Demystifying Singapore's Government Debt to GDP of 130%

Contributed By: The Big Fat Whale

To be frank, we were very surprised when we saw Singapore at the top of the table for countries with the highest government debt to GDP.  Is it a worrying sign? Or is there more to it than what the figures are implying?

Therefore, we decided to take a deeper look by doing some research.

Source: worldpopulation.com- Top 10 countries with the highest Debt to GDP in 2022

 

Debt Instrument Issued

Firstly, let's break down the different debt instruments that the Singapore government issued for their debt.

• Singapore Savings Bond
• Singapore Government Securities
• Special Singapore Government Securities
• Treasury Bills

Singapore Savings Bond is issued to give Singaporeans a debt instrument they could invest in to grow their money efficiently and safely to counter inflation. They are issued with a 10 years tenure and could be redeemed at any time with no loss of capital.

Singapore Government Securities is issued to promote the debt market in Singapore and could be used as a benchmark to price corporate bonds. They are issued with maturities of 2, 5, 10, 15, 20, and 30 years.

Special Singapore Government Securities are issued to provide returns for Singapore's State Pension, the Central Provident Fund. The securities earn the CPF Board a coupon rate that is pegged to the CPF rate the members receive.

Here are some details of the interest that members will receive. The member will earn 5% per year on up to the first $60,0000 of their Retirement, Special and Medisave Accounts if their Ordinary Account is less than $20,000. Also, they earn an additional extra interest of 1% per year on the first $30,000 of their CPF balances after age 55. This means they can earn up to 6% per year on the first $30,000 in their Retirement Account.

Treasury Bills are short-term debt instruments that are issued with a 1-year maturity. It is used to bridge and smoothen the cash flow from the operations of the government on a day-to-day basis.

 

Is Singapore in a Precarious Situation?

Singapore's government mainly borrow money not to fund the running of the country which is usually depicted in the yearly budget. In recent times, the UK is trying to borrow more so as to fund its proposed tax cuts and it has led to an all-time low for the sterling. 

Singapore's government borrow to fund infrastructure projects that will turn into assets once they are completed. Some notable projects funded by past government debt are the large initial costs for Changi Airport and the first MRT lines in the 1970s and 1980s,  There will be cashflow from the funded projects after completion which will lead to generating investment returns and contribute to the revenue of the nation.

Projects that will be financed by the government debt in the future will be the expansion of rail lines, major highways, other green projects and more importantly a sea wall that will protect Singapore from rising water levels due to climate change.

Based on Singapore's constitution and government securities act, it is not allowed to spend the funds raised through debt securities.  Therefore, the bulk of it is invested in infrastructure projects that have national interest. 

There are also safeguards to rein from an overdose of debt for infrastructure with a cap currently at 90 billion dollars which is around 20% of current Singapore's GDP.

 

Singapore is One of the World's Top Net Creditor

Source: Brookings

From the computed statistics shown, Singapore is one of the top net creditors according to the share of GDP in the world. Therefore, based on our earlier discussion, if we take the value of the assets that were financed by the debt, and deduct the debt amount, we are in a very healthy position.

 

Summing Up

Headline figures of 130% of government debt to GDP for Singapore would send uneasy signals if we do not look deeper into the figures. 

So based on our research, the debt is used to finance mainly infrastructure projects that would generate investment returns in the future once completed.  With these turning into cash-generating assets, the implication would be that Singapore is actually a net creditor when we take the assets minus the debt. 

On top of that, the reserves of Singapore which are managed by MAS (S$510 billion), Temasek (S$381 billion) and GIC (In excess of S$100 billion) as of 31st March 2021, which would put us in good stead to face any turbulence ahead with a trillion dollars of a buffer.

 

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Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.

 

Food Crisis and Protectionism- Boom for the Cold Storage Industry

Contributed by: The Big Fat Whale

The recent ban on exporting live chickens- 3.6 million a month- from Malaysia to Singapore has been unprecedented. It shows the vulnerabilities of the supply chain issues for a country like Singapore which is highly dependent on others for their food and energy sources.

The current situation is due to the cap by the Malaysian government on chicken prices at RM8.90 per kg since Feb 5, 2022, which has led to losses or minuscule margins for the chicken breeders. This has affected the supply of chickens as some would rather not breed given a loss-making situation where costs of breeding have shot up due to the world's inflationary environment.

The government did try to cushion and provided support to the breeders through a subsidy of RM730 million. However, to date, only RM50 million have been paid out.

The ban on Malaysia's export to Singapore could help stabilise the prices of chickens in Malaysia as there is a good possibility that prices the breeders managed to secure from Singapore would be higher than the ceiling price set by the Malaysian government.

However, if prices are not set by market forces, sustainability would be questionable, especially with subsidies not efficiently handed out.

Source: The Straits Time

From the chart above, Malaysia should form the bulk of our live chicken supply due to the geographical and logistical aspects of the supply chain. 

Going forward, with a huge dent in the supply of live chicken stocks, we might have to make do with frozen chicken till the ban eases.

Click Here for the Full Article:

https://thebigfatwhale.com/food-crisis-and-protectionism-boom-for-the-cold-storage-industry/ 

Russia War with Ukraine- Brinkmanship or For Real?

Contributed by: The Big Fat Whale

With the latest developments looming around the Russian and Ukraine region, where there have been other players such as the US adding fuel by giving intelligence that Russia is going to wage war in a matter of days. 

So is Russia really bent on taking over Ukraine?

Source: BBC

What is Happening?

The threat is real with more than 150000 troops stationed near Ukraine borders. Adding some perspective, there was just close to 5000 troops deployed in 2014 when they seized Crimea from Ukraine.

Understandably, Crimea is much way smaller than the whole of Ukraine. The seizure could be a strategic move given the geographical location of Crimea as could be seen from the map.

Click Here for the Full Article:

https://thebigfatwhale.com/russia-war-with-ukraine-brinkmanship-or-for-real/

Living to 100 Years Old- Is it a Curse?

Contributed By: The Big Fat Whale

It is like a miracle to live beyond the century mark in the past but it is no longer a rarity in today’s world. Japan have the tradition of giving a small swallow bowl made of silver (silver sakazuki) to celebrate those who have reached this grand milestone. It is meant for a ceremonial sip of the sake. Soon after, there will even be a letter of commendation sent to them from the Prime Minister.

Given the numbers reaching beyond 100, the government is looking to downgrade the award. Currently, the centenarian population stands at 86,510 in 2020 as compared to 153 when the records started in 1963. 

100 Year Life

Recently, we just completed reading the 100 Year Life by Lynda Gratton & Andrew Scott and have gained useful insights from their work. What is notable would be if you are in your 40s, there is a 50% probability you will live to 95 years of age. If you are in your 20s, there is a 50% probability you will live to 105 years of age.

What it signifies is that being a centenarian would be a norm rather than an outlier in the future. It brings us to a great paradox of what it entails to our life, society, economy and social structure.

Here is the link for the full article:

https://thebigfatwhale.com/living-to-100-years-old-is-it-a-curse/

Is Basic Universal Income Viable in Singapore?

Contributed By: The Big Fat Whale

The concept of Basic Universal Income could be traced back to 1796 proposed by Thomas Paine in the United States. Ever since then, there have been actual experiments in Alaska, Africa, Iran, Netherlands, Finland, etc. Most are implemented on a small scale but Alaska and Iran are on a nationwide level, they are still running the scheme.

Alaska payout is around $1000-$2000 per year to all citizens since 1982. The amount depends on the oil revenues of their state-owned investment fund. However, the population of Alaska is just 730,000 people which makes financing it more manageable.

As for Iran, there is a population of 84 million people, the universal basic income has been implemented since 2011. The amount equates to US$40 per person per month which sums up to US$480 per year.

 

Why the need for a UBI?

 

In an ideal world, everyone could be doing the things they love and yet not worry about finances with UBI. In this type of utopian environment, there could be an abundance of wealth as wealth should be measured not only by how much you have in your bank.

More importantly- your mental state, health, family bonding and living environment.

However, to accomplish this, it is an uphill task for any government. The funding of UBI would be a real nutcracker for governments to balance their budget and yet implement this scheme.

Looking at around the world now, with massive technological advancements through Artificial Intelligence and ever-increasing wealth disparity between the top 10% and the rest of the population, the call for a serious look into UBI should not be undermined.

Here is the link for the full article:

https://thebigfatwhale.com/is-basic-universal-income-viable-in-singapore-2/