Parliament: Ill-disciplined and unwise to amend rules on reserves as first resort, says Heng Swee Keat

The Net Investment Returns Contribution framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the res
The Net Investment Returns Contribution framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the reserves.ST PHOTO: KUA CHEE SIONG

SINGAPORE - It will be " ill-disciplined and unwise" to amend the rules on reserves as a first resort, said Finance Minister Heng Swee Keat in Parliament on Thursday (March 1).

This will defeat the purpose of enshrining the rules in the Constitution, which have been debated and agreed in the House, said Mr Heng in his speech rounding up the Budget debate.

It is also the surest way to change Singapore's basic orientation of saving and building for the future to one of "living for today and letting tomorrow look after itself", he added.

In response to several MPs who have asked if the Net Investment Returns Contribution (NIRC) framework could be amended, or if a portion of land sale proceeds could be used for recurrent social spending, Mr Heng said it is not the right thing to do.

This was even though such solutions appearing to be "relatively painless to do so compared to raising taxes", he added.

Currently, the NIRC framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the reserves.

"We deliberately introduced rules on land sales and the 50 per cent NIRC cap so that we do not succumb to the temptation to draw more from our reserves to fund current expenditure or eat into the principal sum...We must not give in to the temptation to chip away at our strategic national asset."

Mr Heng said Singapore should not over-rely on the NIRC, which is already the largest source of our revenues.

"An over-reliance will hurt our ability to respond to changing circumstances in the future".

 

And the volatility and uncertainty of such circumstances is set to grow, said Mr Heng.

The last century alone saw two World Wars, the Great Depression, the Vietnam War and the Asian financial crisis. As Singapore enters the 21st century, it is also being swept along " moving from a unipolar world to a multipolar one, with growing tensions between major countries and concerns about global and regional stability".

Mr Heng said that in the aftermath of a financial or geopolitical crisis, it can take years for economic performance to bounce back to pre-crisis levels. It took a decade for employment rates in the United States to recover after the 2008 Global Financial Crisis, for example, while unemployment rates in some European Union countries have not recovered.

He added that government revenues are in turn likely to decrease at the very moment when Singapore most needs resources to support its people and the economy, as Nominated MP Randolph Tan has pointed out.

"This is why our reserves are critical to help us overcome such challenges, especially since we have no natural resources," said Mr Heng.

He also responded to Nominated MP Kuik Shiao-Yin, who raised the International Monetary Fund's (IMF) general guidance on Singapore's reserves adequacy in her speech on Wednesday. The IMF's assessment is that Singapore is excessively prudent, said Ms Kuik, and it is of the opinion that a good enough amount of reserves would be 27 per cent of Singapore's GDP or $113 billion.

Mr Heng clarified that the IMF's guidance is meant specifically to address capital flight risk, which is the risk that Singapore dollar deposit holders will switch out into foreign currency because of loss of confidence in Singapore's currency.

"That is but one of many scenarios which our reserves have to deal with. We need to be prepared for crises that go beyond that," he said.

Said Mr Heng: "We must have the humility to recognise that we can never predict what will happen in our lifetime, much less our children's lifetimes. So we must do our best to give them the best chance of a better life, whichever way the winds of change blow.

"What we have inherited from the past, we also owe to the future. That is our moral obligation."