reserves

Transparency of Government Reserves

Parliament, 7 Feb 2024

Mr Speaker,

In our quest to safeguard the Singapore dollar, especially from the volatilities of currency crises, it is important for a country to hold sufficient Official Foreign Reserves (OFR). We’ve seen the dire consequences of not having enough in the tank during Thailand’s ordeal in 1997. The country’s struggle, stemming in part from currency speculation, led to a severe depletion of its OFR. This forced it to float its currency, triggering an economic crisis which affected the whole region, including Singapore.

The Monetary Authority of Singapore (MAS) has assessed that the “optimal” amount of OFR it needs to provide a “strong buffer” against stresses in the global economy and market is between 65% to 75% of GDP. The central bank assessed this level based on internationally-accepted measures of reserve adequacy and its own practical experience in foreign exchange intervention to ensure the stability of the Singapore dollar.

Since the MAS (Amendment) Act came into force on 21 February 2022, MAS has been allowed to subscribe to Reserves Management Government Securities (RMGS). This allows the transfer of OFR to the government for the long-term investment by GIC. This is OFR above what MAS needs to conduct monetary policy and support financial stability. Should there be a need to supplement the OFR on MAS’ balance sheet in the instance of a tail-risk event, it can redeem the RMGS before maturity at par.

Based on a parliamentary reply by DPM Lawrence Wong to me, as at September 2023, MAS’ current OFR stood at S$455.5 billion or 70% of GDP, with the potential to ramp it up to 106% of GDP by redeeming the RMGS holdings of S$237.6 billion.

This means MAS effectively has access to 31% more foreign reserves than the high end of the range it assesses to be optimal to defend the Sing Dollar.

The value of both MAS’ OFR and RMGS have been revealed publicly. So has the value of Temasek Holdings’ net portfolio. What remains is the value of the reserves held by GIC, which it has only revealed is “well over US$100 billion”. It is estimated to be worth many multiples of that.

In a parliamentary reply on 3 Oct 2023, DPM Wong said we need to brace for extreme tail-risk scenarios, including crises of unprecedented scale that could lead to significant capital outflows beyond MAS’ reserves, or emergencies caused by state or non-state actors threatening our economy, livelihoods or national existence.

Sir, the spectre of extreme scenarios cannot be a carte blanche for maintaining a veil of secrecy over the reserves. Is the government keeping the reserves held by GIC a secret only to prepare for extreme tail-risk scenarios, or is it also to avoid questions from MPs and the public on why our substantial reserves aren’t being invested more in Singaporeans?

Greater transparency serves to both improve governance and foster a more inclusive and informed discussion about our nation’s future. Transparency about the size of our reserves will facilitate more robust public discourse and democratic debate about our country’s long-term budget and expenditure plans. It will ensure that decisions regarding the use of our national wealth are made with the participation and understanding of citizens. Most importantly, it will increase accountability, as my Hon. Friend from Sengkang Jamus Lim has explained in his speech, and build more trust in the government.

Conversely, expecting Members of Parliament to scrutinise, debate and approve the government budget and each ministry’s allocation without full knowledge of our reserves is comparable to making a decision on buying a house without knowing how much money they have in their largest bank account.

Mr Speaker, I urge a review of the government’s stance on the secrecy of the reserves.

If the government wishes to maintain its strategic ambiguity regarding the full size of the reserves, the figures could be shared confidentially with MPs or with a cross-party Standing Select Finance Committee that looks into the health of our reserves and government finances, which the Leader of the Opposition has proposed.

This parliamentary committee will then be able to properly consider the specific funding needs vis-a-vis the threats that Singapore must prepare for and make recommendations to the government on how these needs could be funded.

I support the original motion.

Net Investment Returns Contribution

I asked the Finance Minister this question during the 14 April 2014 sitting of Parliament to find out if the Government had been using the full 50% of Net Investment Returns (NIR) to supplement the Budget, as is provided for in the Constitution. While it is widely assumed that 50% of the estimated long term annual returns from investing our reserves is contributed to the Budget each year, the Constitution actually allows for “up to 50%”, which means it could be less than 50%.

I asked the Finance Minister this question during the 14 April 2014 sitting of Parliament to find out if the Government had been using the full 50% of Net Investment Returns (NIR) to supplement the Budget, as is provided for in the Constitution. While it is widely assumed that 50% of the estimated long term annual returns from investing our Reserves is contributed to the Budget each year, the Constitution actually allows for “up to 50%”, which means it could be less than 50%.

Indeed, the Finance Minister revealed that the Government had in fact been using about 47% of NIR on average over the past 5 years. This works out to almost half a billion dollars less each year in the Budget than what the Constitution allowed for. However, for FY2014, the Government plans to top up the Budget with the maximum 50% of NIR.

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Mr Gerald Giam Yean Song asked the Deputy Prime Minister and Minister for Finance what percentage of the Net Investment Returns (NIR) on the net assets managed by Government of Singapore Investment Corporation (GIC), Monetary Authority of Singapore (MAS) and Temasek Holdings is contributed to the Government’s Budget as Net Investment Returns Contribution (NIRC) for each of the last five years, given that NIRC comprises up to 50% of the NIR on the net assets managed by GIC and MAS and up to 50% of the investment income from the remaining assets (which includes those of Temasek Holdings).

Mr Tharman Shanmugaratnam (Deputy Prime Minister and Minister for Finance): The Net Investment Returns (NIR) framework allows the Government to tap the investment returns of our reserves for budgetary spending in a sustainable way. Under the framework, the Government can spend up to 50% of the long-term expected real return from the net assets managed by GIC and MAS, and up to 50% of the net investment income from Temasek and other assets.

The Government generally budgets to take in 50% of Net Investment Return Contribution (NIRC) at the start of each Financial Year (FY). The actual NIRC taken in at the end of the FY may vary due to changes in the fiscal position and to differences in the actual outturn for the maximum NIRC compared to what was budgeted at the estimates stage.

From FY2009 to FY2013, the actual NIRC taken in has been close to the maximum 50%, with the Government taking in on average slightly above 47% of the NIRC. We expect to take in the maximum 50% of NIRC in FY2014, in view of an expected overall budget deficit.

The NIRC has been able to supplement the Budget by $7 billion to $8 billion annually. Our approach to taking in NIRC reflects a prudent approach to fiscal spending. We should spend to achieve desired outcomes, rather than spend to the last dollar available.

Further, our government spending needs will increase over time, and the NIRC will remain an important source of revenue over the long term. It is therefore vital that we spend in a disciplined way, and ensure sustained benefits from the returns on our reserves.

Source: Singapore Parliament Reports (Hansard)

“No regrets” for $6.8bn loss?

Sometimes I wonder why Parliamentarians and political commentators even bother to debate government expenditure. To paraphrase a senior statesman, perhaps we all have “no sense of proportion”.

Temasek’s realised loss after selling its Bank of America (BoA) stake could be as high as S$6.8 billion, according to figures published by the pro-government Straits Times. That’s more than the Singapore government’s 2009 budget for healthcare, community development, social services, and manpower development combined!

And the secretive Temasek thought it could keep it hush hush when it sold its stake before the end of March. It was only discovered when a filing with the US Securities and Exchange Commission revealed that Temasek no longer held BoA or Merrill Lynch shares.

Continue reading ““No regrets” for $6.8bn loss?”

Greater transparency needed for Presidential decisions

On Tuesday, Singaporeans witnessed for the first time a sitting President publicly justifying a decision he made.

President S R Nathan explained to Singaporeans why he consented to the Government’s $4.9 billion draw on the national reserves — another first in the history of this country. In the process he revealed that it took him not 11 days, but just one day to approve the draw from the time he received the proposal in writing from the Government.

The President said that he “responded after clinically examining the proposal”. Yet TODAY reported that he had already made up his mind when he received the proposal from the Finance Minister on Jan 20th — just two days before the Budget was presented in Parliament. Given that it takes much longer than two days to write a 60-page Budget speech with six annexes, let alone draft detailed policies on the use of the drawn reserves, it is not unreasonable to conclude that the decision was a done deal long before the proposal was submitted to the President — perhaps even before the Prime Minister “informally sounded him out” nine days before that.

When asked about his views on the $4 billion-plus Jobs Credit Scheme and the $5 billion-plus Special Risk-sharing Initiative, the President said that he was “not here to judge whether these schemes would ultimately work”. I am curious to find out who then is in a better position to judge, and prevent a rogue government from stealing cookies from the cookie jar?

Local dailies reported his explanations in depth, and also explained the functions of the Council of Presidential Advisors (CPA) and their responsibilities in this decision-making process. Many Singaporeans might not have been aware that the President is required to consult the CPA when making such decisions.

I think it is commendable that the President decided to explain his rationale publicly, even though he is not obliged by law to do so. Having said that, I feel there is room for our laws to be tweaked to make such transparency de jure.

Firstly, the President should be required by law to make public his reasons for approving any draw on the reserves. This should be done within one week of making the decision, and before any of the money is actually withdrawn and used.

Secondly, the CPA should also make public its recommendations to the President and their reasons for such. The individual votes of each of the council members should be transparent to Singaporeans as well, since the council makes its decisions on majority vote.

This would serve as a useful safeguard of the two-key system, particularly if the President decides to go against the advice of the CPA — which is his prerogative. The public can then decide which party it agrees with, and judge the Elected President and the Government accordingly.

Currently, according to Article 37K of the Constitution, for Supply Bills, the CPA is required to send a copy of its advice or recommendation made to the President to two individuals — the Prime Minister and the Speaker, who will present it to Parliament. I am not sure if this covers requests to draw down the reserves.

I will reserve judgment on the President’s decision until I see the effect (or non-effect) of the Jobs Credit Scheme. However, I think there is still a long way to go before we can claim that this two-key system is not one where the Government unlocks, and the other automatically follows suit, as Opposition leader Low Thia Khiang charged in Parliament.

Today the government draws down $5 billion. If in future it draws down $50 billion, or $250 billion, are Singaporeans still to expect the same degree of opacity as we have now?

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Read also President Ong’s interview with AsiaWeek – revisited, on The Online Citizen.