Lawrence Wong warns of pressures on long-term returns

The returns from investments by sovereign wealth funds may be affected by global pressures, and that is why Singapore should not take its fiscal strength for granted, said Second Minister for Finance Lawrence Wong yesterday.

He was responding to Mr Liang Eng Hwa (Holland-Bukit Timah GRC) on future returns under the Net Investment Returns Contribution (NIRC) framework, given the tougher investment climate and the economic fallout from the coronavirus outbreak.

Under the NIRC framework, the Government can spend half of the long-term investment returns generated by the Monetary Authority of Singapore, Temasek and GIC - the three entities tasked to invest the reserves.

Speaking during the debate on the Finance Ministry's budget, Mr Liang noted that revenue estimates for the NIRC have grown to $18.6 billion for this financial year from $17 billion last year.

He asked if such continued growth is realistic and sustainable, given the "grimmer outlook, with the Covid-19 fallout and longer-term global structural stresses".

Mr Wong said the NIRC is tied to long-term expected returns, and is not linked to short-term performance. "It is not impacted by immediate market volatilities."

But the minister acknowledged that "there are indeed reasons for concerns, and we do expect more pressures in the longer-term investment environment".

An example is the geopolitical tensions between the United States and China, he said, noting that the contestation between the two powers may lead to a more bifurcated world over a period of time.

"We will likely see more nationalist and protectionist pressures continuing, which means that the pace of globalisation will slow. We may even get deglobalisation, which will cause global growth to be lower for longer periods of time," said Mr Wong, who is also National Development Minister.

Another effect is lower productivity and stagnating growth in developed markets with ageing populations, he said.

"So, if you think about these long-term trends, then indeed there will be continued pressures on our long-term expected returns," Mr Wong said. "We are very mindful of that, we stay vigilant, we do not assume that our NIRC will always be able to keep pace with our spending needs."

Workers' Party chief Pritam Singh (Aljunied GRC) asked how the Government decides when to borrow money for projects and when to make upfront payments.

Replying, Mr Wong said the Government will borrow for selected major infrastructure projects.

He noted that some major infrastructure projects will last across generations, and it is more equitable for the Government to borrow and spread out the repayment over the lifespan of such projects, so that both current and future generations will pay for them.