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.


Posted on September 12, 2011, in What's Happening?. Bookmark the permalink. 5 Comments.

  1. There are 3 parts to your argument. First 2 is explained by you superficially which I will provide some counter arguments. The 3rd & last part which was not explained by you is the investment side – Temasek/GIC or the Sovereign Wealth Fund (SWF). Theoretically, if the SWF is worth it’s weight in gold, the influx from wealth generation would have reduced the government debt. The fact that this debt has grown instead of being reduced is a question we would like an explanation.
    These are good reference articles:-
    Links to:
    Public Housing between 1998 to 2010 ie. Mah Bow Tan-era had not grown. The HDB had built so many flats prior to the economic crisis and supply far exceeded demand due to the ongoing economic turmoil (2000 – 2006/7). In Punggol alone, rows of completed HDB flats stood unoccupied for years.
    Also, CPF contributions did not grow during 1998 – 2005 due to retrenchments, salary cuts & negative jobs losses. It was only with the influx of foreigners (2005/6 onwards) that the CPF inflows lifted up. Yet government debt grew all those years despite these facts. Why?

    • I beg to differ. Sovereign debt of sg are largely due to the government issuing bonds (liability or debt) raising its money from cpf. Do check out the sources and do not just read TRE and take it as truth. CPF do not shrink due to crisis. The growth rate decreases but does not shrink.

      Government issuing bonds to CPF board though classified as debt is not truly a debt. It is simply an accounting and investment strategy. Whatever interest which is the peril of all debt is due returns to CPF board or state controlled entities and not to pte investors/other sovereigns. That case would truly be a cause of concern.

  2. I don’t take anti-govt websites as inherently factual for their emotional & anti-government responses. I take a rational approach – neither anti-government nor subjective. I highlighted these TRE articles (…a coincidence) because there are certain known facts and issues which I agree with the writer needs to be looked into.
    There are dynamics in economics which distort economic theory outcome for a period of time before it reverts to the mean – for example, communist central planning economies had a period of prosperity before eventually collapsing (a-la-Adam Smith).
    The Singapore model is based on economic growth-at-all-costs. The government takes a central role within the economy – extract wealth from domestic economy and hands over to SWF to extract returns from international markets. The 1st part great, 2nd part unknown ( be fair).
    1ST PART:
    (CPF, ERP, GST, etc.)—-issue bonds————-invests overseas

    2ND PART:
    (ROI, capital gains)———-treasury inflows——–social programs, lower cost of living

    The 2nd part was Goh Chok Tong’s promise of a Swiss standard of living while he was PM. Still waiting….

  3. “..CPF do not shrink due to crisis. The growth rate decreases but does not shrink.”
    It did not shrink because minimum sum retention (after 55 years old) had increased last decade plus retirement age withdrawals also went up to 65 years old. Below article serves an interesting read….
    Link to:
    Some extracts from GREEK TRAGEDY article:
    “After paying all his National Insurance contributions throughout his working life, he was expecting a comfortable retirement.

    But the austerity measures of the last few years mean his pension has been slashed by 60% and the government is considering still more cuts.

    What is more, if the government goes through with its latest proposal to raise the retirement age, he could have to wait another year or two before he sees any benefits.

    “I feel like they just stole my money,” he says.

    Leo counts himself lucky because he has a bed in a homeless shelter
    “If I had saved all those payments in a bank account I would be rich by now; where has it all gone?” “

    • I agree that increasing min age would stop the cpf funds from shrinking but I was using the point to illustrate the increasing government debt. CPF itself is a sort of pension trust and the money belongs to CPF. Hence it would need to invest in some fixed income or other equities inorder to give a reasonable interest rate. The Singapore government creating bonds for CPF is in fact a good idea as the Government is unlikely to default on CPF itself and it is a win win. The money is in turn used for development of housing which is on its own a sound policy and strategy.

      I do agree with your other point that pursuing a growth for the sake of growth is a bad strategy and I have spoken out against many of them as well especially on the GDP growth bonuses.

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