With a presidential election coming up, there has been renewed talk about Singapore's reserves, given that the elected president acts as a safeguard on how the reserves can be spent.

Prime Minister Lee Hsien Loong has weighed in on this matter, sharing his insights on how Singapore's reserves are being used to benefit current and future generations, as well as how and when they can be tapped on.

His responses were recorded for an interview with CNA on Aug. 16, as part of a documentary, “Singapore Reserves Revealed”.

Here's a summary of what PM Lee shared.

What constitutes Singapore's reserves?

PM Lee said Singapore's reserves consist of "all the things which mattered" that are owned by the state.

These include financial assets — cash, shares, bonds, private equity, financial instruments and companies — as well as fixed assets, such as buildings, land, areas and other tangible things with monetary value.

These can be pledged and converted into cash for spending.

Assets under the purview of the government that can be cashed in, include money and financial assets under the Monetary Authority of Singapore (MAS), Temasek Holdings, GIC, CPF, as well as land assets under JTC and HDB.

Where are the reserves from?

PM Lee explained that Singapore's reserves have been built up over many years, due to the "toil and resourcefulness" of previous generations of Singaporeans.

During the 1970s and early 1980s, when the nation was experiencing rapid economic growth with budget surpluses of up to 12 per cent of GDP, there was a possibility of putting some of it aside for times of crisis, he said.

He added that it should not be viewed as "a pot of gold", but something that can "see us through rainy days".

Why the need for a president to safeguard reserves?

The most pivotal moment in the history of the reserves, PM Lee said, was when the government decided the reserves constituted a lot of money and needed to have a second key to safeguard its use.

The idea was first suggested by then-PM Lee Kuan Yew in 1984, as part of his National Day Rally speech.

This was crystallised into a White Paper on the role of the elected president, that was published in 1988.

Essentially, Lee Kuan Yew said, the president's role was to ensure that Singapore's reserves would be protected, but could be used when it was needed.

Otherwise, he stressed, it could be misused by the government of the day.

"One day if you have a freak election, you have the wrong team in charge, you have a rogue government who wants to raid the reserves, in one term all your life savings of generations of Singaporeans will be gone. And therefore, we must prevent that," he said.

When were reserves tapped on in the past?

During the 2009 financial crisis, PM Lee said he had to discuss with then-President S R Nathan about the government’s need to use Singapore's reserves to support the Budget.

"In October (2008), as we watched the situation unfold, we got more and more worried. By November, we knew that we were heading into a very serious storm," he shared.

They brought forward the Budget to January 2009, and an aid package was proposed to keep people at work and support companies. It would cost about S$5 billion.

PM Lee went to see Nathan, who had been following the situation closely.

Nathan told him “the moment has come”.

The proposal to tap on the reserves was subsequently approved and implemented, and the economy recovered quickly, PM Lee said.

He added that before the end of that term of government, they were able to pay back some S$4 billion that was drawn from the reserves.

What about during the Covid-19 pandemic?

As for the Covid-19 pandemic in 2020, PM Lee explained that the crisis came upon them more suddenly, and necessitated a greater use of the reserves to tide through the situation.

He discussed with then-Finance Minister Heng Swee Keat, and, expecting rough weather, they proposed a "quite generous package" to support Singaporeans.

"We thought we did not need to use reserves at that point. I went to see the president (Halimah Yacob), brief the president, president said, 'would you like to use the reserves, if you need to", seeing the situation, she would be prepared to consider it," PM Lee said.

However, as the situation worsened in the following weeks, the government came up with supplementary Budgets within the month to increase the assistance given.

"We knew that this was a storm of the century, and we had no choice, we had to use the reserves. So, we went to the president, we made the case, and we did what we needed to do. And fortunately, we had the resources, so we could do it," he added.

The subsequent aid package was primarily used to provide job support and payouts for Singaporeans, and added up to about S$40 billion in total over the next two years.

PM Lee added that tapping on the reserves gave the government the resources to acquire vaccines on a large-scale. The vaccines cost between S$1 to S$2 billion.

According to him, it gave Singapore the negotiating power to say, “I want it. I want to order it. I am going early and if I have to order three times over, I will do that.”

This is in contrast with other countries, which used a "haggling, bargaining approach" to cut costs, but might have been "left in the dirt", he said.

As such, Singapore was the first country in Asia to get a batch of Pfizer's Covid-19 vaccine.

How is income generated by the reserves used?

Apart from crises, PM Lee said, Singapore's reserves are also used to benefit the current generation in ways that are less noticeable.

He was referring to the use of Net Investment Returns Contribution (NIRC) — the returns generated when money in the reserves is invested — to cover the spending needs of the government on a yearly basis.

Half of the NIRC (50 per cent) goes into the government's operating budget for the year, while the other half goes back into the reserves.

PM Lee pointed out that yearly, the NIRC accounts for one-fifth of government revenues, and amounts to 3.5 per cent of GDP.

This is more money than is spent on any single government ministry, and gives the government substantial support in each year's budget, he said.

How was this 50-50 framework decided?

PM Lee said that initially, the Singapore government decided to lock up the principal sum in the reserves, while the rest of the income could be spent.

However, when Ong Teng Cheong became president, PM Lee recalled that he said, "Why are you spending all of the income? You should think about the future and some of this should be put aside for the future.”

Ong suggested a formula of 50-50, "half for now, half for the future", meaning that the government could spend half of the net investment income each year.

This was subsequently amended in the Constitution, and is still the rule that the Singapore government follows till today.

While PM Lee admitted that it started out as an arbitrary formula, it felt like a reasonable way to say "I take half for this generation, I put aside half for the future."

"Fifty per cent has a certain psychological resonance to it,” he added.

He later defended the figure, saying that the annual return on the reserves was about 4 per cent, which means the reserves should grow by 2 per cent each year, to match Singapore's GDP growth.

With such a framework, he said, the reserves could maintain their contribution to the government's budget every year for their operational needs.

How much do we have in the reserves?

"I cannot answer that question, but it is enough for most circumstances," PM Lee said when the size of the reserves was mentioned.

When asked whether he felt if it was enough, he replied: "It may or may not be enough if you have a catastrophe – who knows what the world will bring? So I do not ask whether it is enough; I ask, can we husband it and if possible, gradually grow it bit by bit year by year."

How does he feel about having the reserves?

PM Lee also explained that he was grateful that Singapore had sufficient reserves to not to have to go into debt, even after weathering past crises.

He also asserted that it should be treasured and handled carefully: "I am proud that we have built it up and I am anxious that we keep it like this for as long as we can. Because it is one of those things – once it is gone, it will never come back again. It is finished."

“I think we need to be very, very conscious that this is a Garden of Eden state. You are here, it is marvellous. You may not always feel great, but please be aware this is the Garden of Eden because if you come out from it, you cannot go back in again by the sweat of your brow.”

As for the 4G leadership, PM Lee said they know his thoughts on the matter.

He added this reminder for future leaders and all Singaporeans, "Please hold this, treasure this, it is a great resource to you, it is a very valuable asset to you, you can use it when you need to but do not fritter it away, because when it is gone, it is gone."

Potential hot topic during presidential election

The topic of Singapore's reserves will likely be a point of discussion in the upcoming presidential election.

All of the three presidential candidates have mentioned this aspect of the president's role in the lead-up to Nomination Day.

Tharman Shanmugaratnam said the president's role is to ensure that income spent from the reserves is in line with "reasonable assumptions".

Ng Kok Song highlighted his 45 years in the civil service, managing and investing Singapore's reserves, as evidence that he would "have the competence to do the job of the president".

Tan Kin Lian said that if he were elected as president, he could work with the Monetary Authority of Singapore (MAS) to use more of the reserves to "help the people".

The full transcript of PM Lee's interview with CNA can be found here.

You can also watch the full documentary series here:

Top image from CNA on YouTube.