The video was obviously inspired by an article posted by Critical Spectator (CS). It is a mindless steal of someone's idea rehashed into another medium, without the faintest idea of the subject matter.
CS is a controversial Singapore-based foreigner who writes profusely and largely supportive of Singapore government policies. Outside of local issues, I actually find his articles quite interesting. On Jul 14 CS wrote unabashedly on how Singapore's reserves rose by more than S$200b during the pandemic. He referred to the increase of S$160b in the Official Foreign Reserves (OFR) of Monetary Authority of Singapore from 2019 to 2021, and the S$75b profits Temasek made for 2021. According to him, our reserves increased by S$235b.
Following a rebuttal by Facebook contributor Chris Kuan, CR responded with basically a 2019 speech by MAS's Ravi Menon explaining how Singapore manages its reserves. But CS got it wrong again.
What is national reserve :
How much is our national wealth or reserves is a trillion dollar question. Both Kenneth Jeyeratnam and Prof Balding (HK-based academic) have written extensively on this and suggested the reserves are well over a trillion S$. It is far in excess of what's managed by MAS, Temasek, and estimated GIC numbers. The duo compute based on some macro data approach which I do not comprehend. They have persistently asked where are the missing billions!
We need first to understand what is national reserves. Some have tried to incorporate the idea of latent wealth -- the untapped oil and mineral reserves underground, the forestry, etc. Quantifying these is problematic. Fortunately, or unfortunately for us, Singapore has none of these. It is easier to talk of our national wealth.
The government is the steward of the economy, so it should have some book-keeping done. Imagine the government has a huge ledger and is able to produce one single consolidated balance sheet for all its activities, just like any commercial enterprise. The national wealth can be derived in the way a company's net worth is appraised.
A quick book-keeping lesson here.
In very basic terms, a balance sheet will look like this. The P&L a/c represents the net of all the Expenses and Revenue accounts. At the end of the year, assuming there is no distribution, the net profit is finalised and transferred to the General Reserve which will then be S$2,000. The net worth of the enterprise is the Total assets $5,000 - Liabilities $2,000 = Net asset S$3,000, which is = Equity.
The net asset, which is also Equity, is what an enterprise is worth. An increase in the net asset figure represents an increase in the value of the enterprise.
Thus a giant government balance sheet will have a net asset figure which represents our national wealth. CS is saying during the pandemic, this net asset figure has gone up by at least S$235b. As he put it, it could be more because he did not include GIC.
By definition, our national reserve is the aggregate of the net assets of all the ministries, all statutory boards and Fifth Schedule companies. MAS, GIC, Temasek, CPF, HDB, and JTC comprise the Fifth Schedule companies. The statutory boards comprise of 65 entities. View here.
Now that we understand national reserves, what are past reserves and why is the distinction important. Past reserves refer to the increase in the net assets generated by previous governments. The use of past reserves is protected by Law.
Someone once famously quipped it will take a few hundred years to list down all the national assets. But taking the net asset view, I posit it is certainly possible to compute the aggregate reserves of the state within one day.
How are our reserves managed :
The reserves are managed by MAS, Temasek and GIC. In other words, be clear that the portfolios managed by these 3 entities are not our total national reserve. As described above, the national reserve is the sum total of the net assets of all the ministries, stat boards and Fifth Schedule companies. The portfolios managed represent funds taken out of those entities and funneled into the fund managers. In other words, our real national reserves are much more than the portfolio numbers of these 3 entities.
So how does reserves get funneled to the 3 fund managers.
1. Government surpluses are transferred to Treasury.
2. Proceeds from government land sales (HDB/JTC?) are transferred to Treasury.
Treasury channels (1) and (2) to GIC to invest. Occasionally, the government transfers some funds to Temasek.
3. Of the net profits of MAS, 17% are distributed to govt Consolidated Funds, balance 83% the MAS transfers to its General Reserve Fund which it manages.
4. For GIC and Temasek, a special long term risk-factored formula is applied on the portfolio to arrive at what is known as the NIRC (net investment returns contribution). This portion of the net profits is distributed back to the government to help fund the budget. The balance of the profits is ploughed back as capital.
What about CPF ? By law, our pension money can only be invested with the government. For this purpose, the government securitise the debt by issuance of SSGS (special Singapore govt securities). This guarantees CPF a fixed return in a risk free security. The SSGS also serves a very important function of price discovery for the S$ yield curve. Proceeds of the SSGS, ie our CPF money, is funneled to the GIC to invest and seek better yields. Point to note, which are most often misunderstood by the majority. The government does not make use of our CPF money. It is invested by GIC. Of course, if GIC generates a better ROI than the interest on SSGS, the benefits do not trickle down to CPF members. But that's another story.
So can we have an idea of how our reserves are performing, or at least that part that is being managed by MAS, GIC and Temasek? With MAS, it is not possible because all their investments are co-mingled. You can't tell which belongs to the national reserves. With GIC there are 2 problems. The portfolio is from co-mingled funds of reserves and CPF money. And of course, it is impossible because GIC data is secret. With Temasek, it is possible since the whole portfolio is from reserves. But it can be done only to the extent the data permits. Temasek is not that transparent.
The claim of S$235b increase in wealth is hogwash :
With the primer on national reserves out of the way, we can now review the claim intelligently.
Error #1 :
It is incorrect to assert an increase of national reserves solely on the figures of MAS and Temasek as these are not exhaustive. There are so many other state entities for which the data is unknown.
Error #2 :
Error #3:
Like most layman, CS mistook the foreign exchange reserve in MAS books as reserves. They are very liquid foreign assets. These are assets set aside for some purpose, that's why they are commonly referred to as foreign exchange reserves. All central banks maintain such a reserve for the purpose of supporting at least 6 months of the country's importation of goods. They are also required for the central banks to manage their currency floats, that is, to stabilise their currency exchange rate. MAS maintains a very high level of these assets. In fact our foreign exchange reserves is one of the highest in the world. The reason why MAS maintains such a high foreign exchange reserve recognises Singapore as an international financial centre which needs substantial foreign currency liquidity in the local market. A high reserve makes for a very strong S$.
The foreign reserve assets increased by S$122.077b from 2019 to 2021 (S$519.128b-S$407,051) I have no idea where CS obtained his S$160b. An increase on the asset side is reflected in an increase in the liabilities side somewhere. That is, the foreign asset increase has to be funded from somewhere. This can be seen in increases in money printing (S$10b), increase in banks reserve deposits (S$12b) MAS securities issued (S$35.5b), other liabilities- repos (S$81b). This increase in foreign assets has nothing to do with our national reserves. Neither does it represent greater wealth for the country.
Did Temasek perform that well:
I don't intend to discuss Temasek's performance in 2021 here but only to clarify the claim of the S$75b profits in 2021 and to raise some issues. Instead of making the bold claim of huge profits, I think questions ought to be raised.
Error #4 :
The claim was our reserves went up by S$235b during the pandemic of which S$160b is from MAS (2019-2021) and Temasek S$75b (2021). In order to refer to the same period, Temasek's figure should also be for 2 years 2019-2021.
The increase in Temasek net assets or equity over the 2 years is S$347.5b-S$283.5b = S$64b. The claim that Temasek increased the national reserves by its profit of S$75b is wrong.
Error # 5:
CS referred to a net profit of S$75b by Temasek in 2021. That is not correct. The net profit was only S$56.5b. Perhaps he rounded it up to S$57b and made a typo transpositional error to S$75b?
The issues with the net profit of S$56.5b :
The S$56.5b profit for 2021 was an impressive 24.53% return on shareholder funds. The return is a more realistic 16.4% on the average portfolio of S$343.5b ((opening S$306b + closing S$381b) /2). This points to either high leverage, or due to high shareholder fund enhancement over the years. More work is needed to look into this.
Of course as an investment company,asset valuation impact its P&L. During the year, the Singapore Stock Exchange was lethargic, moving up only 8.7%. Dow Jones Industrial Average , however, climbed a whopping 65% during the year. 20% of the portfolio was in US. Of the 27% portfolio in China, most of these were listed in US. And so too with some of the Indian counters. So a big chunk of the profits was due to the fact the year started on a very low valuation.
A significant impact on the profit was IFRS9. Under IFRS9, changes in the mark-to-market valuation of listed companies in which Temasek hold less than 20% control are now brought into the group P&L. This is the international accounting standard that Temasek adopted and which came into effect in 2019. In 2019 and 2020 these holdings showed a small valuation loss. In 2021, the valuation profit was S$45.5b thus contributing to 81% of the profit. Without this, the profit would have been only S$11b, representing a mere 4.8% ROI on shareholder fund and 3% against average portfolio. And this against the backdrop of a 65% climb at Dow Jones.
Another question is how did this under sub-20% holdings valuation gains came about in 2021? This can only happen in 3 ways :
(1) It had a large holding of sub-20% listed companies. Suppose they are all US counters where the stocks gained 65%, then this holdings must be at least S$72b to generate the S$46.5b valuation gains.
(2) It made huge new investments of sub-20% stocks at the earlier part of the year when prices were generally lower.
(3) It disposed of huge inventory sub-20% stocks which had been carrying substantial valuation loss provisions. Upon disposal, the negative counters disappear from the exercise, pushing valuation into positive territory.
However, (1) cannot be discerned with no data. (2) and (3) are unlikely as divestment was only S$49b and new investments S$39b. Too small to be causation for the S$46.5b valuation gains.
Read "Temasek profits is wool over eyes"Another old issue I want to bring up again. Temasek Review shows only group earnings. It would be nice to have a sense of how much profits were generated by Temasek itself. You can read my old blog above.
Read "Is Temasek operating a slush fund?"
With good profits come good bonuses. But we will never know how much, it's national secret. Run and compensated like private equity funds, you can bet it's in millions. Read my old blog above.
Conclusion :
The tiktok video with false info will go viral. This informative blog will just circulate amongst my few friends. That's symptomatic of today's reality. The truth for the day is, Singapore did'nt grow richer by S$235b during the pandemic.