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Govt Borrowings: Benefit S’poreans?

by Leong Sze Hian

I refer to the Accountant-General’s Department’s report – Singapore Government Borrowings An Overview, released in July 2011.

It states that:

“By issuing SSGS to the CPF Board and investing the proceeds from the borrowing, the Singapore Government is one of the few countries in the world that explicitly recognizes and fully funds her national pension obligations”.

National pensions fully funded?

This may in a way, be a misnomer, because the Singapore Government is probably the only Government in the world that does not have to fund its national pension scheme, as CPF monies are Singaporeans’ own money, and not “national pension obligations” like other countries.

Robbing Peter to Pay Paul?

The report further states:

“The investment of CPF funds by the Government relieves the CPF Board from taking on the investment risk of a fund manager to concentrate on its primary role as a national social security institution”

In a sense, we are arguably the only country in the world that pays its citizens as little as 2.5 per cent on its pension fund, whilst Temasek and the Government Investment Corporation (GIC) had annualized returns of 17 (S$) and 8.2 per cent (US$), respectively.

Therefore, we may be the only country which borrows money from the forced savings of its own citizens at as little as 2.5 per cent, and keep the excess investment returns to itself!

When and who will benefit?

As to:

“In accordance with the GSA, all proceeds raised from securities issuance, including T-bills, and any investment returns derived from the proceeds are paid into the Government Securities Fund. Payments from this fund are limited to the payment of interest and repayment of principal and are a statutory obligation. This framework ensures that the Government’s borrowing are not used to fund the Government’s expenditures and the interest payment and principal repayment are not subject to parliamentary approval.”

Singaporeans may never get to benefit from the investment returns, other than the receipt of interest and repayment of principal.

I understand that only about half of the annual interest on the reserves can be used. Moreover, the Budget is almost perpetually in surplus every year.

Also, since Temasek’s holdings are deemed as protected reserves, Singaporeans may also never benefit, unless requested by future Governments subject to the approval of the President. Imagine the following analogy:-

Your father ask you to save and invest 36 per cent of your income through him. He gets 12 per cent and gives you 2.5 per cent. The excess is kept by him, and if you have an emergency and need to use it, both your father and grandfather have to approve.

Will you save through your father?

57% of total borrowings in CPF

In this connection, it may be instructive to note that about 57 per cent or $179b of the total outstanding Government borrowing of $312b, is SSGS (CPF).

In the unlikely eventuality of a future Government deciding to allow Singaporeans to withdraw all their CPF at age 55, as originally intended when the CPF scheme was launched, the result may be a severe strain on the financial position of the country.

In this connection, GIC and Temasek’s holdings are US$100b and S$193b, respectively.

Perhaps the most telling statement is this:

“Proceeds from the Singapore Government’s borrowing are invested. The Government’s assets include investments in the Government of Singapore Investment Corporation and the Temasek Holdings”.

Because this seems to contradict replies in Parliament that CPF monies are (have never been?) not invested through Temasek.

Surely, some CPF monies may have contributed to our ability to grow state assets, before they are transferred or privatized to Temasek, and when cash injections were made into Temasek.

In summary, is there any other country in the world which does not need to fund its national pension scheme, because it is all the citizens’ own money, borrow from its citizens at 2.5 per cent, and keep the excess returns for itself?