THE ENIGMA OF SINGAPORE NATIONAL RESERVES AT GIC

The Bogeyman .... Jack Prelutsky

In the desolate depths of a perilous place

The bogeyman lurks, with a snarl on his face.

Never dare, never dare

To approach his dark lair

For he's waiting . . . just waiting . . . to get you.

Singapore is well governed with a few bogeymen. The national reserves is one of them. The sum total of Singapore's national reserves held by GIC (Government Investment Corpn) is a tightly kept secret of the Singapore government. If the numbers are published, somehow the whole country will come tumbling down. The official explainer is if the reserves are disclosed, Singapore may be exposed to speculative currency attacks. It does'nt educate that speculative attacks occur with currencies in a fixed rate regime. British Sterling was fixed to the DEM and BTH was fixed to USD when UK and Thailand came under attack not too long ago.

The secrecy generates national reserves pundits and conspiracy theories. Prof Christopher Balding, Kenneth Jeyaretnam, Leong Mun Wai and a host of others, have all made their suggestions how large the reserves really are. The police will not be instructed to haul anyone in for spreading misinformation, however wild the figure one suggests. The government, in fact, loves the wild guessing going on. It's a poker game, keep them guessing.

It is so opaque not even the President nor the cabinet knows. I would count those with the knowledge to include the Minister of Finance, top management in MAS and GIC, Accountant General, and of course the Prime Minister who chairs the GIC (along with his lawyer and top guys in the PM Office). I'm guessing not even the current CEO of Temasek is in the know. His predecessor obviously had insider knowledge by virture of sharing the PM's bed.

Does it surprise anyone the top guns in MAS, MOF and PMO have special trajectories in career paths. As far as I'm concerned, the guessing game for PM Lee's successor is over the moment Lawrence Wong was made Finance Minister. That is, unless he drops the ball somehow.

What are national reserves:

These are accumulated budget surpluses. Some countries with natural resources such as oil, the revenue are set aside as reserves for future generations. In the case of Singapore, proceeds from government land sales cannot be spent by law, it is set aside as reserves.

National reserves are public reserves, ie owned by the government and belonging to Singaporeans collectively. To get some perspective, anyone taking up a US citizenship assumes a national debt burden of US$69,000. If Singapore national reserves is S$1T, each new citizen gets a share of S$280,000.

The 2 Sovereign Wealth Funds, Temasek and GIC, manage the reserves. A portion of the government's deposit with MAS are land sales proceeds and surplus not yet transgerred to GIC. Only Temasek funds are publicised, the total national reserves thus remain opaque.

The Official Foreign Reserves (OFR) is not part of national reserves. It is the foreign assets accumulated by the MAS for its monetary management requirements. As at Dec 2021 it was about S$553B.

GIC investments:

Apart from budget surpluses and proceeds from government land sales, the government issues several types of securities which it cannot spend but transfers to GIC to invest. These are :

SSGS (Special Singapore Government Securities): 

These are non-tradeable S$ debt instrument issued by the government and subscribed solely by the Central Provident Fund Board. CPF retirement fund is invested solely in SSGS which earns a guaranteed interest slightly above bank deposit rates.

SGS (Singapore Government Securities): 

These are tradeable long-dated SGD debt issues by the government and sold by public auction. The purpose of these securities is to establish the SGD yield curve. 

Treasury Bills: 

T-bills are debt issues similar to SGS except they are very short-dated.

SSB (Singapore Savings Bonds): 

These are retail bonds issued for individual investors to invest in a safe and long term paper.

RMGS (Reserve Management Government Securities): 

These are non-tradeable debt instruments denominated in foreign currencies and subscribed solely by MAS. The central bank uses its official foreign reserves to pay for the RMGS. These proceeds cannot be spent by the government. They are transferred to GIC for long term investments. The issuance of RMGS is determined by MAS according to its capability to liquidate excess Official Foreign Reserve requirements. At the moment, a figure of S$180B has been mentioned as the excess OFR that MAS has on its books and which will potentially be converted to RMGS in the foreseeable future.

How big is the national reserves with GIC: 

The total investment portfolio of GIC, if revealed, should by stupefying. But how much of these are national reserves?

How much of GIC's funds are from reserves is the billion $ question. A huge chunk of the funds are debts. (1)SSGS are debts to CPF contributors, (2)SGS, T-bills and SSB are debts to securities holders, and (3)RMGS are debts to MAS. Although MAS purchases foreign currencies in its market intervention by printing money, these S$ were sterilised by issuing MAS Bills. RMGS are thus debts to the ultimate holders of MAS Bills. And how much are the outstanding amount of MAS Bills in MAS books at the moment? Surprise! -- its S$182b as at Dec 2021.

Government securities have been increasing about 5%-8% annually in the last several years. The OFR from MAS is similarly on the uptrend. How much of year on year increases of the investment portfolio is attributable to these increases versus value-added?

Is the real reason for the opacity of the general reserves numbers designed to obfuscate debt and reserves? The MAS and the government operates within the requirements of the Government Securities Act, Local Treasury Bills Act and the MAS Amendment Bill. Technically, the system permits the possibility of the government building debt to bloat GIC investment portfolio.

There is a significant cost to the non-reserves fund. One wonders if there is an internal imputed cost of funds to determine real performance.  It can be safely assumed GIC executive compensation would be on par with Temasek. This ought to be at the highest bar as Temasek benchmarks rewards to the fund management sector where outrageous compensation is the norm.  One can only wonder because executive compensation of the sovereign wealth funds is yet another Singapore bogeyman.