Fortune Magazine: SG has no sovereign wealth but soverign debt of US$254Billion

bullterrier168 · Sep 1, 2011

Now we learn from the August 15, 2011 issue of Fortune Magazine that Singapore has no sovereign wealth.

Instead it has a sovereign debt of US$254 billion, which is 95% of Singapore’s Gross Domestic Product (GDP). This puts Singapore at 8th position as one of the world’s most indebted nations. Singapore is near the bottom of the pile; only seven developed countries are more in debt, in terms of GDP.

By this standard, France, Portugal, and nearly every developed country in the world is doing better than Singapore in terms of debt.

Apparently, Singapore has borrowed heavily from its own Central Provident Fund (CPF) which holds the retirement funds of Singaporeans. This explains why Singapore is not only raising the retirement age, but making it more difficult for Singaporeans to get their retirement funds even when they reach that age.

http://johnharding.com/2011/08/28/is-singa...ds-richest-man/

borom · Sep 1, 2011

Most silliporeans will not smell the cash in their CPF-as after paying off their housing loans, they don't even have enough for minimum sum and need
to pledge their property for it.

Herein lies the reason why they will not sell HDB cheap - as cheaper HDB means more cash left behind for withdrawals(and less for them to invest in foreign banks and failed companies).

It also explain why Mah BT say cheap HDB means robbing our reserves.

ah_phah · Sep 1, 2011

all it takes is for 5'000 couples approx age 50yrs old (avg 150k in CPF respectively) asking to cash out CPF for migration, u will see the ppl at CPF shitting their pants.

wwabbit · Sep 1, 2011

I'm afraid the article is a little bit off. There's a lot of things to whack the government over, but the size of our public debt is not really something to criticize them about, at least not without context of other information.

US$254B in debt doesn't mean that the government has lost US$254B. It just means that the government owes US$254B. This is not a problem as long as the government holds at least US$254B in assets, meaning they are always able to repay the debt. We should not take issue with the size of the debt itself, but instead we should take issue with the lack of transparency over the size of the assets.

The reason our public debt is so high compared to other countries is because our social security comes out of the sovereign wealth fund instead of taxes. In many other countries, the government collects more taxes, then provides social security and welfare out of the tax money. The money that is taxed belongs to the government so it is not counted as part of the public debt before being given back to the people. In our case, the government borrows our money, so it gets counted as part of the public debt, and then later return the money to us.

Our system isn't perfect, afterall people are unhappy about a lot of things about it, but at least the payout is somewhat 'guaranteed' even if we have to die before we can get back all the money. In other countries where social welfare comes from taxes, the payout isn't even guaranteed - the government can pass laws to reduce or increase the payout.

I'm not an economist, so my understanding may not be completely accurate. Feel free to correct me if you are better qualified.

Char_Azn · Sep 1, 2011

Official reply

THE Ministry of Finance (MOF) has clarified that Singapore's financial reserves are well in excess of its debt and that it is a net creditor country.

The ministry was responding to queries from The Straits Times after an article published in Fortune Magazine's Aug 15 issue, said Singapore was the eighth most indebted country in the world. Fortune said Singapore had debts of US$254 billion (S$307 billion), equivalent to 95 per cent of its gross domestic product (GDP).

MOF said that the figure represented Singapore's gross debt position. 'The Government issues domestic debt securities in the form of Singapore Government Securities (SGS) and Special Singapore Government Securities (SSGS); we do not have any external debt.'

SGS are issued to develop the domestic debt market while SSGS are issued to the Central Provident Fund Board with full government guarantee to provide the CPF Board with a safe asset to invest in.

'No government borrowings are for spending,' added the MOF spokesman. All proceeds from issuing government securities are invested. The investment returns are more than sufficient to cover the debt servicing costs, it said.

A Moody's report in March noted that the outstanding amount of marketable SGS stood at 43 per cent of GDP at the end of last year and total government debt, including registered stocks and bonds, was just over 100 per cent.

But the Singapore Government maintains a net asset position with deposits in the banking system amounting to 46 per cent of GDP at the end of last year, while the Monetary Authority of Singapore's forex reserves were equivalent to 92 per cent of GDP. The Government of Singapore Investment Corporation's assets are known to be well over US$100 billion, or at least 40 per cent of Singapore's GDP for last year, Moody's said.

'Looking only at the liabilities alone does not discriminate between two countries with the same level of debt but with very different levels of assets,' the MOF spokesman said.

A key principle is to maintain a balanced budget over the course of a term of Government. This is a prudent approach to fiscal policy, MOF said.

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={903818759-9994-3676263689}

This one is S&P assessment

SINGAPORE (Standard & Poor's) Aug. 27, 2010--Standard & Poor's Ratings
Services today affirmed its 'AAA' long-term and 'A-1+' short-term sovereign
credit ratings on the Republic of Singapore. The outlook remains stable. The
transfer and convertibility (T&C) assessment remains at 'AAA'.

At the same time, we affirmed the long-term ASEAN scale credit rating on
Singapore at 'axAAA', and the short-term ASEAN scale credit rating at
'axA-1+'.

The ratings on Singapore are underpinned by the sovereign's extensive fiscal
and external strengths, and its solid record of prudent macroeconomic
management. At the same time, the ratings take into account the challenges the
country faces as a small and open economy.

"In our view, Singapore's high level of general government surplus provides
strong fiscal flexibility against potential economic and fiscal shocks," said
Standard & Poor's credit analyst Yee Farn Phua.

The government's considerable external and fiscal reserves enabled it to
introduce a bumper stimulus package in early 2009 to cushion the fallout from
the global economic crisis. The stimulus measures, totaling Singapore dollar
(S$) 20.5 billion (8% of GDP), focused on job retention and freeing up credit.
The swift fiscal response saw the economy contracting at a much lower rate
than initially feared, and unemployment only rose marginally throughout the
crisis.

The strong fiscal flexibility also affords the sovereign the resources to
implement much needed structural reforms of the economy. Although real GDP
growth had averaged 5% over the past five years, on a per capita basis, it
measured an anemic 1.3%, suggesting the large inflow of labor, rather than an
increase in real productivity of workers, had augmented growth.

The sovereign's net external position remains solid, underpinned by the
virtual absence of external public sector debt, Mr. Phua said. Liquid external
assets exceed external debt by an estimated 132% of current account receipts
in 2010. This reflects a combination of fiscal prudence and continued high
current account surpluses, which averaged 21.7% of GDP between 2005 and 2009.

The ratings on Singapore are also supported by the country's political
stability. The government's policymaking approach has consistently been
pragmatic and forward-looking. Its policy responses have also been swift and
appropriate for countering economic challenges thus far.

Given its small and open economy, however, Singapore is more exposed to
exogenous shocks than some of its peers. Its economy contracted 1.3% in 2009
during the global trade downturn. Singapore does not have significant room to
shift its focus to more domestic-oriented growth, unlike some of its bigger
neighboring countries. However, this limitation is partly mitigated by the
government's fiscal flexibility to deal with cyclical shocks and the continued
efforts in structural reforms to ensure the economy remains competitive.

"Nonetheless, the nature of Singapore's economy also suggests that it could
ride an upswing in global demand faster than most other countries. The economy
grew a remarkable 17.9% in the first half of 2010 and we forecast full-year
real GDP growth at 13.5%--possibly the highest globally in 2010," Mr. Phua
said.

http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245220219746

This topic seem to be done to death recently. Just a few points

1)Unlike many other countries, all of SG debts are internal and almost all of them are CPF
2)It's important coz it basically affirms that SG Government officially acknowledges it owes all of us money
3)If you look at Western countries like US or Europe, they don't. Just look at the US for example, if they consider stuff like social society into the equation, their official debt will go from $17T to $211T(http://www.npr.org/2011/08/06/139027615/a-national-debt-of-14-trillion-try-211-trillion)
4)Common sense, the fact that they can easily draw $20B without borrowing to handle the 09 crisis should be clear indication that we are not having issues with the economy in general

jw5 · Sep 1, 2011

Gross debt. Not net debt/liability.

Unrepented · Sep 1, 2011

Beside internal debt, budgetary surplus is another one of the components in the soverign wealth. Pushing back the repayment schedule for internal debt is not a positive indicator.

jw5 said:
Gross debt. Not net debt/liability.

steffychun · Sep 1, 2011

Singapore doesnt face the debt crisis of Greece where they owe money back to foreign creditors.

jw5 · Sep 2, 2011

Unrepented said:
Beside internal debt, budgetary surplus is another one of the components in the soverign wealth. Pushing back the repayment schedule for internal debt is not a positive indicator.

No it's not. But it could also indicate how weak they regard their creditor to be.
CPF is a loan from us to them whereby the terms of repayment and interest rates are unilaterally determined by them.
And so it goes on................................

depeche · Sep 2, 2011

The theory of Good or Bad debt?

steffychun · Sep 2, 2011

The debt is internal to citizens. Western debt crises are external to other creditors such as China

GOD IS MY DOG · Sep 2, 2011

wwabbit said:
I'm afraid the article is a little bit off. There's a lot of things to whack the government over, but the size of our public debt is not really something to criticize them about, at least not without context of other information.

US$254B in debt doesn't mean that the government has lost US$254B. It just means that the government owes US$254B. This is not a problem as long as the government holds at least US$254B in assets, meaning they are always able to repay the debt. We should not take issue with the size of the debt itself, but instead we should take issue with the lack of transparency over the size of the assets.

The reason our public debt is so high compared to other countries is because our social security comes out of the sovereign wealth fund instead of taxes. In many other countries, the government collects more taxes, then provides social security and welfare out of the tax money. The money that is taxed belongs to the government so it is not counted as part of the public debt before being given back to the people. In our case, the government borrows our money, so it gets counted as part of the public debt, and then later return the money to us.

Our system isn't perfect, afterall people are unhappy about a lot of things about it, but at least the payout is somewhat 'guaranteed' even if we have to die before we can get back all the money. In other countries where social welfare comes from taxes, the payout isn't even guaranteed - the government can pass laws to reduce or increase the payout.

I'm not an economist, so my understanding may not be completely accurate. Feel free to correct me if you are better qualified.

you forgot the interest........brudder..........

don't forget, the Japs also started their debts small then snowball........

once you need to borrow, you'll need to borrow again.............also need to borrow more to pay the interest.............

steffychun · Sep 2, 2011

GOD IS MY DOG said:
you forgot the interest........brudder..........

don't forget, the Japs also started their debts small then snowball........

once you need to borrow, you'll need to borrow again.............also need to borrow more to pay the interest.............

Western countries borrow billions.

Unrepented · Sep 2, 2011

To avoid foreign debt, squeeze from cpf and up prices for public housing, gst for medical....... hard life isn't it :confused:

Question is how much of soverign wealth then is enough?

GOD IS MY DOG said:
you forgot the interest........brudder..........

don't forget, the Japs also started their debts small then snowball........

once you need to borrow, you'll need to borrow again.............also need to borrow more to pay the interest.............

Conqueror · Sep 2, 2011

Keep Selling To Cover Debt ?

How many things can we sell to stay 'afloat' and look good ? More privatisation ?

steffychun · Sep 2, 2011

Re: Keep Selling To Cover Debt ?

Critics like Joe Stiglitz and HJ Chang would caution against privitisation

wwabbit · Sep 3, 2011

GOD IS MY DOG said:
you forgot the interest........brudder..........

What do you think the government do with the CPF money?
Most of it go into investments. As long as the investments make an average of at least 4% per annum over all the CPF money collected, they will have no problem paying back the interest to the people.

We don't know exactly how much the government is making from investing our CPF money though, would be nice to have more transparency about this.

eatshitndie · Sep 3, 2011

if you're halfway semi intelligent, emigrate, renounce and take back what rightfully belongs to you. if you haven't done so, your iq is below subnormal.

Ramseth · Sep 3, 2011

There's no such thing as your CPF money gone, nominally, dollar to dollar, cent to cent, plus interest. Just like what Harold Wilson said, the pound in your pocket is always the pound in your pocket. Worse comes to worst, S$ will just have to devalue like what US called "quantitative easing." Your dollar is still your dollar, just that it buys less. However, is Singapore at such a stage? Singapore dollar forex rate and PPP is still on healthy uptrend. And you think that you're smarter than forex traders? They're so stupid to pay so much for S$ rate for fun or love or charity?

omnia1 · Sep 3, 2011

Some of the posters got it right. This John Harding fellow who wrote the article failed to realise (or deliberately ignored) the assets/reserves of the Singapore government which is way in excess of the 'national debt' US$254b.

Based on publicly available information, Singapore's reserves with MAS amounted to US$242 billion as at June 2011. Reserves invested by Temasek Holdings was valued at S$193 billion (or about US$161 billion) as at March 2011 as audited by KPMG. Only the reserves invested by GIC is not publicly disclosed (so it's not true that we don't know anything about our reserves). Many estimate GIC's holdings to be well above US$100 billion. So adding all of this (and assuming a conservative US$100b for GIC), we see that Singapore's reserves are at least US$503 billion, way in excess of the national debt of US$254 billion !

In fact, opposition candidate Tan Jee Say gave a good testimony to the strength of Singapore's reserves :biggrin:

. At the last GE, didn't he say that S$60 billion for his economic plan was "small change" for the government ?

So how does this reconcile with John Harding's claim that Singapore is essentially broke and had "no sovereign wealth" ? When I posted these reserves data as a comment to his article, all he could reply (so far) was, "Don't see where KPMG is involved. Hard to make guesses." Talk about the lamest of non-answers ! No guts or integrity to admit that he was way off the mark in his tirade on Singapore's wealth or lack of.

Fortune Magazine: SG has no sovereign wealth but soverign debt of US$254Billion

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