recession since its independence.

The actual amount drawn by the government ended up being S$4 billion, and in 2011, the government chose to return the amount to the reserves because the economy had recovered well from the recession.

In response to the Covid-19 pandemic, President Halimah Yacob approved the government’s request to draw a total of up to S$52 billion between FY2020 and FY2022 to fund public health, economic and social support measures.

The Ministry of Finance has said that the total draw is expected to be S$40 billion, lower than expected.