Ho Ching gives a lowdown on how Singapore manages its wealth
Many countries pay attention to Singapore despite our small size. Partly because of Tharman’s good looks, and partly because of the ginormous amount of cash being hoarded up.
GIC alone claims to manage well over $200b dollars, but what they actually hold is anybody’s guess. (And they can’t tell you either, cause that would open up our finances to speculation attacks)
This money is important. In times of recession it helps keep people employed. In times of armed conflict, it is our weapon to strangle the enemy.
But we weren’t always that cash rich, and Ho Ching explains thus (headings are our own): Ever wondered how SG remains a top rated triple-A credit country?
There are only about a dozen triple-A rated countries around the world.
Amongst these, SG is the only one in Asia, and also a rare one with no oil or natural resources, unlike Norway, Australia or Canada.
So how did SG do it?
One key reason is the strict financial discipline and prudent saving for the future in government budgeting and spending.
Few remember that when the PAP won their elections to form our first self govt in 1959, they inherited a budget which was in deficit and the year was about half over.
Such was their determination not to be owing money, or borrowing money to spend, right from the start.
This set the tone for subsequent SG governments, always to live within their means and never spending wastefully or frivolously.
The government cannot any-howly spend
The Constitution was amended in 1991 to require each successive government to live within its means: spending only what they have earned during their term of office.
Past reserves saved up by previous generations and governments before the most recent general elections are to be locked up. Any spending from such past reserves would be subject to the approval of the Singapore President.
Land in Singapore and the proceeds earned
Did you know we also lock up proceeds from land sales as past reserves?
Land is not only limited in island SG, barely bigger than Lake Tahoe in California. Land is also our common heritage asset and inheritance, belonging to past, present and future generations of Singaporeans.
Most if not all other governments in the world treat land sale proceeds as revenues to be spent. These include island economies like Hong Kong as well as larger countries with large land mass. IMF also treats land sales as part of government revenue for spending.
We in SG treat land sale monies like some prudent countries treat their oil revenues – a heritage asset transformed from one physical form (oil or, in SG’s case, land) to a financial form (funds), and save them up in their sovereign wealth funds.
Spending on Singaporeans
But should we completely lock up our past reserves and not use them at all?
This is akin to grandpa saving in a long-term savings and investment account and protecting the original amount and any interest for his grandchildren.
And now the kids are deciding whether to:
a.) also save all of the current interests earned and keep that for their own grandchildren yet unborn, or
b.) to spend part of the current year’s interest earned. This would be used for present spending for themselves and their parents or children each year.
Under the SG Constitution, up to half of the returns from investing past reserves may be used for current government spending. This would include interests earned from investing in bonds.
In other words, we lock up the principal amount of past reserves, including from land sales, and try to continue saving part of the investment returns for future generations, and spend a part of the earnings and returns for the present generation.
This is a way to have a fair sharing between generations, past, present and future, from the hard earned reserves.
The investment engines and their contribution to Singapore
MAS, GIC and Temasek too, as three of the key financial institutions of Singapore, were also required under the same 1991 Constitution amendment to each protect its own past reserves.
MAS, GIC and Temasek are key contributors to the Singapore Budget through the returns earned on our investments.
Last year, the returns from these financial institutions and other investments, such as interest from bonds, totalled S$8.6 billion.
This helped to fund the S$8 billion put aside for Pioneer Generation Package announced the previous year. This PG package will cover healthcare benefits our Pioneers for the rest of their lives.
It also gives meaning to those of us working in these institutions, past and present as well as future.