Singapore has enough reserves “for most circumstances”, but it would be the "biggest misconception" to think that will always be the case with the country's spending needs already outpacing revenue growth, said Prime Minister Lee Hsien Loong.

Mr Lee also said he is “anxious” about continuing to build the reserves for as long as possible. The country’s fourth-generation (4G) political leadership is aware of the growing spending needs, as well as the need for Singapore to provide for that “in a sustainable way”, he added.

The Prime Minister was speaking to CNA in an extensive interview on the country's reserves.

He described the reserves as a “great source of comfort and reassurance” that provides Singapore with “one extra card to play” should it run into a tough spot.

The government does not disclose the full size of the reserves to protect national interests and prevent speculative attacks on the Singapore dollar.

When asked how much is Singapore's reserves, Mr Lee said: "I can’t answer that question. It’s enough for most circumstances. It’s enough to give us a substantial support in the Budget every year contributing to the government’s revenues."

The country first tapped on its reserves in 2009, taking out S$4.9b to support the economy through the global financial crisis. Over a decade later, it drew on the reserves on three separate occasions during the Covid-19 pandemic between 2020 and 2022 — using S$40b in all.

“Fortunately, we had the resources and we could do it,” said Mr Lee. “It’s a great blessing.”

But the “biggest misconception” that Singaporeans can have about the reserves is that “there is such a thing as enough”.

“How much is enough? If I have more than that, I can spend it. If I have less than that, well, maybe I hope we get there,” he said. “I don’t know how much is enough.”

“Before the global financial crisis, we didn’t think we will need anything. When (it) came, it turned out we needed S$4, S$5 billion. When the Covid-19 crisis came, in the end we needed S$40 plus billion. So you have no idea how much you will need.”

And Covid-19 is “far from the worst thing that can happen” to Singapore, he cautioned. Hence, the “more productive way” to look at the reserves would be to think of it as “rainy day money”.

“If it’s not raining, I don’t touch it. If it’s a sunny day and I can afford to, I put a little bit more into it,” he said.

“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 today.”

'A GARDEN OF EDEN'

Asked if he is afraid of losing the reserves, Mr Lee replied: “I am proud that we have built it up and I’m anxious that we keep it like this for as long as we can.

“Because it’s one of those things — once it’s gone, it will never come back again.”

Singapore’s fast economic growth in the 1970s and in the early 1980s, alongside large fiscal surpluses and rising incomes, had allowed the “possibility of putting aside some of this prosperity for a future rainy day”.

Today, Singapore is “not as poor as we were before”, with higher incomes and living standards. But putting aside 2 to 3 per cent of its gross domestic product to build up a sovereign fund from scratch would be “very hard”, Mr Lee said.

“The economy will not be able to take it. But at that time, our economy could take it and our forefathers had that prudence and the foresight to do it and we are the beneficiaries,” he said.

“So I think we need to be very, very conscious that this is a Garden of Eden state. You are here, it’s 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 can’t go back in again,” said the Prime Minister.

He said the 4G leadership is “very conscious” of how spending needs will outpace returns from the reserves.

That is one of the reasons why the Goods and Services Tax (GST) had to be raised — from 7 to 8 per cent at the start of this year, followed by another increase to 9 per cent next year.

“But it will not be the last call because our spending needs will continue to grow,” said Mr Lee. “We are going to be a superaged society by 2030 and we have to make sure that we provide for ourselves and in a sustainable way.”

Unlike other countries that have not provided for this scenario and have run up debts that may be more than 100 per cent of GDP, he said Singapore has both time and political determination to do what is needed.

“And I think the 4G leaders understand this,” Mr Lee said.

The challenge is to make sure that Singaporeans also understand that the reserves are a “valuable asset” that needs to be treasured.

“You can use it when you need to, but don’t fritter it away. Because (when) it’s gone, it’s gone.”

Contribution from the reserves, or the Net Investment Returns Contribution (NIRC), forms the largest contributor to the government’s coffers, accounting for about one-fifth of revenue each year.

The NIRC framework allows the government to spend up to 50 per cent of the net investment returns on net assets invested by GIC, the Monetary Authority of Singapore (MAS) and Temasek, and up to 50 per cent of the net investment income derived from past reserves from the remaining assets.

Contribution from the reserves amounts to about 3.5 per cent of GDP, Mr Lee said, adding that this is more than what is currently being spent on any ministry.

In terms of revenue, the NIRC has overtaken other forms of taxes, such as corporate and personal income tax, as well as the GST. Without this, other forms of taxes will have to be raised even more.

“It’s an important contribution. I think it’s a sustainable contribution and it’s also a fair contribution because the way we make the formula — half of the investment returns can be spent, the other half goes back and it is reinvested for the future,” said the Prime Minister.

“I think that we are pursuing the right policy and getting the right results. So when people say why don’t we use the reserves in order to benefit the current generation? The answer is we are to a very big degree, but you may not realise because we’ve gotten used to it.”

ON THE ROLES OF GIC AND TEMASEK

Mr Lee also talked about the three entities tasked to manage and invest the country’s reserves.

The MAS, formed in 1971, takes care of Singapore’s official foreign reserves.

Temasek Holdings came about in 1974 to manage a range of national companies, such as Singapore Airlines and DBS Bank, on a commercial basis.

Sovereign wealth fund GIC, set up in 1981, manages most of the government’s assets with an eye on longer-term investments to reap better returns.

Asked if this structure is still relevant today, Mr Lee replied: “I think in principle, yes.”

Given the size of the reserves, questions such as whether there should be two GICs set up to compete with one another have been asked.

“Every few years, we argue about this but finally, we conclude that building one team is hard enough. Let’s concentrate on making that one team succeed,” he said.

The government has said on multiple occasions that it plays no role in the investment decisions made by these entities.

But Mr Lee told CNA that political leaders have a responsibility to “shield” those it has tasked to manage the reserves from political and public pressures so that they can do their job well.

In the case of GIC, whose mandate is to grow the reserves and protect them during downturns, this involves making investments all over the world. There is “no investment which is guaranteed to succeed” and risks will have to be taken, he added.

“Sometimes the risks turn out well, sometimes the risks turn out badly. But if you have a competent team, if you have an honest team, if you give them the right mandate and mission and you have the right governance process... you can be reasonably sure that the reserves will grow."

But this means that political leaders cannot interfere based on their views or public opinion, said the Prime Minister.

“Unless we can shield them from these pressures, they won’t be able to do their job properly and our reserves would suffer,” he said.

In annual results announced last month, GIC delivered its highest returns since 2015 for the financial year ending March 31. But the sovereign wealth fund warned of "challenging" prospects ahead amid sticky inflation and other economic headwinds.

On the other hand, Temasek Holdings reported a 5.2 per cent fall in the value of its net portfolio, while the MAS recorded its largest net loss of S$30.8b in the last financial year. CAN

Source:
courtesy of TODAY

by TANG SEE KIT

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]