Reserves help Singapore weather economic storms

This article is more than 12 months old

Finance Minister on prudent government spending

Singapore's reserves deliver long-term economic stability while giving the country firepower to weather crises, Finance Minister Heng Swee Keat said yesterday.

The reserves have been accumulated over many years as a result of prudent spending by past generations, and Mr Heng said any decision to tap on them should not be taken lightly even as spending needs grow.

He was responding to a question from Bank of Singapore chief economist Richard Jerram at The Straits Times Global Outlook Forum yesterday.

Mr Jerram asked why the recent talk about raising taxes has not been accompanied by discussions about tapping more into earnings from Singapore's significant reserves.

In the 2017 Budget, the Government spent more than $15 billion from returns generated on past savings, Mr Heng said.

"This is equivalent to several percentage points of GST, corporate income tax, personal income tax and so on. How did we as a country with no natural resources accumulate that?"

He said he is "humbled" by earlier generations who prudently saved for the future even when the economy was growing rapidly and government revenues were rising.

The net investment returns framework was put in place to allow the Government to spend up to half of the long-term expected real returns from the assets managed by GIC, the Monetary Authority of Singapore (MAS) and Temasek Holdings.


The net investment returns contribution overtook corporate income tax to be the No. 1 contributor to government coffers for the first time in the 2016 financial year.

Mr Heng also recounted his experience at MAS during the global financial crisis.

"My first concern was that the Singapore dollar would come under attack and it would go under," he said

He cited American investor George Soros, who shorted US$10 billion worth of pound sterling and made US$1 billion in profit in 1992.

"If that attack had come to Singapore, we would not be sitting here today discussing this," he added.

A second concern was the potential for large outflows of funds.

"At that point, money was flowing all over the world at an alarming rate. But people knew that if they try to attack the Singdollar, we have the firepower to deal with it.

"Having those reserves gives our economy long-term stability and allows us to weather crises in a way that many other economies cannot," he added.

"We need to leave it (the reserves) to future generations so that their future is more secure," he said.

He added that demographics would be very different in 15 years' time, with one in four Singaporeans older than 65, compared with one in eight now.

Singapore must make sure government spending remains sustainable even as needs grow and it becomes tougher to raise revenue, he said.