‘Severe implications’ if S’pore’s reserves are depleted: Chan Chun Sing

SINGAPORE — Explaining why Singapore needs to be prudent and disciplined with its reserves, Minister in Prime Minister's Office Chan Chin Sing has warned that there are severe implications if the Singapore dollar is not strong and the country does not have sufficient reserves as buffer.

Speaking at a constituency Chinese New Year dinner on Saturday (Feb 24), he pointed out that the strength of the Singapore dollar allows Singaporeans to "enjoy many things that we take for granted".

"For example, we are able to import goods and essentials more affordably. We can go on holidays more affordably. People are coming to Singapore here to work and earn our Sing dollar," he said. "But if the Sing dollar is weak, we will also see the opposite of these very examples that I've mentioned. We should not take the use of our reserves lightly."

Since the announcement of the Budget measures on Monday, which included a 2-percentage point hike in goods and services tax which will kick in some time between 2021 and 2025 in order to raise revenue to meet growing expenditures, Mr Chan noted that some have asked if the Government should spend more of its earnings from the country's reserves. "This is a fair question," he said.

Earlier this week, Senior Minister of State (Law and Finance) Indranee Rajah said that for as long as possible, the Government will try to keep to its present Net Investment Returns (NIR) framework, which allows it to spend up to half of its long-term expected real returns from the assets managed by the Monetary Authority of Singapore, state investment firm Temasek Holdings, and the Government of Singapore Investment Corporation (GIC).

Echoing remarks by Finance Minister Heng Swee Keat during the Budget speech on Monday, Ms Indranee reiterated the next day that spending a higher percentage of the returns could be going down a "slippery slope" and the authorities will have to make the principal sum of reserves "work a lot harder". Speaking on a separate occasion, she also stressed the need to not only preserve Singapore's wealth but to grow it for future generations.

On Saturday, Mr Chan said he would not "go through the mathematics of this strategy". But he added: "Suffice to remember this that every dollar we save and put back into the reserves will help us earn more than that dollar to meet the needs of our future generations. This is especially important when our population is not growing as fast and when our population ages. On the other hand, every dollar of earning we spend now will mean more than one dollar plus investment returns less for the next generation."

Apart from this, there is another "important reason" for the Government's position. "How much we spend and how much we save will also signal to the currency markets what they can expect the strength of the Sing dollar to be," Mr Chan pointed out.

"If the world thinks that we are running an irresponsible or unsustainable fiscal policy, you can well imagine what they will do to the Sing dollar," he added. "If the world does not believe in the strength and stability of the Sing dollar, you can also well imagine what will happen to our savings and our reserves."

The Government is expected to post a record S$9.6 billion overall budget surplus this financial year ending March 31, thanks to "exceptional statutory board contributions" – mainly from the Monetary Authority of Singapore (MAS) – and higher-than-expected collections from stamp duties. Mr Heng had said that such numbers are not normal as the MAS has not been able to make a contribution in the previous six years. He also noted that currency fluctuations, in particular, have a very significant impact on the central bank's returns because the reserves are invested overseas in different currencies.

On Saturday, Mr Chan reiterated that the surplus "was not a structural surplus but largely attributed to currency fluctuation".

He added: "Very much like our approach to restructuring our economy for long-term growth, we too cannot be short-sighted in the way we manage our finances… Just because we have a short term windfall this year, it does not mean we don't have to save up and plan for our long term needs."