The size and significance of the unprecedented $52 billion that Singapore has drawn from its reserves should not be underestimated, Deputy Prime Minister Heng Swee Keat said in Parliament yesterday.
This has enabled Singapore to mount a quick and strong response to the fallout from the Covid-19 pandemic, he added.
He was responding to points made by Non-Constituency MP Leong Mun Wai, when wrapping up a two-day debate on the Government's strategy to emerge stronger after Covid-19.
Mr Leong, who is from the Progress Singapore Party, had said that the latest government financial statements as at end-March report that Singapore owns a total of $1.35 trillion in financial assets.
Taking into account the Net Investment Returns Contribution (NIRC), he said the decrease in Singapore's financial assets is $14.8 billion. The NIRC refers to the returns on investments of Singapore's reserves, and is the top contributor to government coffers.
This, he said, means that Singapore has used up only 1.1 per cent of its total financial assets to fight Covid-19 this year, and that there is no need for tax and fee hikes to take place so soon.
To this, Mr Heng said the Net Investment Returns (NIR) framework is based on expected long-term returns, not actual returns. "It is incorrect to estimate the actual return by multiplying the NIRC by two".
The DPM also said it is wrong to subtract the returns from the $52 billion to derive a net spending figure in considering the amount Singapore is spending from its reserves.
In addition to the draw, Singapore continues to spend the NIRC, which also comes from reserves.
"Furthermore, the amount drawn from reserves would have generated returns in perpetuity without a draw," noted Mr Heng, who is also Finance Minister and Coordinating Minister for Economic Policies.
While the draw on reserves would lead to some impact on the NIRC, the design of the NIR framework allows for a stable and sustainable source of income for Singapore's Budget, smoothed out over market cycles, he said in replying to Mr Louis Chua (Sengkang GRC).
"This means that when the projected returns and value of the net asset base goes down, we do not see an immediate proportionate decrease in NIRC. In the same way, in periods of sharp spikes in the market and asset values go up, we do not see an immediate increase and overspend," said Mr Heng.
In his response to Mr Gerald Giam (Aljunied GRC), who asked if the $52 billion drawn from the reserves would be returned in full or in part, and said that restoring the amount in a short time could subject Singaporeans to unnecessarily high levels of austerity, the DPM explained that there is no obligation under the Constitution for the Government to put back the amount drawn from past reserves.
"Rather, it is about having the moral obligation and sense of duty to current and future generations," he said.
Singapore remains committed to running a broadly balanced Budget over each term of government, and the Government will assess the viability of returning the amount drawn, depending on Singapore's fiscal position, he said.
He added that it is not possible for him to be definitive on how long it will take Singapore to build up sufficient surpluses to make up the $52 billion. "But I can say that it will not be two years, and I certainly hope it will not take us 50 years."
The Covid-19 pandemic has demonstrated how the reserves have allowed Singapore to remain nimble in times of uncertainty, said Mr Heng.
Singapore has to be more circumspect when it comes to using more reserves in the face of greater uncertainties ahead, he added.
The global economy and financial system will be more volatile, he said, with the build-up of debt globally introducing instability in the financial system, which can lead to or worsen crises.
Singapore is also seeing increasing risk of geopolitical conflicts and deglobalisation.
In a reply to Mr Liang Eng Hwa (Bukit Panjang), Mr Heng said that should it be necessary for the Government to further draw on the reserves amid the crisis, he is prepared to propose this to the President.
In the medium to longer term, Singapore's approach is to adapt and find new ways to generate growth, he added.
"We must work hard to get ourselves back in a position where our economy is growing and we can build up reserves for the future again. This is the sustainable and prudent way forward."
