Singapore's Unique Approach to Debt Management

By IndraStra Global News Team

Cover Image Attribute: Singapor Skyline, Image by Holger Detje from Pixabay

 Singapore, a global financial hub and a beacon of economic prosperity, holds the distinction of having one of the highest government debt ratios in the world. As of 2023, its total debt surpasses 167% of GDP, a figure that dwarfs even nations like the United States, France, and Switzerland. This staggering debt load naturally raises concerns and questions about the country's financial health and sustainability. However, understanding the dynamics behind Singapore's debt requires delving into its unique approach to borrowing and fiscal management.
At first glance, Singapore's high level of government debt might seem alarming, as debt is traditionally associated with financial risk and instability. Yet, Singapore's case presents a nuanced picture that goes beyond mere debt-to-GDP ratios. Unlike many other countries, Singapore doesn't rely on debt issuance primarily to finance budget deficits. Instead, it employs a distinctive strategy in debt issuance, leveraging instruments like Singapore Government Securities (SGS) and Special Singapore Government Securities (SSGS) for purposes beyond deficit financing.

Graph Attribute: Singapore National Government Debt, 1990 – 2024 | Source: CEIC Data
The issuance of SGS primarily serves to develop the local debt market, fostering a vibrant and liquid bond market critical for the growth and stability of the financial sector. Furthermore, it aids in managing the country's liquidity by absorbing excess funds from the financial system, thereby contributing to controlling inflation and ensuring economic stability.
On the other hand, SSGS issuance is specifically targeted at the Central Provident Fund (CPF), Singapore's mandatory retirement savings scheme. These non-negotiable bonds help in managing CPF funds, with their interest rates tied to the rates paid by the government to CPF members, ensuring the fund's ability to fulfill its obligations.
Contrary to popular belief, Singapore's debt issuance is not primarily driven by budget deficits. The country's conservative spending habits and efficient tax system have historically enabled it to maintain fiscal discipline. Multiple revenue streams, including income tax, corporate tax, and Goods and Services Tax (GST), coupled with sovereign wealth funds like Temasek Holdings and GIC Private Limited, contribute significantly to the government's coffers.
Moreover, Singapore's prudent financial management extends to its use of sovereign wealth funds as buffers against economic uncertainties. By accumulating substantial reserves and investing through entities like Temasek Holdings and GIC, Singapore cushions itself against economic downturns, as evidenced during the 2008 global financial crisis when these reserves were utilized to stimulate the economy without resorting to significant increases in public debt.

Graph Attribute: Singapore External Debt, 2003 – 2024 | Source: CEIC Data

However, this doesn't imply that Singapore is immune to budget deficits. In certain years, particularly during economic downturns, deficits may arise as the government increases spending to stimulate the economy or invests in long-term infrastructure projects. Yet, these deficits are typically planned and managed within the framework of long-term fiscal strategies.
The introduction of the Significant Infrastructure Government Loan Act (SINGA) in 2021 exemplifies Singapore's forward-thinking approach to debt management. SINGA enables the government to borrow for large-scale, long-term infrastructure projects, ensuring that the costs are spread over the assets' useful life, thus avoiding burdening current generations excessively.
This strategic approach to debt management underscores Singapore's commitment to sustainable growth and development. By prioritizing long-term investments and infrastructure development, the government demonstrates its dedication to enhancing the nation's natural landscape, livability, and economic resilience. Investments in public transportation, for instance, not only improve residents' daily lives but also attract businesses and talent, fostering a dynamic and competitive economy.
However, the pursuit of infrastructure and long-term investments isn't without risks. Ensuring the effectiveness of debt-financed projects requires careful selection and management to avoid misallocation of funds. Nevertheless, Singapore's robust balance sheet, characterized by substantial financial assets outweighing its liabilities, provides a solid foundation for managing debt effectively.

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