SINGAPORE – Singapore has to move with the times in how it manages its finances – just like how it introduced its Net Investment Returns Contribution (NIRC) framework in 2008.

But it is just as important to remain steadfast to the values of prudence and discipline, and operate on a balanced budget while jealously safeguarding reserves for future generations, said MPs on Wednesday (Feb 24) during the debate on the Budget statement.

Citing the Government’s plan to issue up to $90 billion of new bonds to fund major infrastructure projects, Mr Liang Eng Hwa (Bukit Panjang) said: “If these items are funded under the annual Budget cycles, which is on a cash flow basis, it will put significant strain on our other Budget allocations.”

As the long-term infrastructure benefits current and future generations of Singaporeans, it would be more equitable to distribute the fiscal responsibility across generations through such a longer-term financing structure, he added.

The NIRC refers to returns on investments of Singapore’s reserves, and is the top contributor to government coffers.

In his Budget statement on Feb 16, Deputy Prime Minister Heng Swee Keat announced that under a proposed Significant Infrastructure Government Loan Act (Singa), bonds issued would finance a pipeline of major projects like MRT lines and tidal walls to protect against rising sea levels.

The borrowing limit will be set at $90 billion, among other safeguards to be included in legislation.

Mr Liang said this was a necessary safeguard on top of scrutiny from both the President and Parliament, while Ms Foo Mee Har (West Coast GRC) asked how this $90 billion limit on debt issuance was set.

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“Would this limit be adjusted as GDP (gross domestic product) grows?” she added. “How vulnerable would we be if interest rates move up? What is the expected repayment burden on future generations? How would Singapore’s AAA credit rating be impacted with the borrowing?”

She noted that the Government has not borrowed since the 80s for infrastructure development – namely for the country’s first MRT lines and Changi Airport Terminals 1 and 2.

In the intervening decades, strong GDP growth meant such spending could be covered by operating surpluses instead.

Still, the MPs said they supported funding major, long-term infrastructure through borrowing, particularly given prevailing low interest rates.

Mr Liang, who chairs the Government Parliamentary Committee for Finance, Trade and Industry, said: “Having a wider variety of high-quality assets like Singa and green bonds also helps develop our capital markets and facilitate better liquidity management among our financial institutions.”

Ms Foo said the use of debt would go some way in reducing the pressure of raising revenue, while avoiding the crowding out of important long-term infrastructure investment.

But she also stressed the need to exercise “great” discipline in deciding how much is borrowed and what is borrowed for.

“There is good debt and there is bad debt,” said Ms Foo. “We must guard against going down the slippery slope of other countries where the burden of debt repayment becomes a major component of the country’s finances.”

The Singapore Government does not borrow to fund recurrent spending in areas such as healthcare, pre-school education and security. These are financed by recurrent revenues such as the goods and services tax (GST).

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Noting it would unsustainable to do otherwise, Ms Foo said: “It is in this same spirit that we would not borrow money to pay for daily consumption. We would, however, borrow to invest in our flat, to provide a long-term home for our family, and an asset in our retirement.”

Mr Liang also suggested that if fiscal conditions remain tight, the Government could undertake “special purpose borrowing” to fund investments related to helping Singapore emerge stronger from the crisis.

This would be an alternative to drawing on past reserves – which Mr Heng had said the Government would consider doing, to sustain investments in Singapore’s future economy should the need arise.

Mr Liang said the reserves should only be touched as a last resort.

“Each time we draw on the past reserves, it also means divesting a part of our financial investments and hence we will lose out on the returns from these investments over the long term.”

Instead, the Government could explore a one-off bond issuance earmarked to specifically fund Covid-19-related economic investments, he said.

“That way, we also take advantage of our very strong balance sheet and our high credit ratings, where we can enjoy borrowing at almost zero credit cost as well as to take advantage of low long-term interest rates.

“As a prudent safeguard, we should also still set strict caps on such borrowing, and it should be still subject to the approval and consent of the President and to parliamentary scrutiny.”





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