By Chris Kuan
“WHY PAP KEEP ASKING FOR MONEY YEAR AFTER YEAR ? IS SINGAPORE GOING BANKRUPT?”
“To issue bonds..i believe is not a good thing..it shows you need money..question is why do you need money?”
“Means the SG government is in 2 billion deficit and requires to borrow? Ran out of CPF?”
As sure as night follows day, these sorts of questions pop up whenever report such as this one appears.
Read: MAS: $2 billion of Savings Bonds will be offered in 2017
Of course, those are not just questions but mud-slinging at the government and the usual 70%. If you happen to think this is idiotic, you are right.
We should be familiar by now that the Singapore government is forbidden by its constitution to borrow for spending. Yeah yeah, ownself check ownself since the President is always a kaki lang. But the annual budget numbers shows that expenditures are financed by revenues and a draw on the returns earned from investing the reserves. No expenditure financed by debt.
So why does the Singapore government borrow through the issuance of bonds such as Singapore Saving Bonds (SSBs)? The easy answer is the government needs to pay interest to Central Provident Fund (CPF) and as a result is indebted to CPF. The proceeds from those debts are invested, thus generating the returns that pay the interests (and more). But then why do the government incur a bit more than $400b of debt when the outstanding CPF balance is only around $270 billiion?
To make more money from investments to build the reserves is another easy answer.
But the more important answer is that for the economy to function properly, there must exists a government bond yield curve which is required to establish the risk free rate, a critical input into risk-return analysis and capital expenditure calculations for all actors and participants in the economy and to establish a benchmark over durations up to 30 years which is required to underpin the pricing of all debt securities issued in Singapore dollars.
So even if the government does not need money, it still needs to borrow in order to allow the economy to function as optimally as possible.
By the way, issuing new types of securities like SSB does not mean an increase in overall indebtedness. Issuance in other types of government securities can be reduced to accommodate new types. Besides, as the economy expand, the amount of debt can be increased without an increase in indebtedness.
So bear this in mind. And those with the habit of using any opportunity to rant about the government, very often it is smarter to keep fingers away from keyboards …… for one can look very silly indeed.
