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Govt to allow stat boards, state-owned firms to tap capital markets to fund mega-projects

SINGAPORE — The Government, in a major shift in the way it approaches financing for critical national infrastructure, is looking to allow statutory boards and state-owned companies building these projects to borrow from capital markets in order to spread costs “more equitably across generations”, Finance Minister Heng Swee Keat said in his Budget speech on Monday (Feb 19).

Finance Minister Heng Swee Keat suggested that the Land Transport Authority could look at borrowing for upcoming projects, such as the Johor-Singapore Rapid Transit System and the high-speed rail link connecting Kuala Lumpur and Singapore. Photo: Farrells

Finance Minister Heng Swee Keat suggested that the Land Transport Authority could look at borrowing for upcoming projects, such as the Johor-Singapore Rapid Transit System and the high-speed rail link connecting Kuala Lumpur and Singapore. Photo: Farrells

SINGAPORE — The Government, in a major shift in the way it approaches financing for critical national infrastructure, is looking to allow statutory boards and state-owned companies building these projects to borrow from capital markets in order to spread costs “more equitably across generations”, Finance Minister Heng Swee Keat said in his Budget speech on Monday (Feb 19).

This approach, he added, will complement the “save ahead” method where the Government can channel portions of the budget surplus in good years into development funds, such as that for Changi Airport Terminal 5 and major upcoming rail projects.

Set up in 2015, the Changi Airport Development Fund now has S$4 billion. The Government will set up a new Rail Infrastructure Fund this year with an injection of S$5 billion.

“For our infrastructure investments, the key challenge is that certain expenditures can be very lumpy, with hefty upfront investments. Yet, the benefits are enjoyed many years down the road,” said Mr Heng. “Through both saving ahead and borrowing, we expect to smooth out and be able to meet our major infrastructure needs.”

The Republic traditionally shies away from external borrowing to finance key domestic infrastructure. Over the years, the Republic has also leaned on various mechanisms, such as the public-private partnership model, to finance infrastructure development.

But in outlining the Government’s new thinking on the issue, the finance minister suggested that the Land Transport Authority could look at borrowing for upcoming projects, such as the Johor-Singapore Rapid Transit System and the high-speed rail link connecting Kuala Lumpur and Singapore.

The National Environment Agency could also explore borrowing to fund its upcoming Integrated Waste Management Facility set to begin construction next year.

“These infrastructure projects, once completed, will generate economic returns over many years. The borrowing arrangements for these projects will hence help distribute the share of funding more equitably across generations,” said Mr Heng, adding that such long-term borrowings will help to develop the Republic’s bond market.

To enhance confidence among creditors and help lower borrowing costs, the minister suggested that the Government will consider providing guarantees for some of these long-term borrowings — in effect using the strength of Singapore’s reserves to back these projects without directly drawing on the reserves.

Mr Heng added: “The reserves can then remain invested to generate returns. We are studying this carefully and discussing it with the President and the Council of Presidential Advisers.”

Analysts commenting on the shift in Singapore’s thinking on external borrowing said it was an “innovative” way to reduce the pressure on the Government’s coffers, and avoid incurring the political costs of raising taxes to fund these mega-projects.

“This is a good way to release the stress on (the Government’s coffers), amid demographic pressures and an expected fall in revenue from personal income taxes,” said Mr Francis Tan, an economist with the United Overseas Bank.

Added Dr Lawrence Loh, director of the Centre for Governance, Institutions and Organisations at the National University of Singapore Business School: “We’re trying to experiment with a whole new scheme altogether where you provide governmental guarantees for private-sector projects. This is a new twist altogether (for Singapore).”

There are, however, inherent risks in guaranteeing long-term borrowings for mega-projects, the experts cautioned.

Defaults on payments posed the greatest risk, said CIMB Private Banking economist Song Seng Wun, though he acknowledged that this was “highly unlikely” given that the parties involved are linked to the Government.

Citing the Kuala Lumpur-Singapore HSR, Mr Song added: “There are risks in terms of what the various entities use the funds for. Some of the funds may be for higher-risk projects that may or may not materialise because it’s outside the control of the Singapore Government, even though the agreement is drawn up such that it provides good safety for the Singapore side. It’s managed risk.”

Dr Loh said: “It’s very, very important to make sure that funds are channelled to the right projects … (But) in these few years when there are resource constraints, this is the next-best alternative.” ADDITIONAL REPORTING BY KELLY NG

Managing Govt Expenditure Prudently

Despite growing demands from the country’s changing needs, the Government must be prudent in managing its expenditures so as to get the “best value for every dollar” spent, Finance Minister Heng Swee Keat said on Monday (Feb 19).

Total spending by the various ministries in the new financial year is expected to be around S$80 billion, or 8.3 per cent higher than in the last financial year, Mr Heng told Parliament, adding: “On the whole, we expect a slight overall budget deficit of S$0.6 billion, or 0.1 per cent of gross domestic product (GDP).”

He stressed, however, that the Government’s spending — at 19 per cent of GDP — is already leaner than most developed economies. “And we have been able to get good value for our money, delivering good outcomes in areas like healthcare and education, which are highly ranked internationally,” the minister added.

Nonetheless, he announced further curbs of the growth of the ministries’ budgets, following the permanent 2 per cent reduction of the budget caps of all ministries and organs of state announced last year.

From financial year 2019, the block budgets of the various ministries will only be allowed to grow at a slower rate of 0.3 times that of GDP growth, down from the current 0.4 times of GDP growth.

Government agencies are also on the lookout for ways to sharpen efficiency. For instance, they are tapping emerging technology to increase productivity.

JTC Corporation and Nanyang Technological University, for example, have developed a robot that aids in building inspection work, halving the reliance on manpower and time needed for the task.

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