A Singaporean blogger, Pat Low, who runs the blog “Chempost: Going down the rabbit hole”, refuted the Critical Spectator’s (CS) claims that Singapore’s foreign reserves have increased by S$235 billion during the COVID-19 pandemic, noting that such claims were “hogwash”.
Pat Low described himself as a “Merdeka generation NSman” who only blogs “for the fun of it”.
Based on the About section of his blog, he had spent a major part of his career in the banking industry and eventually became a channel partner of an electricity retailer after retirement.
In a blog post on Saturday (17 July), Pat Low noted that a TikTok user has adapted CS’ article into a video and has made its rounds on social media with “false info”.
“The truth for the day is, Singapore didn’t grow richer by S$235b during the pandemic,” he wrote.
CS is a commentary blog which runs by a Polish national named Michael Petraeus. He gained national recognition sometime in late 2018 and 2019 due to his series of posts that were somewhat deemed as pro-government.
While his early posts discussed issues like Brexit, China’s work culture, and US politics, Mr Petraeus later on became critical of Malaysia’s former Prime Minister, Dr Mahathir Mohamad.
His commentaries also painted Singapore in a positive manner, causing many to question his motivation.
“Outside of local issues, I actually find his articles quite interesting,” said Pat Low.
Mr Petraeus has recently written an article titled “Singapore is richer by over S$200b thanks to COVID-19, as Temasek announces record returns”, which was published by Vulcan Post on 14 July.
In his article, he claimed that Singapore’s reserves increased by S$235 billion, taking into account the increase of S$160 billion in the Official Foreign Reserves (OFR) of the Monetary Authority of Singapore (MAS) from 2019 to 2021, and the S$75 billion profits made by Temasek Holdings this year.
When Facebook user Chris Kuan rebutted his claims, Mr Petraeus responded with Ravi Menon’s 2019 speech that says “the actual definition of our reserves is certainly not the net asset position but the total OFR”.
But Pat Low noted that the Polish national “got it wrong again”.
“Singapore’s reserve is the aggregate of the net assets of all the ministries, statutory boards, and Fifth Schedule companies”
He started off by explaining that the national reserve is “far in excess” of the net assets under the management of MAS, Temasek, and estimated GIC numbers.
Pat Low illustrated a “quick book-keeping lesson” in the post, as he noted that the national wealth can be derived from the way a company’s net worth is appraised.
“In very basic terms, a balance sheet will look like this. The P&L a/c represents the net of all the Expenses and Revenue accounts.
“At the end of the year, assuming there is no distribution, the net profit is finalised and transferred to the General Reserve which will then be S$2,000. The net worth of the enterprise is the Total assets $5,000 – Liabilities $2,000 = Net asset S$3,000, which is = to Equity.
“The net asset, which is also Equity, is what an enterprise is worth. An increase in the net asset figure represents an increase in the value of the enterprise,” he explained.
Pat Low also pointed out that Mr Petraeus appears to have excluded GIC from his calculation of Singapore’s national reserves, as he only mentioned profits made by Temasek and MAS.
“By definition, our national reserve is the aggregate of the net assets of all the ministries, all statutory boards and Fifth Schedule companies,” said the blogger.
How do reserves get funnelled to MAS, Temasek, and GIC?
As we all know, Singapore’s national reserves are managed by MAS, GIC, and Temasek Holdings, which are given the mandate to invest some of the reserves to maximise the long-term value of the assets.
However, Pat Low highlighted that the national reserves are actually “more” than the portfolio numbers of these three entities.
He explained how the reserves get funnelled to the three fund managers. Firstly, the government surpluses will be transferred to the treasury, followed by the proceeds from the government land sales.
After that, the treasury will channel the government surpluses and the proceeds from the land sales to GIC.
Pat Low also noted that the government would occasionally transfer “some funds” to Temasek.
“Of the net profits of MAS, 17% are distributed to govt Consolidated Funds, balance 83% the MAS transfers to its General Reserve Fund which it manages.
“For GIC and Temasek, a special long term risk-factored formula is applied on the portfolio to arrive at what is known as the NIRC (net investment returns contribution). This portion of the net profits is distributed back to the government to help fund the budget. The balance of the profits is ploughed back as capital,” he added.
In terms of CPF, Pat Low noted that the government securitise the debt by issuance of Special Singapore Government Securities (SGSS), which guarantees a fixed return to CPF in a “risk-free security”.
He noted that proceeds from the SSGS will then be funnelled to the GIC to invest.
“Point to note, which are most often misunderstood by the majority. The government does not make use of our CPF money. It is invested by GIC. Of course, if GIC generates a better ROI than the interest on SSGS, the benefits do not trickle to CPF members,” said the blogger.
Here’s why the claims about Singapore’s reserves rose by S$235b is “hogwash”
Pat Low opined that it would be incorrect to assert that the national reserves have increased solely based on profits made by MAS and Temasek, given that there are other state entities for which the data is unknown.
He also included a photo of MAS’ balance sheet as of 31 March this year, which shows that MAS net asset has increased from S$39.599 billion in 2019 to S$47.523 billion in 2021.
“The balance sheet above shows from 2019 to 2021, MAS net asset increased S$47.523b – S$39.599b = S$7.93b. The contribution to increase in national reserves from MAS was a far far cry from S$160b claimed by CS,” he remarked.
Pat Low went on to say that Mr Petraeus “mistook” the foreign exchange reserves in MAS books as reserves, as these reserves are actually “very liquid foreign assets”.
“These are assets set aside for some purpose, that’s why they are commonly referred to as foreign exchange reserves. All central banks maintain such a reserve for the purpose of supporting at least 6 months of the country’s importation of goods.
“They are also required for the central banks to manage their currency floats, that is, to stabilise their currency exchange rate. MAS maintains a very high level of these assets. In fact our foreign exchange reserves is one of the highest in the world.
“The reason why MAS maintains such a high foreign exchange reserve recognises Singapore as an international financial centre which needs substantial foreign currency liquidity in the local market. A high reserve makes for a very strong S$,” he noted.
Moreover, the foreign reserve assets have actually increased by S$122.077 billion from 2019 to 2021 – S$529,128 in 2021 minus with S$407,051 in 2019 – which is contradicted with Mr Petraeus’ claims that the foreign reserve assets have increased by S$160 billion.
“An increase on the asset side is reflected in an increase in the liabilities side somewhere. That is, the foreign asset increase has to be funded from somewhere.
“This can be seen in increases in money printing (S$10b), increase in banks reserve deposits (S$12b) MAS securities issued (S$35.5b), other liabilities- repos (S$81b). This increase in foreign assets has nothing to do with our national reserves. Neither does it represent greater wealth for the country,” he added.
“Questions ought to be raised” with regards to Temasek’s performance in 2021
Mr Petraeus has mentioned in his article that of the S$235 billion increase in the national reserves, S$75 billion was from Temasek. But Pat Low rebutted his assertion.
“Instead of making the bold claim of huge profits, I think questions ought to be raised,” he said of Temasek’s financial performance this year.
He included a screenshot of Temasek Group’s balance sheet from 2012 to 2021, pointing out that the increase in Temasek net assets or equity between 2019 and 2021 is in fact S$64 billion – after having S$347.5 billion in 2021 minus with S$283.5 billion in 2019.
In terms of Temasek Group net profit from 2019 to 2021, the Group’s income statement indicated that the net profit has increased from S$11.8 billion in 2019 to S$56.5 billion this year.
“CS referred to a net profit of S$75b by Temasek in 2021. That is not correct. The net profit was only S$56.5b. Perhaps he rounded it up to S$57b and made a typo transpositional error to S$75b?” said Pat Low.
The blogger concurred that the S$56.5 billion in profit by Temasek this year was an impressive 24.53 per cent return on shareholder funds.
However, Pat Low pointed out that “the return is a more realistic 16.4 per cent on the average portfolio of S$343.5b (opening S$306b + closing S$381b) /2)”, which could be driven by either high leverage or high shareholder fund enhancement over the years.
He also acknowledged that the asset valuation of an investment company could affect its profit and loss (P&L), citing the Singapore Stock Exchange which moving up only by 8.7 per cent during the year.
Pat Low also mentioned that the profit is significantly impacted by the International Financial Reporting Standard 9 (IFRS9).
“Under IFRS9, changes in the mark-to-market valuation of listed companies in which Temasek hold less than 20% control are now brought into the group P&L. This is the international accounting standard that Temasek adopted and which came into effect in 2019.
“In 2019 and 2020 these holdings showed a small valuation loss. In 2021, the valuation profit was S$45.5b thus contributing to 81% of the profit. Without this, the profit would have been only S$11b, representing a mere 4.8% ROI on shareholder fund and 3% against average portfolio,” he said.
This also raised the question as to how did this under sub-20 per cent holding valuation gains came about this year, said Pat Low, highlighting three ways that might lead to this:
(1) It had a large holding of sub-20 per cent listed companies;
(2) It made huge investments of sub-20 per cent stocks at the earlier part of the year when prices were generally lower; and
(3) It disposed of huge inventory sub-20 per cent stocks, which had been carrying substantial valuation loss provisions. Upon disposal, the negative counters disappear from the exercise, pushing valuation into positive territory.
“However, (1) cannot be discerned with no data. (2) and (3) are unlikely as divestment was only S$49b and new investments S$39b. Too small to be causation for the S$46.5b valuation gains,” said the blogger.