Parliament: MPs ask for details on Temasek's return-rate forecast

Members of Parliament asked how the long-term return rate of Temasek Holdings will be determined, as the House debated a constitutional change that will allow the Government to tap on part of these returns for government spending.
Members of Parliament asked how the long-term return rate of Temasek Holdings will be determined, as the House debated a constitutional change that will allow the Government to tap on part of these returns for government spending.PHOTO: ST FILE

SINGAPORE - Members of Parliament asked how the long-term return rate of Temasek Holdings will be determined, as the House debated a constitutional change that will allow the Government to tap on part of these returns for government spending.

The proposed amendment to the constitution would allow the Government to include Temasek in the Net Investment Returns (NIR) framework, which already includes the Monetary Authority of Singapore and GIC.

This means the Government can draw on a larger pool of revenue if necessary.

Announcing the plans for this earlier this year, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said Temasek's maximum contribution to the NIR framework will be computed based on 50 per cent of its 20-year, expected long-term real rate of returns.

 

On Monday, MPs Liang Eng Hwa (Holland-Bukit Timah GRC) and Foo Mee Har (West Coast GRC) wanted to know how Temasek's long-term rate of return of will be determined, since it is an equity-focused investor.

Ms Foo said: "I would like to ask DPM about challenges in trying to look so far ahead, given such volatile market conditions and investment climate… As our spending is based on expected real returns, we need some degree of confidence that the forecasting model is robust and time-tested."

Mr Liang added: "Actual returns (of Temasek) would also likely be different from expected long-term real returns. Hence, with the inclusion of Temasek, which would require actual cash contributions to the government, the cash flow impact would become more significant. How would the government ensure sufficient cash generation and liquidity as our budget is essentially accounted on a cash flow basis?"

Concerns were also raised that Temasek may have to more actively trade its stake in key Singapore institutions, in order to sustain its long-term expected return rate for the NIR framework.

"I would be very concerned if, for example, they decide to sell the entire stake of Singapore Airlines if they find the company's market valuation to be overly high and it is timely to lock in on the gains," Mr Liang said.

He further urged the Government to maintain its fiscal prudence.

"How disciplined we manage and use the reserves has a direct bearing on whether Singapore will continue to thrive and have a SG100 to celebrate… We could be like Greece or even worst if we badly mismanage our finances," he said.