by Vincent Low
Speaking at the Chinese New Year dinner for Tanjong Pagar GRC and Radin Mas SMC yesterday (24 Feb), potential 4th generation Prime Minister Chan Chun Sing defended the PAP government’s position not to draw more from the reserves to augment the upcoming Budget and thereby, tax increases such as the 9% GST have to be introduced.
He argued that beefing up the reserves would strengthen Singapore’s currency. “If the world thinks we are running an irresponsible or unsustainable fiscal policy, you can well imagine what they will do to the Sing dollar,” he said.
“If the world does not believe in the strength and stability of the Sing dollar, you can also well imagine what will happen to our savings and our reserves,” he continued.
This is why Singaporeans should not take the use of reserves lightly, said Chan. He then went on to highlight the benefits of having a strong currency: It allows citizens to enjoy more affordable imported goods and cheaper holidays.
The Associate Dean of LKY School of Public Policy, Prof Donald Low, has put forth that by increasing the use of the returns from the current 50% to 60%, there would be no need to increase GST.
Under the current Net Investment Returns Contribution (NIRC) framework, the Government is allowed to spend on current needs up to 50% of actual income and long-term expected returns from past reserves.
At present, Straits Times reported that our reserve is estimated to be more than $1 trillion.
“We have strong fundamentals. But we must make sure that we maintain such fundamentals, and maintain our discipline, so that we can continuously provide our people with the best opportunities… So long as we stay united, be clear eyed about our challenges, and face them squarely together, there is absolutely no reason why we cannot celebrate SG100 with even greater pride and confidence,” Chan said.
Reserves already more than super-duper strong to withstand any attacks on SGD
However, Chan failed to inform the public that our reserves are already more than super-duper strong, obscenely over-exceeding the reserve limit recommended by IMF for countries to keep in order to ward off any currency attacks.
Retired international banker Chris Kuan commenting on his Facebook page, noted, “Monetary Authority of Singapore (MAS)’s foreign exchange reserves as of Jan 2018 are already S$369b or 88% of Gross Domestic Product.”
“According to the International Monetary Fund (IMF), in its surveillance of member states’ foreign exchange reserves adequacy, for a country with a mature economy, a large banking sector and a very open capital account, like Singapore, the upper limit for prudent level of reserves is 20% of broad money or M2,” he added.
“Singapore’s broad money stands at 135% of GDP – in other words, going by the IMF’s opinion, the prudent limit stand at 27% of GDP or S$113b. That means, the MAS alone, not counting the foreign assets managed by GIC (entirely foreign) and Temasek (70% foreign) has foreign reserves more than 3 times the prudent limit.”
So, as explained by Mr Kuan, reserves managed by MAS alone are already more than 3 times of prudent limit recommended by IMF. If we throw in the rest of the reserves managed by GIC and Temasek to arrive at the total figure of more than S$1 trillion as mentioned by ST, we would easily exceed the limit by 9-10 times!
Singaporeans already being “drenched in rain”
Meanwhile, ST has reported that highly-trained Singaporean PMETs are increasingly out of job and many end up driving taxis or, become property or insurance agents.
A good example is Mr Long Khin Keong, a former general manager in the oil and gas industry who used to earn $15,000 a month. These days, he takes eight months to earn that much as a taxi driver. He started driving taxi after struggling for six years to find a suitable job.
“Hopefully somebody ‘up there’ reads this and improves the predicament of many like myself,” Mr Long told the reporter. “I’m not asking to become a GM again, I just want to be somewhere I can contribute with my experience.”
Chan has said that having a strong SGD will allow Singaporeans to “enjoy” more affordable imported goods and cheaper holidays.
It may be true that with a stronger SGD, critical imported goods like food will be cheaper for people like Mr Long but high rentals for stall and coffee shop owners have essentially negated any advantage of the strong SGD over food prices.
Furthermore, for people like Mr Long who are struggling day-in and day-out, going on “cheaper” holidays will be the last thing on their mind.
It has been said that we should save for the proverbial “rainy day” but these days, majority of Singaporeans together with Mr Long are being “drenched in rain” everyday while millionaires like potential PM Chan stays inside a cosy shelter all the time, cheering the rest of us on.