Singapore to borrow under Singa for first time

The money earmarked for the North-South Corridor and the Deep Tunnel Sewerage System will be reallocated to Covid-19 support.
The money earmarked for the North-South Corridor and the Deep Tunnel Sewerage System will be reallocated to Covid-19 support.ST PHOTO: DESMOND WEE

SINGAPORE - For the first time in 40 years, Singapore will borrow to finance two infrastructure projects, with the money originally set aside for them to be reallocated to fund Covid-19 support measures.

Finance Minister Lawrence Wong disclosed in Parliament on Monday (July 5) that the Government will capitalise about $0.6 billion in development expenditure for the Deep Tunnel Sewerage System and the North-South Corridor under the Significant Infrastructure Government Loan Act (Singa).

The money earmarked for the two projects will go towards funding part of the $1.2 billion support package to help businesses and workers during the period of heightened alert.

The other half of the $1.2 billion to fund the Covid-19 support measures will be reallocated from development expenditure that was underutilised mainly due to delays in projects arising from Covid-19.

Mr Wong said: "We expect to catch up on our development schedules as the situation stabilises. Hence, the delayed expenditure will still need to be incurred in future financial years.

Mr Wong said that the two projects, whose development expenditure will be capitalised from the fourth quarter of this year, meet the criteria for financing under the new law.

Singa allows the Government to borrow up to $90 billion to pay for infrastructure that will last for at least 50 years, so as to distribute fiscal responsibility more equitably across the generations of people who will benefit from the projects.

Under the law, the annual interest threshold of borrowings under Singa cannot exceed $5 billion, and each project funded under the law must be sizeable and cost at least $4 billion.

Mr Wong stressed that this would be a one-off adjustment, as Singa was passed in May after the start of the 2021 financial year. He added that in future, the amounts to be borrowed will be incorporated as part of the annual Budget estimates. "We will not have such reallocation space in future."

Explaining the reallocation of funds for the Covid-19 packages, he said drawing on past savings is a major move reserved for exceptional circumstances. Singapore's economy shrank 5.4 per cent last year but is now improving.

He also said that when the Reserves Protection Framework was introduced in 1991, no one could have foreseen that a pandemic of such a magnitude would hit one day.

"But it is precisely this discipline of setting aside resources for rainy days that has put us in a strong fiscal position to respond decisively to the current crisis."

While Singapore had been able to tap these reserves, other governments were forced to borrow and would have to service the debts.

"They may look affordable now, but will not be so once interest rates increase to more normal levels," he said. "The day of reckoning will come, and the burden will surely fall on the young and future generations."

He noted that Singapore had already drawn on past reserves to the tune of $53.7 billion over last year and this year, and with things on a more even keel now, it made sense to fund the support measures using resources that were approved in this year's Budget.

"Let me be clear: We will not hesitate to use the full measure of our fiscal firepower to protect the lives and livelihoods of Singaporeans. But we also need to be careful about the state of our public finances, and ensure they are sustainable for the future."