12 By doing so, we diversify risk. We are in a period marked by high oil and gas production and high prices. Substantial resources are therefore transferred from the one account to the other. Combined with high returns, the result is that the value of the Government Pension Fund is rising rapidly and may continue to do so in the years ahead. The Fund is now approaching the nominal value of one year’s GDP and may reach two in the course of the next decade. This is based on the assumption that oil prices remain high over the next few years and then fall to about USD 30 per barrel. Experience has shown that forecasts for both oil production and oil prices are highly uncertain. The government bases its withdrawals from the Fund on an average real return of 4 per cent for financing current expenditure. Given this spending rule, the return may come to finance more than 15 per cent of government expenditure in 10 years. We thus reap considerable benefits from managing our petroleum wealth well. The return represents future income that we forego if we draw on this wealth today. But even with this source of income, more than 80 per cent of expenditure must be covered by other sources. Financing the large pension payments that will have to be disbursed after 2012 will be very demanding in any event.
Of course, whether further consolidation actually takes place, and if so when, is for the players and the market to decide. But further opening up of the banking sector is inevitable. We have been negotiating FTAs with Australia and the US, and are very close to reaching agreement with both. Our FTA partners expect to be given greater access to our financial sector. The local banks must brace themselves for further liberalisation, by upgrading themselves and keeping pace with international best practices. Capital markets In the capital markets, the Stock Exchange of Singapore and SIMEX have demutualised and merged to form the Singapore Exchange (SGX). SGX is now listed and has expanded its product offerings to include single stock and bond futures, and exchange-traded funds. In the stockbroking industry, with the liberalisation of fees and opening up of access, commissions have shrunk. The brokerages have been consolidating, upgrading their capabilities and widening their service and product offerings. Now, your broker will not only buy and sell shares for you, but may also help you to invest in unit trusts or cash management accounts, or give you financial advice. But the restructuring is taking place in a very difficult bear market, and the process is not yet complete. From the point of view of growing the industry, the results of the liberalisation have been disappointing. There has been no post-liberalisation “Big Bang” in the local capital markets. This is partly the result of poor market conditions globally, and partly the way equities markets have developed.