A lot of Singaporeans are commenting on MAS’s $31 billion loss for FY 2022/2023. This loss was largely due to exchange losses on its holdings of foreign securities which would be principally US Treasuries and other government bonds. MAS is technically correct that the loss in value was mainly the result of the appreciation of the S$ and that it does not affect the external purchasing power of the reserves. That may be right but it ignores the real reason why MAS accumulates reserves and doesn’t answer why we need so much in reserves in the first place. Apologies if this is too basic for the economists amongst my readers.

There is an excess of buyers of Singapore dollars over sellers of Singapore dollars. which results in MAS accumulatting reserves. If MAS did not accumulate reserves the currency would rise which would make our exports uncompetitive,

A current account surplus is the sum of the excess of merchandise exports over imports plus the balance in services, principally financial services and tourism.Singapore’s current account surplus is close to 20% of GDP which is much larger than every other major trading nation. Why does Singapore run such a large current account surplus? The Government would say that it’s due to Singapore’s competitive edge thanks to PAP policies. However the real reason is that the government pursues austerity policies and runs massive Government surpluses.

What do I mean by austerity policies? Basically not spending in particular not investing in the people. The uniquely Singaporean version of austerity is when Government Ministers live in mansions on huge tracts of state land like rajahs whilst telling the majority of the populace have to tighten their belts.

By underspending on Singaporeans and overtaxing them on a gigantic scale, the Government takes away resources from you and your families and businesses. No wonder then that consumption has fallen below 40% of GDP whereas in countries where citizens exercise more power in ensuring that resources are spent on them and their welfare, the ratio of consumption to GDP is closer to 70%.

Having such a high level of saving relative to consumption means that Singapore is far too dependent on external demand for growth. When external demand falls, as it is now with the US slowing down and the Chinese economy moribund (mostly for the same reasons as Singapore’s) then the Singapore economy is likely to tip into recession.

Despite the fake Budgets announced every year, there is only one year in the last 30 that the Government has run a deficit when measured using the IMF’s methodology. This was in 2020 during the pandemic but has been largely recouped by surpluses since then. Over the last 20 years the Government has run up close to $400 billion in surpluses. And this is not the whole story. This is only the cash surplus and does not include the profits of GIC, Temasek, MAS, Changi Airport Group, MOH Holdings and other government-linked companies and statutory boards as well as revaluation gains. If we added in Temasek and GIC then the growth of reserves since 2004 would probably be well in excess of $1 trillion. I have estimated the Government’s total reserves at in excess of $3 trillion.

In addition Singaporeans are forced to oversave by having 20% of their income deducted in CPF and a further 17% from their employers (which ends up probably being paid by the employee in the form of a lower salary vis-a-vis foreign workers whose employers do not have to pay CPF.

Land is also part of the surplus. Through its control of the supply of land, which it uses to underbuild and squeeze HDB prices higher, the Government forces Singaporeans to spend a rising proportion of their savings on housing which is then recycled back into the reserves. As we all know by now the kand under your HDB has value and the PAP will damn well make sure you pay as much as possible for that land. The Government says its “subsidies” of over $1 billion a year to CPF and of nearly $5 billion to HDB keep housing affordable. However this is another con trick to divert resources away from spending and into the reserves. The PAP say that land is the most significant part of the reserves and that no one must be allowed to benefit from paying less than full value for the land. (However as we’ve seen with the Ridout Road saga this is not really a consideration for a select few. Under Shanmugam’s watch the SLA is so badly managed that rents are at a point where disparities with the valuation of private properties are glaring.)

Back to MAS’s losses. As a result of the Government’s policies of unnecessary austerity, there is a huge shortage of Singapore $ compared to the demand. MAS could allow the S$ to rise to the point where Singapore goods and services become so uncompetitive that the demand for S$ comes into balance with the supply. This might be good for consumers who would pay less for imported goods particularly food and for foreign holidays but bad for businesses whether goods exporters or hotels and restaurants dependent on tourism.

To avoid the currency appreciating too much MAS instead intervenes by buying the excess or most of the excess of foreign currency and accumulates foreign reserves as a result. It could print S$ to pay foreigners. However it has a largely misplaced fear of the inflationary consequences of printing money and so instead issues debt to borrow the S$ it needs. This is called sterilized intervention in the FX market and is of doubtful efficacy. The end result is that MAS allows the S$ to appreciate but not as much as if the exchange rate were free floating. MAS’s losses are largely the result of revaluing the whole stock of foreign exchange reserves it holds as well as losses on paying higher interest to holders of Singapore Government securities issued to mop up excess liquidity than it earns on the foreign securities it holds. Even though it intervenes heavily in the FX markets the demand for S$ is so great that it’s forced to let the S$ rise though less than it would if MAS didn’t intervene.

As I have often advocated in my blog, Singaporeans would be better off if we ran a much smaller current account surplus. To achieve this the Government would have to raise spending or cut taxes. Taxes and spending are already low as a percent of GDP though I’m not sure that is a meaningful statistic when the wider public sector (including state-owned companies and statutory boards) is estimated to be more than 50% of GDP. So cutting taxes which are already low and highly regressive in contrast to the tax systems of other advanced countries would not be as beneficial as increasing spending. Some have advocated cutting GST but I would prefer to eliminate it on certain categories where spending is mostly by residents such as food, medicines and children’s clothing. This is because GST is one of the only ways of taxing tourists and other non-residents.

I’ve mentioned before that spending could be raised by $80 billion or so which would enable us to do away with higher education fees for Singaporeans, go a long way towards universal health care free at point of delivery (when combined with Medisave funds) and institute an old age pension and disability benefits. Assuming that 50% or so of the additional spending leaked into imports this would reduce the current account surplus by $40 billion but still leave it around 10% of GDP which is high by global standards. This figure is also around the sum I derived from spending about 3% of the Government’s stock of financial assets which I’ve previously calculated to be around $3 trillion.

Of course the PAP Government will never agree to that ostensibly because of their mercantilist beliefs and anti-welfare and anti-populist mentality. Investing in Singaporeans is considered to be populist and a waste of money. They claim that the Constitutional bar on spending from the reserves is to preserve them for future generations which is strange because with our fertility rate close to 1 (arguably due to the austerity policies that the Government says are necessary) there will not be a future generation of Singaporeans without immigration. The Government claims that the Net Investment Returns Contribution (NIRC) allows spending of up to 50% of the long term returns of GIC, Temasek and MAS. However as I have pointed out since at least 2014, NIRC is a sham because most of the money is squirreled away in long term funds and not spent.

The result is that Singaporeans have received virtually no net benefit from the reserves and are continually conned into paying more money in to the reserves through unnecessary and hidden surpluses. At the moment it doesn’t matter whether MAS, GIC or Temasek make or lose money as you will never see any of it anyway. Something is rotten in the state of Singapore and until you vote in sufficient Opposition members to block the PAP’s supermajority you won’t get any answers to the following mysteries and contradictions:

1. Land has value according to LKY, Indranee Rajah and Desmond Lee when it comes to HDBs sold to ordinary Singaporeans but has little value according to Teo Chee Hean when it comes to the mismanagement of huge tracts of state land in prime locations.
2. Working backwards from the Net Investment Returns Contributions, we have at least $3 trillion of financial reserves (and $10 trillion of land reserves) yet LHL continually lectures Singaporeans on the need for taxes to go up to pay for basic welfare.
3. Singaporeans pay for every medical procedure and polyclinic visit yet these revenues are hidden from us in MOH Holdings and not included in the Budget. I will be trying to get the accounts next which the Government hides behind a paywall. Meanwhile the MOH budget per Singapore resident appears to be at a level similar to what the NHS spends in the UK with an older population. As the Minister for Health has not POFMA’ed me despite repeated questions and refuses to answer you can assume I’m correct. Meanwhile Singaporean babies die because the Government won’t pay for the medication costing millions which is provided ifree at point of use in the UK and other countries with national health services.
4. Temasek is a private company according to Lawrence Wong, even though it a major contributor to the NIRC, and we have no right to know what the PM’s wife was paid as CEO and whether she still receives compensation, even though the PM and the Cabinet appoint the board of Temasek.

We are unlikely to get the full truth till we get an Opposition government in power but both the PAP and the WP say that is still decades away. For the sake of your children’s and your children’s children’s welfare can you afford to wait so long?

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam