Some international reports list Singapore as having high levels of Government debt. These include the CIA Public Debt Factbook and the World Economic Forum report. Some are puzzled why this is so, as the Government runs a balanced budget. Some ask if it is fiscally sustainable to have such a high level of debt.
The answer is ‘Yes’. This situation is fiscally sustainable. This is because these reports only look at gross debt. Taking into account our assets, we have in fact no net debt.
Having debt means that we have liabilities. However, looking only at the liabilities alone (i.e. gross debt) does not discriminate between two countries with the same level of debt but with very different levels of assets.
In Singapore’s case, our outstanding debt comprises Singapore Government Securities, Special Singapore Government Securities and Singapore Saving Bonds, which we do not issue to spend. We instead invest all the borrowing proceeds. These borrowings are thus backed by assets. What we earn in investment income from our assets is more than sufficient to cover the debt servicing costs. The Singapore Government in fact has a strong balance sheet with assets well in excess of our liabilities.
This makes us a net creditor country, not a net debtor country.
This is why international credit rating agencies give the Singapore Government the highest short and long-term credit ratings of AAA.
In fact, in an April 2012 report by BlackRock Investment Institute, Singapore ranked 2nd in the BlackRock Sovereign Risk Index in terms of creditworthiness, with Singapore’s net asset position highlighted as a key strength.
If the Government runs balances budgets or budget surpluses, why do we still need to borrow money?
The Singapore Government does not borrow* to fund its Budget. It operates on a balanced budget over each term of Government.
The three types of domestic debt securities issued are for reasons unrelated to the Government’s fiscal needs:
(1) Singapore Government Securities (SGS) are issued to develop the domestic debt market. SGS are marketable debt instruments issued for purposes of developing Singapore's debt markets. They provide a risk-free benchmark against which other risky market instruments are priced off.
(2) Special Singapore Government Securities (SSGS) are non-tradable bonds issued specifically to meet the investment needs of the Central Provident Fund (CPF). Singaporeans’ CPF monies are invested in these special securities which are fully guaranteed by the Government. The securities earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
(3) Singapore Saving Bonds (SSB) are non-tradable bonds issued to provide individual investors with a long-term saving option.
Under the Government Securities Act, the Singapore Government cannot spend the monies raised from these three existing domestic debt securities. All borrowing proceeds from the issuance of SGS, SSGS and SSB are invested. These investment returns are more than sufficient to cover the debt servicing costs.
In Budget 2019, the Government announced that it will study the option of using government debt as part of the financing mix for long-term infrastructure projects that the Government will be taking on directly.Sources:
*Refers to borrowings through the Government Securities Act.
Edited on 11 Mar 2019.