Written by Ng E-Jay
23 Jan 2009

The PAP Government has always been very adamant about using past reserves only as a last resort. In fact, as recent as February 2008, SM Goh Chok Tong told reporters at a charity Lunar New Year lunch: “The reserves are like a golden goose which lays golden eggs. And if you try and dig into the reserves, you’re actually in a sense not feeding the reserves and the goose gets smaller …. …. Produce the wealth first and the surpluses before we talk about sharing and never, never dig into the reserves. That’s like killing the golden goose to get the meat.” (Channel News Asia, “SM Goh says growing the economy is important for the future“, 17 Feb 2008)

SM Goh then did an about-face on 18 Jan 2009 when he revealed that the Government might draw on past reserves to help fund this year’s budget. He also told reporters at a Lunar New Year event at Marine Parade constituency: “The weather is so bad, and we’ve always said the reserves are for a rainy day. If this is not a rainy day, I don’t know what is a rainy day.” (Straits Time Online, “Govt may tap reserves “, 19 Jan 2009)

In his 2009 Budget Speech in Parliament on Thursday, Finance Minister Tharman Shanmugaratnam said that “like other governments and the vast majority of private forecasters, (the Government) did not anticipate the speed and scale of the deterioration in the global economy in the last six months.” Clearly, the Government has been caught off-guard with regards to the depth and severity of the current downturn. According to Mr Shanmugaratnam, the Government has decided to draw on past reserves to fund a portion of this year’s expansionary budget “in view of the extraordinary circumstances, which require a commensurate response“.

The draw on past reserves will be used to fund the Jobs Credit scheme for businesses as well as Special Risk-Sharing Initiative (SRI) for bank lending, the total cost of which will amount to $4.9 billion, comprising $1.1 billion in FY2008 and $3.8 billion in FY2009.

The first thing that came to mind when I read the figure of $4.9 billion is that it is not that large an amount compared to the size of a typical Government budget. Given Singapore’s top-notch credit rating and sound financial system, the Government could easily have raised that amount in the debt markets without even raising an eyebrow. Why is there a need to draw on past reserves to fund two temporary initiatives when in fact the total expenditures of the Government this fiscal year will be many multiples of that?

According to the Finance Minister, the Government does not borrow to fund the budget, and the Government’s borrowings in the Singapore Government Securities market “serve only to develop our capital markets and to provide a safe investment vehicle for the CPF Board“.

Is the Government making an overly grand statement of its fiscal prudence? To be sure, our fiscal prudence and emphasis on savings and the development of a stable revenue base has given us a large war chest with which to combat the current unprecedented downturn. However, given our high soverign credit rating and the prevailing low interest rates in Singapore, it would not be a burden at all for us to borrow the sum of $4.9 billion from the debt markets. The money in the reserves might be put to better use buying high quality assets such as AAA-rated or AA-rated corporate debt at current distressed prices.

To me, the Finance Minister seems to be overly hyping the Government’s fiscal prudence, especially after a series of failed investments by Temasek in Thailand and in US financial institutions. Why didn’t the Government talk about fiscal prudence earlier, when we were pumping down untold billions of our hard-earned reserves into Citigroup and UBS? Why didn’t the Government talk about fiscal prudence earlier,when PAP Town Councils were investing their sinking funds in dubious structured products, only to find the financial crisis wiping out their values?

The Government has obtained the President’s in-principle approval to draw on past reserves to fund the Jobs Credit scheme and the Special Risk-Sharing Initiative, rather than wait till the savings of the current administration accumulated since the 2006 General Elections has been exhausted. According to Mr Shanmugaratnam: “Tapping on past reserves now gives us the resources that we need to deal decisively with the current economic crisis and also ensures that we have all the resources we need to respond to the considerable uncertainties that lie ahead. It will allow us full flexibility to respond as the situation requires, and to pre-empt the severe consequences that this crisis could have for our economy and society.

In other words, the Government’s tapping on past reserves appears to be a pre-emptive measure that gives it the flexibility to deploy its current remaining resources in whatever way it sees fit in the future, rather than as a “last resort” when all other measures have failed. This is a departure from the Government’s previous position that dipping into reserves is strictly a last resort.

Will this use of past reserves set a precedent for future drawdowns, with the rhetoric of pre-emptiveness replacing the rhetoric of tapping into reserves only as a last resort?

As of September 2008, the MAS’ foreign exchange reserves were valued at about $240 billion, GIC’s portfolio was valued at well over US$100 billion (S$149 billion), and Temasek Holdings’ portfolio was worth $185 billion. (Straits Time Online, “Govt may tap reserves “, 19 Jan 2009)

The sum of $4.9 billion tapped by the Government for the two temporary initiatives is thus a tiny fraction (less than 1%) of our total reserves.

Could the Finance Minister be making use of this occasion to market the ruling PAP as a good steward of the nation’s wealth as well as the role of the Elected President in holding the “second key” to our reserves? With snap Parliamentary elections rumoured to occur this year and the re-election of the Elected President due in 2011, this is certainly food for thought.


Will our business-centric budget benefit GLCs and big businesses more than consumers and working class citizens? My take on the key highlights of Budget 2009

  1. We invested US$28 billion into the banks and lost 47% in them.

    47% of 28 billion is 13.16 billion.

    Our projected deficit is -8 billion in 2009.

    Makes you wondering if there is some relationship between the 2?

  2. Past reserves refer to foreign exchange reserves held by MAS, as well as assets managed by GIC and Temasek that are accumulated from:

    (1) past budget surpluses

    (2) income from sources such as long term land leases that are not reported in the budget statement

    E-Jay

  3. E-jay,

    ok then what is the different between a “past” and a “current” reserve? Or is there no such thing as a “current” reserve? In any case what is a non-past reserve?

    Isn’t a reserve and a reserve? If the government dip into the reserve now, what it is getting is money that has been realised now in which case, isn’t it drawing on current reserve?

    If the money it is planning to pump in the current budget is balanced (surplus) carried over from previous year than the government is not dipping into any reserve right?

    Hope you don’t think I am being cheeky asking these questions. I genuinely don’t understand!

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