What are reserves?
In its broadest form, reserves are the difference between the assets and liabilities of a sovereign people. In principle, this would include not just financial reserves—that which is captured in cash and other financial assets—but all the nation’s endowments: her stock of built capital (the buildings, machinery, equipment, and other infrastructure), as well as natural capital (our natural forests, reservoirs and rivers, lands, and biodiversity).
In Singapore, reserves are officially defined as the net assets of the fifth schedule entities of the Constitution.[1], [2] This includes holdings by not just our sovereign wealth funds (SWFs)—GIC and Temasek—but also the CPF, HDB, JTC, and MAS. The bulk of these likely reside in the SWFs, with the MAS also carrying a nontrivial share. Hence for practical purposes, it makes sense to focus on reserves managed by these entities.
Where do our reserves come from?
It is useful to begin by asking how we even got our reserves in the first place. At risk of oversimplification, national income accounting requires that any reserves we hold—or any other country for that matter—derive only from two sources. First, from fiscal surpluses; that is, when the government collects more revenue than it spends, and saves the remainder. Second, from current account surpluses, which result when the private sector saves more than it invests, and part of this excess saving is retained in foreign currency.
Monies obtained from the sale of land or the issuance of government securities (SGS) for the purposes of financial development[3] are, therefore, just forms of reserve accumulation that derive from fiscal surpluses.
Now, the government would like to say that such “excess” revenue from land isn’t just ours to take. Land is limited, and our land endowment belongs to everybody, including those of future generations. Similarly, legal stipulations mean that any revenue raised from certain classes of SGSs cannot be spent on recurrent expenses. But the fact remains that reserves from this source result when there is excess saving by the government, which means taking more income from the people than they would otherwise have been able to enjoy.
In contrast, reserves accumulated due to current account surpluses occur when the exchange rate is kept artificially low,[4] or when there is forced saving (in the form of CPF), over and above what households might otherwise wish to set aside.
A weak exchange rate makes our nation’s exports more attractive, no doubt. But let’s be clear: it comes on the backs of what we could otherwise import. A weak exchange rate also means that our people have less purchasing power to buy things from the rest of the world. And forced saving likewise tightens the budgets of households today. Put another way, reserves from this source are the consequence of suppressing private consumption, in favor of business competitiveness.
One may also point to a final source: interest on reserves, which go back into reserves. This is making money with money, and while it owes its provenance to careful reserve management by our sovereign wealth funds (SWFs) and central bank (the MAS), they are derivatives of the fact that we had, at some point in the past, either excess government or private savings to begin with.
Who do our reserves belong to?
Keeping in mind what I’ve shared, it should be clear that, given where our reserves come from, who they belong to. While prudent fiscal management undeniably contributes to ensuring that these are not squandered, the ultimate source of all our reserves is when we ask our people to consume less today. Our nation’s eye-watering reserve stock was built on the backs of sacrifices made by the past and present generations, for the sake of future needs. Our nation’s reserves belong to the people, not the government.
What might this mean? It means that government is a steward for our reserves. This means that they have been entrusted with managing it, growing it, and disbursing it. And like any good steward. government may suggest how much we should be setting aside, and when we should be drawing it down. But when the government exercises high-handedness in its management of the reserves, it will naturally strike us as an overwrought exercise of its authority.
How should the use of reserves be decided?
If reserves belong to the people, then it should follow that certain principles apply.
One is transparency. That is why, across the world, sovereign wealth and public pension funds in democratic societies routinely publish their reserve holdings. This goes beyond sound principles and best practices. Adherence to transparency simply means that you are respecting the rights of the owner to know what they own. Few people I know would be happy if their banks did not permit them to know or check the value of their current balances, or to know the contents of their wallet. I mean, the SimplyGo debacle demonstrated that people were even unhappy when they could not instantaneously know how much they had left in their transport accounts!
More generally, such transparency also ensures that the reserves are held accountable, in real time, to their owners. This is why the current practice, where the portfolio assets of Temasek and foreign exchange holdings of MAS are known, but the assets of GIC remains concealed, runs afoul of this principle.
The usual justification trotted out for keeping part of our reserves unreported is inspired by the intuition underlying military conflict. The government has appealed to how this secrecy could make us more vulnerable to speculative attacks of the Singapore dollar, since presumably markets might hold back on betting against an opponent when it is uncertain about the size of our arsenal.
Yet even here, the analogy is tenuous. Mindef routinely trots out information about the latest and greatest hardware secured by the army, navy, and air force. Our national day parade includes a military component, no doubt to further signal our impressive defense capabilities. While some may argue that some strategic ambiguity might justify secrecy, we certainty do not wish to undersell what we have, in case we diminish the deterrent effect. Keeping the largest weapon in our arsenal secret would, I contend, do exactly that.
But there is even a sound economic case for revealing this information. Forex traders need not (and often do not) agree. This is why publishing our full reserves may avail an additional benefit: if we face speculators who are selling the Sing dollar, say, the information could goad into action market participants who may instead buy ourcurrency, if they believe that our fundamentals are strong. Such stabilizing speculation lends stability, not instability.[5] To follow with the military analogy, this revelation allows our allies to better provide support for our defensive effort.
In any case, the MAS has adjudged that the amount required for business-as-usual management of our exchange rate regime amounts to between 65 and 75 percent of GDP.[6] Official data indicates that reserves from MAS and Temasek, together with the publicly-acknowledged amount of at least $100 billion from GIC,[7] means that it is in excess of $1.2 trillion.[8] Even with this lower bound, it is already close twice that of GDP, multiples more than what the government has itself stated is reasonable for defending our currency. And, surely, we would not be willing to sacrifice something akin to twice our national income just to defend the currency. Given this vast disconnect, is befuddling why the notion that secrecy is necessary to defend the exchange rate is still trotted out by the government.
Furthermore, other jurisdictions have shown that such transparency—far from being detrimental to operational effectiveness—are consistent with either size or performance. The world’s largest single sovereign wealth fund, the Government Pension Fund of Japan, is open about its assets and performance.[9] The world’s second-largest fund, Norway’s GPF-Global, routinely tops measures of global transparency.[10] These funds have not compromised transparency even as they have produced credible returns. In contrast, the 1MDB scandal in Malaysia was allowed to go for as long as it did because of the opaque environment in which it operated.[11] While I am not suggesting that our SWFs fall in this category, there is evidence that points to a positive relationship between high governance standards and superior returns.[12]
What transparency buys, in turn, is accountability. It is only through routine disclosure of reserve holdings and their returns that the stewards of our money may be held to account. This includes frequent updates on asset exposure and fund performance, which most obviously include annual returns, not just those for medium-term windows.[13]
Setting aside how this is standard practice for all credible funds, it also means that managers can be held to account before things go awry. Some may argue that this could place undue pressure on our SWFs to be beholden to political pressures.
To this, I would say three things: First, we do want some degree of pressure, albeit on the political office holders overseeing its investment mandate. This is a healthy state of affairs. This sort of scrutiny is precisely what accountability is about; funds around the world, whether public or private, face such pressures from their shareholders. Second, if we think that annual returns might induce an excessive focus on the short run—which is the case for GIC—the fact that multiple longer-run windows are provide allows the public to credibly evaluate whether poor returns in any given year are a one-off blip, or indicative or something more systematic. And finally, the government frequently states that it does not intervene in SWF investment decisions anyhow. If they are already thus insulated, why not the added accountability?
Knowledge about asset exposures go beyond investment considerations. It can reveal, for instance, if our SWFs hold assets in industries that could either potentially run afoul of the national interest, or be inconsistent with stated resolutions of Parliament. For example, while some information is presumably reported to the MAS, as regulator, the public does not know—and is unable to scrutinize—if the SWFs may inadvertently hold Russian assets tied to sanctioned individual and entities. Similarly, we do not know what share of our SWFs’ portfolios comprise industries that contribute actively to climate change, an issue that this House has deemed a global emergency.[14]
The third and final principle is consultation. Given that we are a democracy, the decision on whether we should be using more or less of our reserves should be a common decision, one that is arrived at after a process of deliberation over their best use. We could decide, as a nation, to be conservative, and only draw on reserves in emergencies. But we could just as well decide that we would rather partially relieve the wrenching cost-of-living pressures our people face residing in one of the most expensive cities in the world.
In a similar vein, we could be kiasu, investing conservatively, so as to hoard as much as possible for a rainy day. But by the same token, we could say that this kiasuism is inefficient and harmful. With such a long time horizon, it would be better to be more aggressive in investing in putting our money to work, by investing more domestically today. That it why I believe that it makes sense for GIC to train its eyes toward global investments—for international diversification benefits—while Temasek focus almost exclusively on local opportunities, supporting the efforts of Singaporeans.
But the bottom line is that unless we have a serious conversation, as a nation and people, over the proper use of our reserves—one with full information about what we have and what we should set aside—we will never arrive at a position where we are comfortable with what is being spent, whether in terms of our net investment returns contribution (NIRC), or even the amount we hold as our principal. It is unconscionable that the people’s savings do not get any fair airing in a democratic society, with the vague reassurance that we need only trust that the government is being prudent, and any efforts to alter the use of reserves amounts to some charge of fiscal irresponsibility.
That’s why the use of emotive terms like “raiding the reserves” make little sense. This distinction is unnecessary; after all, any amount of income we choose not to set aside as saving, even one cent, would logically amount to taking away from the reserves. So if it is applied to the Workers’ Party suggestion that we could avoid a hike in the GST by reducing the share of reserve interest being returned to reserves, it should apply with equal force when the PAP chose to alter the formula for net investment income to introduce the NIRC in 2008, or to add Temasek to the framework in 2015.[15]
More importantly, the charge is also not useful, since it distracts us from the choices that really matter. And these choices surround how much we wish to burden the people of today in exchange for promises in the future. When claims are made that there is no such thing as oversaving, it smacks of rigid ideology, not reasoned debate. More saving is better, but only if we aren’t making undue sacrifices todays. Economics is sometimes defined as the science of allocating scarce resources to unlimited wants. This applies not only between our needs in any given period, but across time as well.
Our reserves are not exempt from the laws of economics. When we are told in a high-handed way that we cannot spend down our inheritance “for our own good,” even when we are struggling with record high costs of living, smacks of paternalism. It amounts to saying that when we decide that spending more to take care of the elderly—who made the sacrifices necessary to build up the reserves in the first place—is unfair to the future, we diminish the contributions of the past. It amounts to suggesting that parents who want to create a better environment for their kinds by having more to spend on their tuition fees or creating a better home environment, don’t know any better.
Transparency, accountability, and consultation buy legitimacy
It will not surprise members of this House that the three principles I outlined—of transparency, accountability, and consultation—are foundational ones embedded in the Santiago Principles,[16] a set of best practices for sovereign investments agreed to by the International Working Group of SWFs that have been , But while GIC and Temasek ostensibly subscribe to these,[17] GIC fares poorly on a range of transparency indicators, and Temasek is particularly opaque on its accountability surrounding governance structures.[18] We should be striving for our SWFs to be topping this global benchmark, much like how we do so for other global comparison exercises.
Perhaps more fundamentally, subscribing to transparency, accountability, and consultation ensures that the amounts we hold in our reserves have legitimacy in the eyes of the people who own them. That is ultimately what a responsible debate about our reserves should be about.
I support the original motion, as proposed by the honorable member Leong Mun Wai.
[1] Constitution of the Republic of Singapore (1963, 2023) 5th Schedule.
[2] This is somewhat complicated by the fact that, for various institutional reasons, the government has introduced an additional layer of financial liabilities, in the form of Special Singapore Government Securities (SSGS) and Reserves Management Government Securities (RMGS), that are collateralized by the assets held by CPF and the official foreign reserves of the MAS, respectively.
[3] Singapore Government Securities (SGS) (Market Development) are a class of debt issued that are meant to serve as a benchmark for the domestic bond market. Revenue raised in this fashion enter, on a flow basis, generally enter as a net surplus if the face value of redemptions do not exceed issuance.
[4] An exchange rate that is maintained at a rate below the free market-clearing equilibrium will require the sale of the domestic currency (which the monetary authority can print at ease); this occurs in exchange for foreign currency, which are held as reserves.
[5] And if, indeed, our fundamentals are weak, no amount of reserves would be sufficient to offset selling pressure—should traders collectively decide to sell the Singapore dollar—since market turnover averages $7.5 trillion a day.
[6] Hansard (2023) 95(113): Oct 3.
[7] Credible estimates of GIC’s assets under management amount to $1,033 billion, hence the acknowledged amount is likely only a fraction of total reserves held by GIC. See Global SWF (2023), “GIC’s FY22/23 Return Estimated at -8.1%, New AuM at US$ 769 billion,” Press Release, Global SWF.
[8] Singapore’s 2022 GDP was around $628 billion. As of 2023, the forex reserves held by MAS was $456 billion, with RMGS holdings adding a further $238 billion. The net portfolio value of Temasek was $382 billion. See Hansard (2023) 95(111): Sep 18.
[9] See: https://www.gpif.go.jp/en/performance/.
[10] Heale, M. & A. White (2023), Global Pension Transparency Benchmark, Sydney: CEM Benchmarking and Top 1,000 Funds.
[11] Ellis-Petersen, H. (2020), “1MDB Scandal Explained: A Tale of Malaysia’s Missing Billions,” Guardian, Jul 28.
[12] Global SWF (2021), GSR Scoreboard: Governance, Sustainability, and Resilience of State-Owned Investors, London: Global SWF.
[13] GIC publishes annualized returns at the 20-, 10-, and 5-year window, but the annual return.
[14] Kurohi, R. (2021), “Singapore Parliament Declares Climate Change a Global Emergency,” Straits Times, Feb 1.
[15] Prior to 2008, there was no NIRC; net investment income (NII) amounted to around $2.3 billion, which is about 10 percent of the $17 billion contribution currently. The equivalent share of interest income returned to the reserves was probably an around 6–10 percent, compared to the 50 percent today. The difficulty in comparison derives from how GIC and MAS were included in the NII framework, but Temasek was included only in 2015.
[16] IWG (2008), Sovereign Wealth Funds Generally Accepted Principles and Practices (“Santiago Principles”), London: International Forum of Sovereign Wealth Funds.
[17] See GIC (2021), Implementation of the Santiago Principles, Singapore: Government Investment Corporation and Temasek (2023), Temasek Review 2023, Singapore: Temasek Holdings.
[18] The closest the government has been willing to publicly acknowledge is that GIC’s assets amount to “more than $100 billion.”