Singapore Government Debt – A Cause for Alarm or a Misunderstanding?
The recent general elections had roused the citizens of Singapore and many are now actively scrutinizing politics and policies in Singapore. It came as no surprise that the Singapore Government Debt became a hot issue discussed widely in social networks. A quick search in Wikipedia shows that Singapore is ranked #9 in the world in terms of public debt to GDP ratio. That certainly triggered widespread hysteria and panic. There were even suggestions that our Government had been secretly losing money through bad policies and investments and are hiding the truth from us. However, the debt is easily explained and there shouldn’t be any reason to panic yet.
A main bulk of the Government debt are in the form of security bonds called Singapore Government Securities and the Central Provident Fund Board (CPF) is the main holder of these bonds (See Singstat). Hence we can say that Singapore Government do not really owe other countries or private entities a lot of debt but they owe CPF quite a substantial amount of money. Why then, one may ask, does the Government need to borrow so much money from CPF?
The answer is an ingenious plan by the Government to create a money flow cycle to fund public housing. CPF was created as a pension funds and the funds belongs to the contributors (CPF Board acts like a bank in this case) and not the Government. In order for the Government to use the fund in CPF, they have to ‘borrow’ from it. When Singapore was separated from Malaysia Federation, there were fears that Singapore would not make it and that fear could trigger a mass exodus. Hence the Government borrowed money from CPF by issuing bonds and used the money to developed public housing through Housing Development Board (HDB). People who have invested in housing and a home would stay committed to Singapore. The houses were then sold to the people at a comfortable rate to repay the debt and interest owed to CPF board. The cycle continues to present day and as the Government invests more and more on public housing, it borrows more from CPF and that explains the high public debt.
Exhibit 1 – The money flow cycle between the Government, CPF Board and the People
Although the diagram is a very simplified version of the actual but complex system, it suffice to let the public know that Singapore Government is not in the unenviable position of other Governments who are servicing high Government debt. Singapore has very prudent fiscal policies and there are no structural budget deficit and Singaporeans can at least be assured that their they are not burdened by debt which would be financed through heavier tax in the future or through inflationary policies.
We can now see that the huge Government debt is no cause for alarm. However, what the Government should do better is communication. Without explaining the details of the debt, people who are not well-versed in economics or do not know the intricate details of the funding model for our public housing project would be confused and shocked.