SINGAPORE - Four key challenges confront Singapore in the next 50 years, Home Affairs and Law Minister K Shanmugam said on Monday(March 28).

These are: balancing financial prudence with higher social spending; a rapidly ageing population that does not replace itself; competition from abroad and terrorism.

Speaking to students at a forum in Nanyang Technological University, where he also answered questions on a range of issues, Mr Shanmugam outlined the "sobering reality" that the Government has in recent years been spending more than the revenue it collects.

This, he added, is possible because earlier generations of Singaporeans had saved enough, allowing the Government to tap on the income derived from investments.

He noted that whenever the national Budget comes around, MPs, whether from the PAP or the opposition, will "stand up and talk about how the Government should be spending more, because that's popular".

But he added: "Always ask yourself, every time a proposal is put forward, where is the money going to come from? Who is going to pay for it?" He warned the students that their generation will end up having to pay more taxes to clear the debt.

Singapore is one of the fastest greying populations in the world.

Besides raising healthcare costs, an aging population will affect the country's economic vibrancy and tax base, and result in fewer young people available for a defence force.

Mr Shanmugam shared a news article on how adult diapers will soon outsell baby nappies in Japan, and noted that Singapore is ageing even faster than Japan.

Abroad, Singapore faces both regional and global competition, with many countries trying to eat its lunch, he added.

Whether it is Kuala Lumpur and Hong Kong vying to be the next top financial hub, Thailand trying to overtake Singapore as the region's largest air hub, or countries like Indonesia and Malaysia moving up the petrochemical value chain, Singapore cannot afford to take its position in the world for granted.

On terrorism, he said the Government views the threat of a terror attack as the highest it has ever been for Singapore.

He also said there was a limit on much Singapore can do in working with its neighbours in tackling the problem of radicalised fighters returning from the Middle East.

"Sovereignty means they decide for themselves what their laws are," he said."We work closely with them on intelligence, on other issues, but we can't decide what they do with their people, that's an inherent problem."

Amid these challenges, there are also opportunities for Singapore, Mr Shanmugam noted.

While efforts to integrate Asean have yet to bear fruit, Singapore is well-positioned to be the financial centre for the region "if we can get the project going", he said.

As a small and nimble economy, Singapore is also well-placed to take advantage of opportunities offered by China and India.

Singapore's continued emphasis on education means a people who can think on their feet, which will be a crucial skill in a more unpredictable world.

"They will also be adaptable. In fact, they will become the disruptors of other people," he said.

Singapore is also confronting the terrorism problem head on, said Mr Shanmugam, who emphasised that the country's security is the responsibility of all Singaporeans.

To this end, the new SG Secure initiative will train people to be better prepared for crises.

Noting that the goal of groups like ISIS is to divide societies and alienate Muslims to fuel its recruitment drive, Mr Shanmugam called on Singaporeans to resist Islamophobia even as the Government continues to be tough on extremism.

"Within Singapore, we have managed to maintain a harmonious community by and large by understanding mainstream Christians, Muslims, Hindus, agnostics, atheists.

"We think of ourselves as Singaporeans and we have to work very hard at that," he said.

Mr Shanmugam also fielded questions from students at the NTU ministerial forum. Here is an edited extract.

Q: Singapore has enjoyed an efficient government with leaders of integrity for the past 50 years. Will there be regulations to ensure that leaders can keep to this standard?

A: The key ingredient of our success was that we were very lucky to have a set of leaders who came to power in 1959 who were men of outstanding integrity. You can't have laws which legislate integrity.

Second, they were extremely competent.

Third, they were also good at winning elections. You had in Mr Lee Kuan Yew a very charismatic leader who could appeal to the population, who could convince, who could cajole, who could often threaten as well... There is no law that can say you must have a Mr Lee Kuan Yew, or only people like Mr Lee can become prime ministers. That run has lasted for more than 50 years because he chose the successors and the successors were in his mould. People who are clean, people who think of the country. It doesn't mean they are right all the time, but they are right most of the time.

Q: Should we move to become a more inclusive society that includes the rights of transient workers, who are here to do essential jobs?

A: Why do you think foreign workers come to Singapore? They can go to Malaysia, they can go to the Middle East, they can go to any other country. They are making the choice to come to Singapore on the terms that we are offering. I went to the dorms to talk to them. They said they come to Singapore because the salaries are higher, because there is rule of law. From the day they land, they are given a foreign workers' booklet, at the back of it is a telephone number for the Ministry of Manpower (MOM). You can make a call and MOM will investigate.

Q: There are people who said the Ministry of Defence (Mindef) did not do enough in the case of Private Dominique Sarron Lee, who died as a result of a training incident. Should the Government have done more?

A: The coroner's inquiry was public, it was in the newspapers and exactly what happened was set out. Is it Mindef's fault that people don't remember what happened two or three years ago? If Mindef tries to explain too much, it'll be faced with the charge that it's too defensive. Sometimes it's a no-win situation.

The fact is there's been a death under unfortunate circumstances. Nobody wanted it, the family is grieving. The best thing Mindef can do is do what it did, accept that the family is very deeply affected and they don't have legal recourse.

In terms of the compensation it has offered, Mindef did everything it could in the circumstances. But maybe it's not wrong to say that there will be public sympathy and there will also be some people who misunderstand because they don't remember what happened a few years ago.