SINGAPORE -The size and significance of the unprecedented $52 billion that Singapore has drawn from its reserves to mount a quick and strong response to the fallout from the Covid-19 pandemic should not be underestimated , Deputy Prime Minister Heng Swee Keat said in Parliament on Thursday (Oct 15).

He was responding to points made by Non-Constituency MP Leong Mun Wai during his speech, which rounded 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 while the Government does not want to disclose the size of the national reserves for security reasons, it has published detailed annual financial information on Singapore's assets and liabilities.

"In its latest Government Financial Statements as at end-March 2020, it was reported that we own a total of $1.35 trillion in financial assets," the NCMP noted.

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 the 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 in 2020, 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".

Under the NIR framework, the Government can spend up to 50 per cent of the long-term expected real returns, including capital gains, on the relevant assets.

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.

Impact of draw on NIRC and returning the amount drawn

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, said Mr Heng in reply to Mr Louis Chua (Sengkang GRC).

"This means that when the projected returns and value of the net asset base go 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 had asked if the $52 billion drawn from the reserves would be returned in full or in part, and had said that restoring the amount in a short time could subject Singaporeans to unnecessarily high levels of austerity, Mr Heng explained that there is no obligation under the Constitution for the Government to put back the amount drawn from Singapore's past reserves.

"Rather, it is about having the moral obligation and sense of duty to current and future generations, and the recognition that we are stewards of our reserves which have not come by easily," 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.

"I would like to remind everyone that the Covid-19 crisis is not over. The scars it will leave on our economy and the global economy are still unknown. But I can say that it will not be two years, and I certainly hope it will not take us 50 years," he said.

The Covid-19 pandemic has demonstrated how the reserves have allowed Singapore to remain nimble in times of uncertainty, said Mr Heng.

When the Unity Budget was delivered in February, the Government did not foresee a need to draw on Singapore's past reserves. But in the short span of 100 days of its unveiling, three more Budgets had been delivered, and a draw of up to $52 billion from the reserves had to be proposed to help save lives and livelihoods, he noted.

"Therefore as you can see, we face great uncertainties... We need to be more circumspect when it comes to using more reserves, as we are confronted with greater uncertainties ahead."

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, while scientists have warned of the risk of another serious international epidemic caused by a new unknown disease, Disease X. "Not if, but when," Mr Heng said.

A further draw on reserves?

Should it be necessary for the Government to further draw on the reserves amid the crisis, the DPM said in a reply to Mr Liang Eng Hwa (Bukit Panjang) that he is prepared to propose this to the President.

"Indeed, there is profound uncertainty in the trajectory of this pandemic and its economic impact. We must act early and decisively to support our workers and businesses."

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.

"As long as Singapore continues to exist, the question is not whether there will be an externally induced crisis, but when."

Mr Heng said that if more or even all the returns from the reserves are spent annually, future generations will likely have a smaller buffer in a world of greater uncertainty.

"We must therefore ensure that we continue to spend within our means and hand over to our children more than what we inherited from our previous generations."