Budget 2018

Singapore Budget 2018: Govt's borrowing plan will help fund higher infrastructure spending

Govt looking at using reserves to guarantee borrowings to keep financing costs low

Construction site of Changi Airport's Terminal 5 with Terminals 1 and 2 seen in the background. ST PHOTO: LIM YAOHUI

Some statutory boards already borrow to fund their projects but the Government is looking at getting them to do it on a bigger scale as Singapore ramps up its spending on infrastructure.

The Government is also considering using the country's national reserves to guarantee such borrowings. But this would be done on a case-by-case basis.

Elaborating on an announcement that he made in his Budget speech on Monday, Finance Minister Heng Swee Keat said in an interview with The Straits Times yesterday that the proposed move comes as Singapore's upcoming infrastructure spending needs are at levels not seen in more than 50 years.

"In the earlier years of our development, we borrowed from a variety of sources, including multilateral development banks such as the World Bank, Asian Development Bank and so on, to fund some of these major long-term infrastructure developments," he said.

"But as our economy grew and the tax collection was strong, we stopped borrowing some time in the mid-60s for our major infrastructure projects. Now, we are coming back to another major spike in our infrastructure needs."

These include projects such as Changi Airport Terminal 5, the Kuala Lumpur-Singapore High Speed Rail and the Cross Island Line, said Mr Heng.

What is new this time is that the Government is also looking at using the national reserves to guarantee such borrowings to keep the financing costs low, he said.

Any such use requires the Government to seek the approval of the President and the Council of Presidential Advisers, and it is discussing with them what safeguards are needed, he added.

But projects will be judged on a case-by-case basis before the Government decides whether it can guarantee the developer's borrowings. "There has to be certain safeguards that need to be built in, but the specific approval must depend on the details of each project. It has to be scrutinised very carefully. Any project that is put up for this has to be meritorious," he said.

The move to tap financial markets to help pay for infrastructure developments is significant as it opens a new source of funding for these costly projects, rather than relying on tax revenues or dipping into the reserves.

Mr Heng had noted in his Budget speech that infrastructure investments tend to be "lumpy", requiring hefty upfront investments for benefits that will be enjoyed only many years later.

To reduce the burden of such investments on future budgets, he announced the setting up of a new Rail Infrastructure Fund.

It will receive an initial $5 billion injection from the Government for the building of major rail lines in the future. "I'm putting it for a future use which we know is coming soon... and in fact the expenditure will be very significant," said Mr Heng.

The Government would not be "very credible" if it does not have a significant amount to invest upfront in the development of major infrastructure projects - whether it is to build a new airport terminal or to set up a rail infrastructure fund - so it would need a combination of savings and borrowings, he added.

Mr Heng had also said on Monday that the Government must manage its expenditure growth carefully as this would help to ease the tax burden on citizens.

During discussions on the goods and services tax hike with the ministries, all were prepared to review their own books, he said. Some came back, saying "we can think of how to slash this bit of cost and that bit of cost from what was earlier planned", he added.

From next year, Mr Heng would moderate the pace of ministries' annual budget growth from 0.4 times of gross domestic product growth to 0.3 times, he had told Parliament on Monday.

Yesterday, he said: "I'm squeezing all our ministries very hard by limiting their budget growth factor. Some ministries, especially the smaller ones, are complaining it's getting harder and harder to manage.

"But I hope the message gets across to all, that we have to learn to do more with less and it applies right across the public sector as well as the private sector."

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A version of this article appeared in the print edition of The Straits Times on February 21, 2018, with the headline Govt's borrowing plan will help fund higher infrastructure spending. Subscribe