Ravi Menon: How Singapore manages its reserves Keynote speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the National Asset-Liability Management Europe Conference, Singapore, 13 March 2019. * * * Ladies and gentlemen, good morning. Singapore has official foreign reserves (OFR) of almost $ billion. In absolute terms, this is the eleventh highest stock of OFR in the world. As a percentage of GDP and on a per capita basis, it is the third highest in the world. Singapore’s OFR sit on the balance sheet of the Monetary Authority of Singapore (MAS), the central bank and integrated financial regulator. Besides the OFR, there are two other pots of national reserves in Singapore: The Government of Singapore Investment Corporation (GIC), a fund management company, manages on behalf of the Singapore Government a diverse portfolio of foreign assets – well in excess of $ billion. Temasek Holdings, an investment company wholly owned by the Singapore Government, holds equity stakes in a variety of domestic and foreign corporates, amounting to more than $ billion. This morning, let me try to answer three questions: What role do the reserves play? How are the reserves accumulated and managed? How are the OFR managed? Why does Singapore hold reserves? Singapore’s reserves serve three objectives: one, to serve as a buffer against crisis; two, to provide a stream of investment income to help finance part of the annual government budget; and three, to maintain confidence in Singapore’s exchange rate centred monetary policy.
They helped underpin confidence in Singapore in the throes of the Asian Financial Crisis. And during the Global Financial Crisis, the reserves were drawn down to finance a package of measures, to preserve jobs by subsidising employers’ wage bills and to help viable companies stay afloat by sharing the risk of bank lending. A second purpose of the reserves is to serve as an endowment. This purpose has grown in importance – and salience - in recent years. The income from investing the reserves provides an increasingly important source of revenue to fund government expenditure. The size of government in Singapore is small. Government spending – comprising both operating and development expenditure – is just about 16% of GDP. But tax and non-tax revenues are even lower, at 15% of GDP. In other words, Singapore runs a structural deficit on its primary fiscal balance. This is where the investment income from the reserves comes in. The Constitution of Singapore bars the government from borrowing to spend or to spend surpluses accumulated from previous terms of government. Instead, it allows the government to spend up to half of the expected long-term real returns from the net assets invested by MAS, GIC, and Temasek. This is known as the Net Investment Returns Contribution (NIRC). The NIRC is already the largest single contributor to revenues in the government budget, accounting for about one-fifth of revenues.