S'pore govt's borrowing for the first time since 1980s for infrastructure projects

Because the future generations will be enjoying these infrastructure developments.

Tanya Ong | February 24, 2018, 05:31 PM

Finance Minister Heng Swee Keat announced in the Budget statement this Monday (Feb. 19) that the government is looking at borrowing by Statutory Boards and Government-owned companies which build infrastructure.

For instance, the Land Transport Authority (LTA) will look at borrowing for projects, such as the Kuala Lumpur- Singapore High Speed Rail.

The National Environment Agency (NEA) will also look at borrowing to finance the upcoming Integrated Waste Management Facility.

Another key infrastructure project is Changi's Terminal 5.

Hence, Heng said that a $5 billion Rail Infrastructure Fund will be set up to save for major rail lines.

This is the first time the Singapore government is looking to borrow for major infrastructure projects since the 1980s.

Government borrowed in our earlier years

In Singapore's early years, our finances were tight and we did not have enough revenue to finance infrastructure development.

Ngiam Tong Dow, a senior civil servant from 1959 to 1999, shared the view behind financing infrastructure in the initial years of Singapore's independence.

In his book, A Mandarin and the Making of Public Policy: Reflections by Ngiam Tong Dow, he said,

"Most governments in the world borrow from the World Bank, the Asian Development Bank, or raise bonds to finance capital expenditure...

As loans have to be repaid, we only borrowed for productive purposes, not for consumption. HDB flats were built with CPF savings, not with external loans. We borrowed to grow the economy."

In a Straits Times interview with Heng after the Budget, he said,

"In the earlier years of our development, we borrowed from a variety of sources, including multilateral development banks such as the World Bank, Asian Development Bank and so on, to fund some of these major long-term infrastructure developments.

But as our economy grew and the tax collection was strong, we stopped borrowing some time in the mid-1980s for our major infrastructure projects."

Relying on revenue

In 1980, Singapore’s public external debt was $937 million, but this soon declined to 0 in end-1995.

Since then, the general approach to projects has been to fund them using current revenues.

Besides, there was no longer a need for external financing by our government due to our budget surpluses.

Considerations for borrowing

Why did the government choose to borrow then?

This borrowing arrangement was proposed because we are facing a major spike in upcoming infrastructure spending needs.

The advantages of paying upfront include savings on interest payments.

However, Heng raised that infrastructure investments tend to be extremely hefty and the projects may take several years to complete.


What this also means is that the present generation will be paying for long-term projects that benefit future generations.

As Heng noted in his budget speech, "the borrowing arrangements for these projects will hence help distribute the share of funding more equitably across generations".

Hence, the potential departure from the traditional practice of funding infrastructure upfront reflects the government’s consideration to maintain intergenerational equity.

This is the Ministry of Finance's tweet:

Using reserves as guarantee

Heng also stated that the government will consider providing guarantees for some of these long-term borrowings in order to lower the financing cost.

This guarantee will help to enhance the credibility of Singapore and confidence of the creditors.

However, this will only be done on a case-by-case basis.


Top photo from Getty Images.