Government Securities and Treasury Bills

Mr Speaker, Sir, I beg to move, “That this Parliament, in accordance with Article 144(1)(a) of the Constitution of the Republic of Singapore, resolves that a higher amount of S$1,515,000,000,000 be specified for the purposes of section 11(2) of the Government Securities (Debt Market and Investment) Act 1992”.

Sir, section 11(1) of the Government Securities (Debt Market and Investment) Act 1992 or GSA authorises the Minister for Finance to raise loans by the issue of Government securities and Treasury Bills or T-Bills in Singapore.

Section 11(2) of the GSA places a limit on the aggregate amount that can be borrowed by the issue of Government securities and T-Bills. While the legislation already sets out that proceeds from such securities are not available for Government spending, this limit serves as an additional safeguard and as a check on the total stock of such borrowings. We monitor this limit closely, and when we assess that we need to raise the limit, we will seek Parliament’s authorisation to raise this through a resolution.

The last increase to the issuance limit was in 2021, when Parliament authorised the increase of the Government’s issuance limit from S$690 billion to S$1,065 billion, which was intended to last till 2025.

As of end-October 2024, the outstanding amount of Government securities and T-Bills issued under the GSA is S$955b. The Government expects issuances to reach the prevailing limit in 2025.

Sir, I propose to raise the ceiling for issuing Government securities and Treasury Bills under the GSA by S$450 billion. The proposed issuance limit of S$1,515 billion is intended to last till 2029.

More than 60% of the increase is expected to be issued as Special Singapore Government Securities, or SSGS, with the primary purpose of meeting the Central Provident Fund's (CPF’s) investment needs. CPF monies are invested in SSGS, which are fully guaranteed by the Government. This provides the assurance that CPF Board will be able to pay the interest committed and monies due to CPF members.

We expect CPF balances to continue increasing over the next five years due to growth in wages and CPF policy enhancements. Over the five years between 2018 and 2023, the median gross monthly income from employment grew by 3.2% per year. Examples of CPF policy enhancements include the higher CPF contribution rates for senior workers and CPF bonuses under the Majulah Package. These measures will enhance the retirement adequacy for our seniors and also increase CPF’s investment needs in the coming years. These in turn will require more issuance of SSGS.

The remaining increase in the issuance limit under the GSA is for projected issuances of publicly-held debt instruments, which are the Singapore Government Securities (Market Development), T-Bills and Singapore Savings Bonds, or SSB. This is mainly to support the continued development of a vibrant SGS market, which serves as an anchor for the growth of the corporate and retail debt market; and meet demand for high quality liquid assets from our financial institutions in tandem with the growth of the financial sector. We will continue to monitor the market demand for such publicly-held debt instruments and will adjust the rate of issuance to meet this demand, if necessary.

The proceeds from the issuance of Government securities and Treasury Bills under the GSA are invested and are not used to fund Government spending. The Government does not borrow for recurrent spending needs, so as not to overly burden our future generations who will have to service the debt incurred by current and previous generations.

Like previous increases, this increase in the issuance limit under the GSA is not for spending purposes and has no impact on the Government's fiscal position. Unlike other countries that borrow primarily to fund recurrent spending, only a small portion of the Government's borrowing is for spending purposes. This is issued under the Significant Infrastructure Government Loan Act, or SINGA, to finance nationally significant infrastructure projects. SINGA borrowings are presently less than 2% of total Government borrowings. There are also strict safeguards on the qualifying projects and total amounts that can be borrowed. The SINGA has a separate issuance limit, which is not part of the issuance limit under the GSA.

The increase in the issuance limit under the GSA also has no impact on the Government's net financial position. While Singapore's gross debt-to-gross domestic product (GDP) ratio may appear large on its own, it does not fully reflect Singapore's financial position as it does not consider Singapore's assets, which continue to remain in excess of our debts.

For the present Motion, I propose to raise the ceiling for issuing Government securities and Treasury Bills under the GSA to S$1,515 billion. The proposed limit is expected to last for five years till 2029. Sir, I beg to move.

*Question proposed.*

Sir, I understand that this Motion, which seeks to increase on the limit on the face value of Government debt to S$1.5 trillion is, despite its staggering headline number, somewhat routine and we are all, truth be told, rather tired after a long day in Parliament.

I had previously spoken on an analogous Motion at the beginning of 2021, where I stressed how Government borrowing more need not be detrimental, especially if economic conditions are favourable and if invested well in furtherance of our national objectives. I stand by that position. Still, it is worthwhile looking at how the economic environment has evolved dramatically since and what this could imply for this particular round of a proposed increase in the debt limit, as well as our implied interest burden.

As the world entered into 2021, much of it was still teetering from the aftermath of the global recession brought about by the COVID-19 pandemic. Economic activity had plunged to a low of minus 3% in 2020, the lowest in half a century. Lockdowns were still routine in many countries and unemployment rates remained very elevated, 6.6% globally, the highest since 1990 and surpassing both the Asian and Global Financial Crises. Inflation was still very quiescent, however, averaging 1.5% worldwide at the end of that year.

Owing to overall economic weakness, interest rates at the time remained remarkably low. This was what prompted my call at the time to lock in the favourable borrowing rates and to take advantage of higher multiplier effects that would have been present then to expand public investment in our hard and soft infrastructure, thereby stimulating growth.

This is no longer the case today. World inflation started to rise steadily in 2021 to 3.2% before peaking at an eye-watering 8% the year thereafter. In Singapore, the cost of living took off in 2022 as well, reaching 7.5% in the third quarter, which was the highest since the 2008 Financial Crisis. Thankfully, our economy has since rebounded.

Today, the unemployment rate is around the historical averages of the past two decades and while prices are still high and real wages have yet to fully catch up, the inflation rate has stepped back down to 2%. It is in this renewed economic backdrop that I will offer three brief thoughts about the proposed increase in the debt limit. While I do not view these concerns as sufficient cause for objecting to the Motion, it would, nevertheless, be useful to get some clarity on the matters raised.

First, the increase in the limit represents the highest increase over the most recent five instances. In November 2009, the increase was $70 billion from the original limit of $250 billion. The increments in April 2012, November 2016 and January 2021 steadily rose, amounting to $170 billion, $200 billion and $270 billion.

Even so, the present increase calls for $450 billion of an increase, a disproportionately larger two-thirds, relative to the prior quantum. The increase is also significant as a share of our economy. Between 1992 and 2021, a three-decade period that saw the limit increase six times, the share of debt-to-GDP has always hovered between 110% and 165% of output. This round will bring the total burden to 225%.

Even taking into account a generalised increase in price levels and granted that the borrowing now enfolds both Bills under the Local Treasuries Act or the LTBA, and longer duration bonds under the GSA, this is a sharp increase. After all, the limit for T-Bill increases had only been raised once in recent memory, by $10 billion in 2004.

Put another way, were we to take the debt limit from three years ago at face value, adjust that by inflation and apply an inflation-adjusted T-Bill amount, we would still arrive at a revised limit of a little less than $1.1 trillion, rather than the $1.5 trillion being asked for today.

Hence, while I appreciate that the debt issued are for market benchmarking and financial development purposes and are constrained in terms of how the money raised may be spent, some explanation for this discrepancy seems warranted.

Minister Chee, in his opening remarks, mentioned that these are attributable to SSGS due to wage increases and CPF enhancements. May I seek a clarification on how much of the future share of anticipated growth is due to CPF changes versus that for financial development?

Second, given the contemporary interest rate environment, the yields we will need to pay will correspondingly be higher. The yield on 10-year Government bonds in January 2021 was a mere 1%. In early November, rates were closer to 2.8%. Similarly, short-term yields were less than half a percent then, compared to 2.7% now.

On balance, the interest repayment burden is around three times higher than what it would have been a mere three years ago. Would the Government be able to explain how it plans to limit the fiscal impact of this elevated interest repayment stream?

Perhaps, the proceeds raised will be transferred to our sovereign wealth funds (SWF) for management, in which case, the hurdle rate will likely remain manageable, given how nominal returns have also moved up in the interim worldwide. Regardless, a narrower spread between SWF returns and borrowing costs will mean, at the least, less by way of surpluses to be returned to the Ministry of Finance. Hence, I believe it is valuable to have a handle and have on record how the Government plans to manage this revised interest differential, just so as to reassure Singaporeans.

My third and final point has to do with whether the ultimate purpose of issuing such debt is actually being met.

The stated objective of the SGS Market Development Securities, is to, I quote, "develop the domestic debt market." But exactly how much our market issuances have translated into actual useable, investable funds for our companies on the ground remains questionable. After all, domestic credit to the private sector, a standard and widely used metric for gauging the depth of financial development, stood at around 130% of GDP in 2020, significantly lower than comparator economies, such as Hong Kong, Japan and South Korea.

The equity market capitalisation share in Singapore has also languished relative to other global financial centres, such as those of stock exchanges in New York, Tokyo, Hong Kong and London. This means that Singapore has succeeded, certainly, as an international financial centre, but it is more questionable whether it has succeeded as a globally competitive financial market that serves its economy.

Put another way, as much as we have succeeded in being an intermediary of global saving, less of it appears to have made its way into our domestic economy. Is this a problem? Well, not if you believe that a thriving financial industry will eventually trickle down to our workers and businesses. But if you worry about the credibility of trickle-down economics and wonder if our vaunted status as a global financial hub has benefits to the common man and woman, then you might justifiably question if the continued drive for expanding our debt limit to foster market development has borne much fruit in terms of tangible improvements to the welfare of our people.

Mr Speaker, I want to start by thanking Assoc Prof Jamus Lim for sharing his views and also for indicating that he overall supports the Motion.

His first question, I did mention it in my opening speech but let me say that again. More than 60% of the increase is expected to be issued as SSGS, with the primary purpose of meeting CPF's investment needs. So, that is how we have sized it, more than 60%.

His second point is about the fiscal impact, if I understood Assoc Prof Jamus Lim correctly. Sir, we are raising the issuance limit to ensure there is sufficient headroom for the issuance of securities, partly to meet CPF's investments, but also to meet the Monetary Authority of Singapore's market development needs.

When we last raised the issuance limit in 2021, we anticipated that it would be sufficient until 2025. So, our estimate was actually quite accurate, because this time round, the limit will be fully utilised in 2025. So, that is why we now are coming back to Parliament to seek approval to raise the limit further, which we estimate, will be sufficient to last us till 2029.

The proposed $450 billion increase is in line with historical trends. Although the quantum of the increase is higher, as Assoc Prof Jamus Lim pointed out, the percentage of the increase over the outstanding issuance limit is comparable to the previous increase in 2021 at around 40%.

In sizing the increase in CPF SSGS, for which SSGS is more than 60% of this increase in issuance limit, we took into consideration the expected resident workforce growth and also the CPF contribution rates. As I mentioned earlier in my speech, all borrowings made under the Government Securities Act are invested and are not used for spending. So, this is one of the key legislative safeguards.

The issuance limit, that is coming back to Parliament for approval, is another layer of checks and safeguards to ensure that the Government would borrow responsibly. We conduct regular reviews to monitor this and to ensure that the prevailing debt limit is sufficient. Each time the limits need to be raised, we will come back to Parliament to seek agreement to raise it through a resolution. This resolution will also require the President's concurrence.

Sir, before I touch on the last point, Assoc Prof Jamus Lim also spoke about the changes in the external environment. Sir, I want to, maybe just for avoidance of doubt, make this point clear, that the debt that we issue is fully backed by our assets. So, I think that is an important point to bear in mind.

Our financial assets are in excess of our debts and our net asset position can be seen from the positive Net Investment Returns Contribution to the annual Budget. The strength of our balance sheet is validated by our AAA credit rating from international credit rating agencies and that, in turn, actually allows us to be able to borrow at more favourable terms.

Assoc Prof Jamus Lim's last point, I would put it this way: overall, if you look at how our financial sector, our financial markets have grown over the years, I think certainly this effort has contributed to the growth of our debt markets. The financial sector is a key provider of jobs for Singaporeans. It is also a key engine of growth and we do have plans, looking ahead, to see how we can further grow the sector, through different activities.

One area where we are looking at how we can do better is the local equities market. I shared previously that this is one area where we have formed a review group, together with industry players, to see what we can do to make improvements to Singapore as a destination for companies that want to seek listing. This is a work in progress. We are discussing some ideas with the industry, both looking at it from a supply point of view, from a demand point of view and from a regulatory framework point of view. So, we will provide some updates as we make progress.

But if you look at the overall financial sector development, I think, in many areas, whether it is in the wealth management, debt markets, forex, in many, many aspects, I think, Singapore's financial sector has done well and is highly regarded. This is something that we will continue to work on it, together with our industry partners and also our sisters and brothers from the union, using our tripartite partnership to help us to do even better.

Sir, I believe I have touched on the three key points that Assoc Prof Jamus Lim has raised. So, Mr Speaker, I beg to move.