The reserves refer to the total assets minus liabilities of the Government and other entities specified in the Fifth Schedule under the Constitution¹.

Government’s assets include:

Government’s liabilities include:

Q1. What does the Constitution protect?

The Constitution protects Past Reserves.

Past Reserves refers to the reserves accumulated during previous terms of Government. To prevent reckless spending by a Government that could result in a drawdown of Past Reserves, the Constitution protects the Past Reserves of the Government and Fifth Schedule entities. The reserves of each entity are separately protected for clear accountability.


Q2. Who manages our reserves?

Given their strategic importance, it is vital that we enhance the long-term value of our reserves. To achieve this, the assets are invested professionally and on a strictly commercial basis, with the aim of generating sustainable returns over the long-term.

 

The Government’s assets are mainly managed by the Government of Singapore Investment Corporation (GIC). The Monetary Authority of Singapore (MAS), which is a statutory board, manages its own assets. Temasek Holdings (Temasek), which is wholly owned by the Government, also manages its own assets. 

Monetary Authority of Singapore (MAS)

In addition, the proceeds from the sale of such lands that are reclaimed or acquired for SERS accrue to Past Reserves. This further ensures that the use of Past Reserves to fund land reclamation and land acquisition for SERS does not result in a depletion of the Past Reserves.


Q6. Is an investment loss considered a draw on Past Reserves?

No, an investment loss does not constitute a draw on Past Reserves, as long as the disposal of the investment is done at fair market value.

The Reserves protection framework aims to prevent any form of sale that is deliberately carried out at below fair market value, for example to avoid seeking explicit approval for a draw on reserves.

When any bona fide investment decision is made, there is expectation of a gain. However, no large investor is able to avoid taking some losses in investments after they are made, as investments carry some element of risk.

After an investment is made, any loss arising from its sale at fair market value do not constitute a draw on Past Reserves. Similarly, mark to market losses (i.e. falls in the market value of investments that are still being held) are also not considered a draw on Past Reserves.

The issue of whether the investment of the reserves results in gains or losses over time is therefore distinct from the question of whether there is draw on Past Reserves.

Whether the entities which manage the reserves are making a gain or loss has to be evaluated based on changes in their overall portfolio values rather than by how much they have made or lost on individual investments. Further, we have to look at how they have performed over the long term, rather than over the short term where their performances would be influenced by the immediate market cycle. (See also Q7.)


Q7. How have GIC and Temasek performed? What information is available on their investment returns?

GIC

GIC’s mandate is to achieve good long-term returns, to preserve and enhance the international purchasing power of Government reserves. As a rule, GIC’s investments are outside Singapore and not in Singapore companies or instruments.

GIC publishes an annual report on the performance of the Government’s portfolio. The information below is extracted from its latest annual report (“Report on the Management of the Government’s Portfolio for the Year 2010/11”, released on 26 Jul 2011).

Over the 20 years to 31 March 2011, the real rate of return on the GIC-managed portfolio, i.e. in excess of global inflation, was 3.9%. The 20-year annualised real rate of return metric is the key focus for GIC, which matches its mandate and investment horizon of 20 years. A 20-year period is appropriate as it spans a few business cycles and hence encompasses a number of market peaks and troughs.

GIC also discloses the nominal rates of return over 5-year, 10-year and 20-year periods. These time frames give a sense of the ongoing performance of the portfolio. The 5-year and 10-year rates of return reflect an intermediate measure of GIC’s longer term performance.

The chart below shows the portfolio’s nominal rates of return over the 5-year, 10-year and 20-year periods in USD terms. Two composite portfolios are included for reference. These composite portfolios are generally accepted as representative of the strategic asset allocation of large institutional investors such as pension and sovereign wealth funds. They are included to provide a perspective on GIC’s performance. However, it should be noted that the nominal rates of return on the 60:40 and 70:30 global portfolios are not benchmarks that determine GIC’s investment strategies. 

 

The 5-year period (April 2006 to March 2011) covers the global financial crisis in 2008 and 2009, as well as the subsequent recovery in 2010. During the crisis, the GIC-managed portfolio initially suffered a loss in line with global market declines, but has since fully recovered the loss. Its performance over the period has also been somewhat better than the composite portfolios.

The 10-year period (April 2001 to March 2011) covers the recent financial crisis as well as the tail end of the technology bubble at the start of the period. The GIC-managed portfolio gave a higher rate of return than the composite portfolios during this 10-year period.

Over the 20-year period, the GIC-managed portfolio rate of return was slightly lower than that for the composite portfolios. The lower rate of return reflected the returns earned in the earlier decade (April 1991 to March 2001). During that period, the GIC-managed portfolio was managed on a conservative basis; it had a significantly higher proportion of cash and bonds, which earned lower returns than equities⁴. For more information and discussion on GIC’s investment strategies and performance, click here.

Temasek

Temasek’s aim is to maximise shareholder value over the long term. A significant portion of Temasek’s portfolio is invested in Singapore. However since 2002, Temasek has taken active steps to diversify its portfolio into Asia and other markets.

Temasek publishes an annual report that discloses its annual portfolio value as well as its performance returns – Total Shareholder Returns (by Market Value) ‒ over the last 1 year, 2 years, 3 years, 5 years, 10 years, 20 years, 30 years and since inception.

Temasek’s Total Shareholder Returns (by Market Value) as at 31 March 2011 for the 5-, 10- and 20-year periods are shown in the charts below. 





Temasek also shares its Total Shareholder Returns (by Shareholder Funds). This generally reflects the underlying performance of Temasek and its portfolio companies over time, based on the profitability of Temasek and its portfolio companies over the years, rather than changes in market valuation. This is especially so for the longer periods⁵. Temasek’s Total Shareholder Returns (by Shareholder Funds) as at 31 March 2011 for the 5-, 10- and 20-year periods are shown in the chart below.


As an active investor, Temasek has also been publishing its annualised investment returns, separated into two buckets by vintage or age of investments: (i) investments Temasek already had as at 31 March 2002, which were predominantly Singapore-based; and (ii) new investments made by Temasek after 31 March 2002.

2002 is used because this was the year Temasek stepped up as an active investor in Asia and other markets. This move was part of Temasek’s strategy to grow with Asia and reshape its portfolio for the longer term.

For the nine years from 31 March 2002 to 31 March 2011, the older (mainly Singapore-based) investments that were made before 31 March 2002, had an annualised return of 11% in SGD terms, while the new investments made by Temasek after 31 March 2002 have delivered an annualised return of 21% in SGD terms. Refer to the chart below.

 
More information on Temasek’s performance can be found in the Temasek Review 2011 (report download here and online version here) and Temasek Review 2011 ‒ Media Conference Presentation slides.


Q8. Have GIC and Temasek lost value as a result of the financial crisis in 2008-2009?

GIC and Temasek have fully recovered from the global financial crisis.

During the financial crisis, the portfolios managed by GIC and Temasek had suffered declines in their portfolio values in line with global market declines. However, these declines came after much greater increases in their portfolio values in the preceding five years. For example, Temasek’s portfolio increased by S$114 billion over the preceding five years ‒ from the time the market cycle commenced in March 2003 to March 2008.

Taking the cycle as a whole ‒ from the start of the crisis and through the recovery ‒ both GIC and Temasek have done creditably in comparison to their international peers among major global managers. They have fully recovered their declines in portfolio values occurred during the crisis. More importantly, both GIC and Temasek have earned good returns over longer periods (see Q7).

The long-term investment orientation of GIC and Temasek has allowed them to tolerate short-term volatility and ride out market cycles, in order to achieve long term gains. To evaluate their performance, we therefore have to look at how they performed over the long term, rather than in the short term where their performances would be influenced by the immediate market cycle. Moreover, they have to be evaluated based on changes in their overall portfolio values rather than by how much they have made or lost on individual investments.


Q9. Do Singaporeans benefit from the Investment Returns of GIC and Temasek?

Singaporeans benefit from the investments of GIC and Temasek as they supplement the annual Budget through the Net Investment Returns Contribution⁶ (NIRC). The NIRC, amounting to S$7.8 billion in FY2010, has allowed the Government to make further investments for the long term, such as in education, R&D, healthcare and improving our physical environment.


Q10. Has the Government transferred funds to Temasek or GIC to show better performance?

No, the Government has not and does not transfer funds to Temasek or GIC to improve their performance figures.

In the case of Temasek, the Government is its sole shareholder. The Government injects capital into Temasek from time-to-time as part of the Government’s allocation of fresh flows of funds, and to allow Temasek to plan its future investment strategies. These capital injections are reflected in Temasek’s accounts and are made public.

An occasional misperception is that capital injections can be used to improve the reported returns performance of Temasek. Capital injections can increase the size of the portfolio but do not improve the investment returns⁷. Temasek’s reported returns figure follows the widely accepted practice of computing returns, which is to deduct any capital injections from (and withdrawals by) the Government in making such calculations. Temasek’s returns are audited and regularly published in its annual report.

In the case of GIC, the Government may also allocate fresh flow of funds to be managed by GIC. Such allocations also cannot improve GIC’s investment performance figures.


Q11. Have Temasek’s performance returns benefited from the “transfer of Government’s assets” to Temasek such as SingTel?

Temasek’s portfolio has performed well over time due to two factors.

Post-2002 Investments

First, Temasek decided in early 2002 to be an active investor in Asia and other markets as part of its strategy to reshape its portfolio for the longer term. Its investments in external markets on a diversified basis since 2002 have provided a significant boost to Temasek’s long-term returns.

This portfolio of post-2002 Temasek investments has delivered an annualised return of 21% in SGD terms over the 9-year period from 31 Mar 2002 to 31 Mar 2011 (See Chart 5 in Q7).

Pre-2002 Investments

The portfolio of investments that Temasek already had as at 31 March 2002, comprising predominantly Singapore-based investments, has also done creditably over time. The portfolio includes assets transferred from the Government to Temasek, such as SingTel which was subsequently listed through an Initial Public Offering (IPO).

This pre-2002 portfolio of Temasek companies benefited from, as well as contributed to, Singapore’s transformation and growth in the earlier years. Companies like SingTel and PSA help to provide competitive and efficient infrastructure for the Singapore economy. Through Temasek’s stewardship and management of these assets, the Government has been able to unlock and grow their value.

The transfer of Government companies such as SingTel to Temasek ‒ and the subsequent listing of these assets ‒ had also contributed to Temasek’s total shareholder returns by market value. However, the performance of these assets from 2002 onwards is free from the “boost” afforded by such listings. From 31 March 2002 to 31 Mar 2011, this portfolio of earlier Temasek assets showed annualised returns of 11% in SGD terms. Over the same period, the MSCI Singapore index showed annualised returns of about 5.5% in SGD terms.


Q12. Can reserves be transferred easily among our investment entities to buffer their losses?

No. An occasional misperception is that the Government made the Constitutional amendments in 2002 and 2004 to allow for the transfer of Past Reserves between Fifth Schedule entities and the Government so as to be able to conceal investment losses. This is wrong.

We have explained that a transfer of funds cannot be used to hide investment losses (see Q10).

The amendments in 2002 and 2004 were made to enable the transfer of Past Reserves within the Reserves protection framework (i.e. among the Government and Fifth Schedule entities), without any loss of protection to Past Reserves. Past Reserves cannot be transferred outside of the Reserves protection framework without the approval of the President. The amendments in 2002 and 2004 did not alter this position.

Past Reserves may need to be transferred to facilitate the restructuring of Fifth Schedule entities to better deliver public services. For example, the merger of the then-Board of Commissioners of Currency, Singapore (BCCS) with Monetary Authority of Singapore (MAS) in 2002 required the transfer of BCCS’ Past Reserves to MAS.

In transferring the Past Reserves from BCCS to MAS, there was no loss in the amount of Past Reserves protected. This was because the Board of Directors of MAS had resolved that the Past Reserves transferred from BCCS would be added to the Past Reserves of MAS and protected.

The Constitutional amendments make clear that there is no draw on Past Reserves as long as (i) Past Reserves are being transferred among entities that are within the Reserves protection framework; and (ii) the receiving entity undertakes to protect the Past Reserves that are transferred over. In such circumstances, the overall amount of Past Reserves being protected is unchanged, and hence the President’s approval need not be obtained for such transfers.



Section II: What is the President’s role in safeguarding the reserves?

Summary

Under the Constitution, the President safeguards the Past Reserves of the Government and Fifth Schedule entities in the following ways:

(A) Approval of the Annual Budget of the Government and Fifth Schedule Entities

The Government can only draw on Past Reserves with the approval of the President. For each year’s budget, the President may veto the budgets of the Government and Fifth Schedule entities if he is of the opinion that their budgets are likely to draw upon Past Reserves. (An example of this is a profligate Government spending more than its revenue and using up the reserves it has accumulated during its term.) The President’s assent to each year’s Budget is an important safeguard that ensures that on an on-going basis, there is no draw on Past Reserves without his agreement.

(B) Approval of appointment and removal of key Government officials and board members of the Fifth Schedule Entities

The President also has veto power over the appointment or removal of (i) Board members or directors in the Fifth Schedule entities; and (ii) key appointments of public officers such as the Accountant-General, Auditor-General and Chief Valuer.

(C) Rules governing how investment returns from Past Reserves can be taken into each year’s Budget for spending.

Spending from Investment Returns

The revisions to the Constitution that were passed by Parliament in October 2008 introduced a new framework for Government spending from investment returns. This framework allows the Government to take into the Budget, up to 50% of the long-term expected real returns on the funds managed by GIC and MAS, after deducting Government liabilities⁸.

The expected long-term real rate of return refers to the investment rate of return that can be expected to be earned on the funds managed by GIC and MAS over the next 20 years, after netting off inflation.

Expected (as opposed to actual realised) rates of return are used to provide some stability to the amount that can be spent. The expected rates are based on the judgement of experienced investment professionals at GIC and MAS, and are the forward looking expected rates of return over the next 20 years. This is a long enough horizon such that the cyclical effects of capital market booms and busts are smoothed out.

The expected rates of return have to be approved by the President each year. In the event that the Government and President do not agree to any of the expected rates of return, the 20-year historical average rate of return will be used to compute how much the Government can spend.

This spending framework ensures that the investment returns on Past Reserves are tapped for spending in a disciplined and prudent way. This is because: 

For the assets managed by Temasek, the previous arrangements continue i.e. no more than 50% of the actual dividend income can be spent⁹.

The ability to tap our reserves in a sustainable manner is a significant financial advantage for Singapore. Unlike many countries which have to service their debts and other liabilities from their budgets on an annual basis, we are able to take in money from the investment returns of our reserves to supplement our Budget. The amounts are substantial ‒ about S$7 billion each year.

More importantly, tapping the investment returns of Past Reserves in a disciplined manner also ensures that our reserves can grow in line with GDP growth. This should provide future Governments with a steady stream of returns to support the Budget.

Other than the normal operation of the spending rule framework, the Government can make use of Past Reserves only with the President’s approval.

Click here for more information on the role of the President.


Q13. What kind of information does the President have access to?

The President is entitled to all information that the Cabinet and the boards of the Fifth Schedule entities are entitled to.

The President is entitled to ask Ministers, Permanent Secretaries and senior public officers and any of the board members, directors or CEOs of the Fifth Schedule entities for such information. When asked, all these persons are duty bound to supply the information requested.

The President has full information about the size of the reserves (including a listing of physical assets like land) and the performance of the investment entities.


Q14. Has the President’s approval ever been sought to draw on Past Reserves?

In October 2008, President S R Nathan gave his approval for a S$150 billion guarantee on all bank deposits in Singapore to be backed by Past Reserves. This was against the backdrop of the Global Financial Crisis where other jurisdictions were guaranteeing bank deposits as well. If Singapore had not provided a guarantee, we would have run the risk of funds flowing out of Singapore to other jurisdictions that had guarantees, even though our financial system was sound. The guarantee lapsed on 31 December 2010, without being triggered. In this case, Past Reserves were not drawn on, although it could potentially have been.

In January 2009, the Government obtained the President’s approval to draw down S$4.9 billion from the Past Reserves for the first time to fund special schemes in light of Singapore’s worst recession since Independence. The two measures were the Jobs Credit Scheme which subsidised employers' wage bills and the Special Risk-Sharing Initiative which helped viable companies gain access to credit. The actual amount drawn for these two measures was S$4.0 billion, less than expected. This was the first and only time that Past Reserves have been drawn on.

In February 2011, the Government decided to put back the S$4.0 billion that it had drawn down from the Past Reserves. This is because the economy had recovered well from the recession, putting our fiscal position on a stronger footing. While there is no legal or constitutional obligation for the Government to return to Past Reserves any amount drawn, it is the responsible and prudent thing to do, once a Government has secured a stable fiscal position within its term. This is the way to uphold the philosophy that has enabled us to build up and maintain our reserves, and derive from it income each year to meet our strategic needs.


Q15. Can the President direct the investment strategies of our investment entities?

The President does not direct the operations of Fifth Schedule entities. In particular, the President is not empowered to direct the investment strategies of GIC and Temasek.

The investment strategies of GIC and Temasek are the responsibility of their respective Boards and managements. The Government’s role is to appoint suitable and qualified individuals to the two Boards.

The President, after consulting the Council of Presidential Advisers, has discretion to decide whether or not to approve the Board appointments proposed by the Government. The President also receives the audited annual accounts of GIC and Temasek, and has access to any of the information that is available to their Boards.

Click here to read the statement by the Minister for Law.


Q16. Did the Government fail to provide former President Ong Teng Cheong with sufficient information to protect the Past Reserves?

A misperception that crops up from time to time is that former President Ong had been denied the information needed for him to perform an effective role in protecting the Past Reserves. In fact, President Ong was given all the information required for the purpose. This information included the value of all the Government’s financial assets, as well as a listing of physical assets, such as buildings and land.

At his 16 July 1999 press conference, President Ong spoke of how he had been informed by the Accountant-General that it would take "52 man-years" to produce the value of the full list of physical assets of the Government.

The facts of the case were explained by former Prime Minister Goh Chok Tong in Parliament on 17 August 1999, as summarised below:

Click here for the Parliamentary speeches by former Prime Minister and former Minister for Finance Dr Richard Hu (17 August 1999) 

Click here for the subsequent Parliamentary Q&As (17 August 1999)



Section III: Is our CPF money safe? Can the Government pay all its debt obligations?


Q17. Is our CPF money safe?

Yes, all CPF monies are safe.

CPF monies are invested in bonds that are issued and guaranteed by the Singapore Government. The full resources of the Government are backing this guarantee that CPF monies will be paid back.

CPF monies are safe because:

Q18. Singapore has high levels of Government debt as reported in the CIA Public Debt Factbook. Do we have enough assets to cover our liabilities?

Yes, our assets are much larger than our liabilities. There is no net Government debt. Singapore is in fact a net creditor country, not a debtor country.

This is why international credit rating agencies give the Singapore Government the highest short and long-term credit ratings of AAA.

Our top credit ratings reflect the following:

A key principle underlying Singapore’s long-term budgetary objectives is to maintain a balanced budget over the course of a term of Government. This is a prudent approach to fiscal policy that some other countries are seeking to adopt.

Looking only at the liabilities (i.e. debts) alone does not discriminate between two countries with the same level of debt but with very different levels of assets.

More details of Singapore Government Borrowings are found here.


Q19: Is the Government chalking up large surpluses year after year?

The annual Government Budget has been in deficit for 5 years in the previous decade. On average between 2001 and 2010, the Overall Budget Balance was close to 0% of GDP¹¹. This means that revenues were matched by expenditures each year, on average.

Some analysts¹² estimate the size of the Budget surplus to be larger because they include revenues which the Government is not allowed to spend under the principles laid out by the Constitution - such as revenues from sale of land. They may include all such revenues for ease of comparison with other countries. However, the figures are not relevant to the question of whether the Singapore Budget is in surplus or deficit, as the Budget should only include revenues that are available for Government spending¹³.

The Overall Budget Balance that is published by MOF is based only on revenues that the Government of the day can spend under the Constitutional principles. It excludes revenues that are protected as part of Past Reserves. In particular: