Reserves

Our Nation's Reserves

What does the Constitution protect?

Who manages our reserves?

What is the Government’s role with regard to the investment decisions made by GIC, MAS and Temasek?

Who audits the financial statements of our investment entities?

Why does the Government not disclose the overall size of our reserves?

What constitutes a draw on Past Reserves?

Why are Past Reserves used to fund land-related projects?

Is an investment loss considered a draw on Past Reserves?

How have GIC and Temasek performed? What information is available on their investment returns?

GIC

GIC’s mandate is to achieve good long-term returns, to preserve and enhance the international purchasing power of Government reserves.

GIC publishes an annual report on the performance of the Government’s portfolio. The information below is extracted from its latest annual report (“Report on the Management of the Government’s Portfolio" for the Year 2019/2020).

GIC’s mandate to achieve good long-term returns above global inflation is represented by the primary metric for evaluating GIC’s investment performance – the rolling 20-year real rate of return. Over the 20-year period that ended 31 March 2020, the GIC Portfolio generated an annualised real return of 2.7%. The 20-year annualised real rate of return metric is the key focus for GIC, which matches its mandate and investment horizon. A 20-year period is appropriate as it spans a few business cycles and hence encompasses a number of market peaks and troughs.

GIC also discloses the nominal rates of return over 5-year, 10-year and 20-year periods. These time frames give a sense of the ongoing performance of the portfolio. The 5-year and 10-year rates of return serve as intermediate markers of GIC’s longer term investment performance.

Table 1 below shows the portfolio's annualised nominal rates of return over the 5-year, 10-year and 20-year periods in USD terms and the corresponding portfolio volatility.

Table 1: Nominal Annualized Return and Volatility of the GIC Portfolio (in USD, for periods ending 31 March 2020)

GIC Table 1

The GIC Porfolio's 20-year nominal return was 4.6% per annum in USD terms.

Over the 10-year period ending March 2020, the GIC Portfolio returned 5.2% per annum in USD nominal terms, as it included the prolonged upturn in the capital markets after the 2008 Global Financial Crisis.

Over the 5-year period, the GIC Portfolio return slowed to 3.9% in line with the broader asset markets.

GIC also monitors the performance of a Reference Portfolio which comprises 65% global equities and 35% bonds. The Reference Portfolio is not a performance benchmark for the GIC Portfolio, but serves as a reference for its portfolio risk. It also does not include adjustments for costs that would be incurred when investing.

Table 2 below shows the Reference Portfolio’s annualised nominal rates of return over the 5-year, 10-year and 20-year periods in USD terms and the corresponding portfolio volatility.

Table 2: Nominal Annualized Return and Volatility of the Reference Portfolio (in USD, for periods ending 31 March 2020)

GIC Table 2

Over the three time periods, and particularly over the last five years, the GIC Portfolio had lower volatility than the Reference Portfolio due to its diversified asset composition and pre-emptive measures to lower portfolio risk. Despite this lower risk exposure than the Reference Portfolio, the GIC Portfolio has performed creditably over a 20-year period.

For more information, click here.

Temasek

Temasek’s aim is to maximise shareholder value over the long term. A significant portion of Temasek’s portfolio is invested in Singapore. However, since 2002, Temasek has taken active steps to invest in Asia and other markets.

Temasek publishes an annual report that discloses its annual portfolio value as well as its performance returns – Total Shareholder Returns (by Market Value) ‒ over the last 1 year, 10 years, 20 years, 30 years, 40 years and since inception.

Temasek’s financial performance is scrutinised by bond rating agencies, which have given it AAA rating. Temasek’s financial statements are audited by an international audit firm. (Its 2020 statements were audited by KPMG).

Temasek’s Total Shareholder Returns (by Market Value) as at 31 March 2020 are shown in the chart below.

TH Table 2

More information on Temasek’s performance can be found in the Temasek Review 2020 (See online version here).

Have GIC and Temasek lost value as a result of the financial crisis in 2008-2009?

Do Singaporeans benefit from the Investment Returns of GIC and Temasek?

Has the Government transferred funds to Temasek or GIC to show better performance?

What factors have contributed to Temasek’s performance over time? Has Temasek’s performance benefited from the “transfer of Government’s assets” such as Singtel and Changi Airport Group (CAG) to their balance sheets?

Temasek’s Total Shareholder Return since inception (1974) was 14% p.a. in SGD terms. This TSR since inception would have benefited from the transfer of Government companies such as SingTel to Temasek, their transformation, and the subsequent listing of these assets.

Such factors aside, Temasek’s portfolio has also reflected two major themes:

(a) Performance of Temasek’s newer vintage investments (made after 31 March 2002):

Since 2002, it became an active investor in Asia and other markets as part of its strategy to reshape its portfolio for the longer term.
Its investments in external markets have provided a boost to Temasek’s long-term returns. This portfolio of newer vintage Temasek investments has delivered an annualised return of 15% to Temasek in SGD terms from 1 April 2002 to 31 March 2014.

(b) Performance of its older vintage investments (held as at 31 March 2002):

The older vintage portfolio of Temasek companies benefited from, as well as contributed to, Singapore’s transformation and growth in the earlier years. Companies like SingTel and PSA have contributed to a competitive and efficient infrastructure for the Singapore economy. Through Temasek’s stewardship and management of these assets, the Government has been able to unlock and grow their value.
The transfer of Government companies such as SingTel to Temasek and the subsequent listing of these assets had contributed to Temasek’s total shareholder returns by market value.
For the period after 1 April 2002, the performance of this portfolio of earlier Temasek assets did not have any “boost” from IPO listings. These assets have continued to perform well relative to the markets, showing annualised returns of 11% in SGD terms from 1 April 2002 to 31 March 2014. Over the same period, the MSCI Singapore Index showed annualised returns of 7% in SGD terms (inclusive of reinvestment of dividends)

CAG has not been transferred to Temasek. CAG was corporatized in 2009 and has remained directly owned by the Government.

Temasek’s consolidated financial statements are audited by leading international audit firms. In addition, Temasek’s financial performance is scrutinised by bond rating agencies, which have given it a AAA credit rating.

Can reserves be transferred easily among our investment entities to buffer their losses?

No. An occasional misperception is that the Government made the Constitutional amendments in 2002 and 2004 to allow for the transfer of Past Reserves between Fifth Schedule entities and the Government so as to be able to conceal investment losses. This is wrong.

We have explained that a transfer of funds cannot be used to hide investment losses (see Q12).

The amendments in 2002 and 2004 were made to enable the transfer of Past Reserves within the Reserves protection framework (i.e. among the Government and Fifth Schedule entities), without any loss of protection to Past Reserves. Past Reserves cannot be transferred outside of the Reserves protection framework without the approval of the President. The amendments in 2002 and 2004 did not alter this position.

Past Reserves may need to be transferred to facilitate the restructuring of Fifth Schedule entities to better deliver public services. For example, the merger of the then-Board of Commissioners of Currency, Singapore (BCCS) with Monetary Authority of Singapore (MAS) in 2002 required the transfer of BCCS’ Past Reserves to MAS.

In transferring the Past Reserves from BCCS to MAS, there was no loss in the amount of Past Reserves protected. This was because the Board of Directors of MAS had resolved that the Past Reserves transferred from BCCS would be added to the Past Reserves of MAS and protected.

The Constitutional amendments make clear that there is no draw on Past Reserves as long as (i) Past Reserves are being transferred among entities that are within the Reserves protection framework; and (ii) the receiving entity undertakes to protect the Past Reserves that are transferred over. In such circumstances, the overall amount of Past Reserves being protected is unchanged, and hence the President’s approval need not be obtained for such transfers.

What kind of information does the President have access to?

When has the President’s approval been sought to draw on Past Reserves?

• In October 2008, then-President S R Nathan gave his approval for a S$150 billion guarantee on all bank deposits in Singapore to be backed by Past Reserves. This was against the backdrop of the Global Financial Crisis where other jurisdictions were guaranteeing bank deposits as well. If Singapore had not provided a guarantee, we would have run the risk of funds flowing out of Singapore to other jurisdictions that had guarantees, even though our financial system was sound. The guarantee lapsed on 31 December 2010, without being triggered. In this case, Past Reserves were not drawn on, although it could potentially have been.

• In January 2009, the Government obtained then-President S R Nathan’s approval to draw down S$4.9 billion from the Past Reserves for the first time to fund special schemes in light of Singapore’s worst recession then since Independence. The two measures were the Jobs Credit Scheme which subsidised employers' wage bills and the Special Risk-Sharing Initiative which helped viable companies gain access to credit. The actual amount drawn for these two measures was S$4.0 billion, less than expected. This was the first time that Past Reserves were drawn on.

o In February 2011, the Government decided to put back the S$4.0 billion that it had drawn down from the Past Reserves. This is because the economy had recovered well from the recession, putting our fiscal position on a stronger footing. While there is no legal or constitutional obligation for the Government to return to Past Reserves any amount drawn, it is the responsible and prudent thing to do, once a Government has secured a stable fiscal position within its term. This is the way to uphold the philosophy that has enabled us to build up and maintain our reserves, and derive from it income each year to meet our strategic needs.

• In 2020, the Government obtained President Halimah Yacob’s approval twice to draw up to a total of $52 billion from Past Reserves to fund the measures in response to the COVID-19 crisis:

o In April 2020, President Halimah Yacob approved a draw up to $21 billion from Past Reserves to fund Covid-19 support measures under the Resilience and Solidarity Budgets.

o In June 2020, President Halimah Yacob approved a further draw of up to $31 billion from Past Reserves to fund the measures in the Fortitude Budget.

Can the President direct the investment strategies of our investment entities?

Did the Government fail to provide former President Ong Teng Cheong with sufficient information to protect the Past Reserves?

A misperception that crops up from time to time is that former President Ong had been denied the information needed for him to perform an effective role in protecting the Past Reserves. In fact, President Ong was given all the information required for the purpose. This information included the value of all the Government’s financial assets, as well as a listing of physical assets, such as buildings and land.

At his 16 July 1999 press conference, President Ong spoke of how he had been informed by the Accountant-General that it would take "52 man-years" to produce the value of the full list of physical assets of the Government.

The facts of the case were explained by former Prime Minister Goh Chok Tong in Parliament on 17 August 1999, as summarised below:

• The President's Office had requested a listing of physical assets from the Accountant-General on 18 Jun 1996. At a meeting with the President on 14 Aug 1996 (i.e. less than two months later), the Accountant-General provided a listing of State buildings, while the Commissioner of Lands provided a listing of State lands. Updates were subsequently sent to the President's Office.

• It was at this meeting that the President remarked that to protect the Past Reserves, the reserves should ideally be denominated in dollar value. To this, the Accountant-General said that it would take 56 man-years6 to conduct a complete valuation of the physical assets, even though he had already produced the listing (without valuation figures).

• The Attorney-General’s Chambers subsequently advised that there was no need to revalue all State properties at each changeover of the term of Government, as the question of whether Past Reserves were being drawn did not arise unless a piece of land was actually about to be sold off or alienated. At the point of sale, land is valued, and the Reserves protection framework requires only that the land be sold at fair market value.

• Furthermore, the proposed revaluation would be a waste of resources. First, the reality was that much of State land would remain as State land, i.e. unsold. Second, the value of each piece of land depended on planning and zoning restrictions, which the Government could change.

Click here for the Parliamentary speeches by former Prime Minister and former Minister for Finance Dr Richard Hu (17 August 1999)

Click here for the subsequent Parliamentary Q&As (17 August 1999)

[6] "56 man-years" does not mean it takes 56 years to complete the task. A man-year is a measure of the amount of work to be done, and not of the time it will take to do it.

How do Singaporeans benefit from the investment returns from our reserves?

What is Net Investment Returns Contribution (NIRC)?

What is the Net Investment Income?

What is the Net Investment Returns framework?

Why did the Government introduce the NIR framework, and what are the differences between NIR and NII?

The Government moved to the NIR framework in 2008 in order to enhance revenues and ensure a fair balance between the needs of current and future generations.

Government expenditures were expected to rise significantly over the long term. The three main areas of increased expenditures were:

Increased investments in human capital, knowledge and innovation to sharpen our capabilities and enable us to move up the value chain and maintain our relevance in a much more competitive global economy.
Investments to make Singapore a top quality home, through enhancements in the city centre and across our neighbourhoods, to make Singapore a highly liveable and inclusive home.
Higher social expenditures in an ageing society and one that was facing growing income gaps.

The NIR framework is an enhancement from the NII in the following ways.

First, the NIR framework expanded the definition of investment returns to total returns, including capital gains (both realised and unrealised). The new framework was more aligned with our asset allocation that is focused on maximising total returns over the long term. A spending rule based only on interest and dividends could have led to a bias toward investments that generate income rather than capital gains. This would be inconsistent with our objective of maintaining a diversified investment portfolio aimed at achieving long-term returns.

Second, the NIR framework allowed the Government to spend based on expected long-term returns, rather than actual investment income, comprising dividends and interest, under NII. This allows the government to smooth out the volatility of spending. For example, it ensures that the government does not overspend in a bull market, and end up finding itself short of resources in a bear market.

Third, the NIR framework allows us to spend based on real returns. This is unlike NII, where spending is based on nominal dividend and interest income. Our spending rules must ensure that we continue to maintain the international purchasing power of our reserves. Otherwise, in a scenario of sustained high inflation globally, even if we were to earn reasonable nominal investment returns, our past reserves would be gradually eroded in real terms.

How does being included in the NIR framework impact the investment strategies Temasek, GIC and MAS? How does the Government meet its liquidity needs for NIRC?

How does the NIR framework ensure that the investment returns are tapped for spending in a disciplined and prudent way?

The NIR framework ensures that the investment returns are tapped for spending in a disciplined and prudent way. Under the framework:

The Government can only spend up to 50% of the long-term expected real returns.
The NIR framework uses real rates of return, i.e. after netting off inflation, to protect the real value of our reserves.
The NIR framework allows the Government to spend only from returns on the net assets, i.e. the excess of assets over liabilities invested by our investment entities, minus the liabilities of the Government. This ensures that we set aside returns to cover the costs of servicing our liabilities.
There is a rigorous process in place for determining the long-term expected real rates of return of the investment entities.
Before the start of each financial year, the rates are proposed by the Boards of the investment entities, based on detailed study and assessments by investment professionals in the three agencies, who also draw on a range of external expert views.
The Ministry of Finance undertakes a thorough review of the methodologies used by the investment entities to be assured that their approach is sound and the estimated long-term rates of return are reasonable. MOF will then propose the expected long-term real rates of return to be applied to the net assets invested by the investment entities for the President's concurrence.
The President consults with the Council of Presidential Advisers (CPA) before deciding on whether to agree with the Government's proposal.
In the event that the Government and President do not agree to any of the expected rates of return, the respective 20-year historical average rates of return will be used to compute how much the Government can spend. The 20-year historical rate of return provides a neutral and pragmatic basis for resolving any dispute between the President and the Government, and avoids paralysing the government of the day.
After the close of the financial year, the Minister for Finance will certify to the President the amount of NIR that the Government has actually taken into the Budget, within the caps specified in the Constitution.

How are CPF monies invested? What does the Government do with the monies?

CPF monies are invested by the CPF Board (CPFB) in Special Singapore Government Securities (SSGS8) that are issued and guaranteed by the Singapore Government. This arrangement assures that the CPF Board will be able to pay its members all their monies when due, and the interest that it commits to pay on CPF accounts.

This is a solid guarantee. The Singapore Government is one of the few remaining triple-A credit-rated governments in the world. The proceeds from SSGS issuance are invested by the Government via MAS and GIC, just as it invests the proceeds from the market-based Singapore Government Securities (SGS).

No CPF monies go towards government spending. Government borrowings from SGS and SSGS, cannot be used to fund expenditures. Under the Government Securities Act (enacted in 1992), the monies raised from SGS and SSGS cannot be spent.

The proceeds from SSGS issuance are pooled with the rest of the Government’s funds, such as proceeds from issuing Singapore Government Securities (SGS) in the markets, government surpluses, as well as the receipts from land sales which under our Constitutional rules are accounted for as Past Reserves. The comingled funds are first deposited with MAS as government deposits. MAS converts these funds into foreign assets through the foreign exchange market. A major portion of these assets are of a long-term nature, such as those that provide backing for long-term Government liabilities like SSGS as well as unencumbered assets such as government surpluses and land sales receipts. These assets are ultimately transferred to GIC to be managed over a long investment horizon.

The Government’s assets are therefore mainly managed by GIC. GIC is a fund manager, not an owner of the assets. It merely receives funds from Government for long-term management, without regard to the sources of Government funds, e.g. SGS, SSGS, government surpluses. The Government’s mandate to GIC is to manage the assets in a single pool, on an unencumbered basis, with the aim of achieving good long-term returns. The Government does not specify to GIC the sources of the assets that are placed with it. The Government also does not specify whether the assets are encumbered or unencumbered, nor state the proportions. (see Q28 for elaboration)

Prior to the formation of GIC, it was the MAS as central bank that managed these assets. The investment of the assets was in keeping with the traditional approach of central banks, with large allocations to liquid, low-risk instruments. After GIC was formed in 1981, the assets were progressively transferred from MAS to GIC for management. This was to enable the assets to be invested in higher risk instruments that could be expected to earn higher returns over the long term.

The SSGS proceeds have not been passed to Temasek for management. Temasek hence does not manage any CPF monies. Temasek manages its own assets, which have accrued mainly from proceeds from sale of its investments and reinvestments of dividends and other cash distributions it receives from its portfolio companies and other investments. Temasek also has its own borrowings and debt financing sources. The Government’s relationship with Temasek is that of its sole equity shareholder.

The information above elaborates on that provided at Q2.

[8] Special Singapore Government Securities (SSGS) are non-tradeable Government bonds issued to the CPF Board. The securities earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.

How are CPF interest rates determined?

CPF interest rates are pegged to risk-free market instruments of comparable duration. However, there is also a minimum interest rate on CPF savings that protects members when market interest rates fall to low levels, such as in recent years. Lower and middle-income members also benefit from extra interest paid on smaller CPF balances.

Currently, monies in members’ Ordinary Account (OA) earn a minimum interest rate of 3.5% on the first $20,000. Those with larger balances also enjoy this 3.5% per year on their first $20,000, and 2.5% per year for the rest of their OA savings. More than half of all CPF members earn 3.5% per year on all their OA balances.

Monies in members’ Special, Medisave and Retirement Accounts (SMRA) earn a minimum interest rate of 5% on at least the first $40,0009. Those with large balances also enjoy this 5% per year on at least their first $40,000, and 4% per year for the rest of their SMRA savings. Around 2/3 of members earn 5% per year interest on all of their SMRA savings.

The interest rates on the OA and SMRA reflect the durations for which members’ savings are held. The OA is a liquid account. The monies in the OA can be withdrawn at any time for housing. Many members withdraw substantial amounts from their OA.

The SMRA are for longer-term retirement and medical needs. The interest rate on the SMRA aim to be equivalent to what a 30-year SGS would earn, as 30 years is the typical duration for which SMRA monies are held. As the 30-year SGS did not exist when the Government made changes to the interest rate structure in 2007, SMRA rates were pegged to the yield of 10-year SGS plus 1%. The 1% spread is in fact higher than that which international bond markets have paid on 30-year bonds. The current yield on the 30-year SGS, which is not widely traded, is around 3%. This is well below the minimum interest rates of 4-5% that are currently paid on SMRA accounts.

The interest rates that CPF members receive are hence significantly higher than for equivalent, risk-free market instruments currently. There is also no link between CPF interest rates, and the returns earned by GIC. The CPF Board invests CPF savings entirely in risk-free SSGS issued by the Government. CPF members receive fair returns as described above, with no investment risk.

The Government invests the SSGS proceeds together with its other assets through the GIC, and takes investment risks aimed at achieving good long term returns. However, the consequence of taking risk as a long-term investor is that returns may be weak or even negative over shorter periods. As explained in Q28 , the Government is able to guarantee CPF savings and pay the minimum interest rates on CPF savings regardless of GIC’s returns over any period, because the Government’s balance sheet enables it to absorb risks. The Government has a significant buffer of net assets, i.e. assets which are well above its liabilities including its CPF commitments.

[9] You earn 5% per year on up to the first $60,000 of your Special and Medisave Accounts, if your Ordinary Account is less than $20,000. Also, after age 55, the first $60,000 of the Retirement Account earns 5% per year.

Why are the SSGS monies invested by Government as part of a combined pool of funds managed by GIC, rather than managed in a separate, dedicated fund?

The Government has significant net assets, i.e. its assets are well above its liabilities. This is because the Government has large unencumbered assets, which are not matched to liabilities. These assets were accumulated through past government surpluses, land sales receipts and the investment income earned on those assets over the years.

The relatively large size of net assets enables the Government to take investment risk on its balance sheet, without impairing its ability to meet its liabilities. The Government therefore invests the proceeds from the issuance of SSGS together with other Government’s funds, in a combined pool. The GIC is tasked to invest the pool of assets for the long term, and to take calculated investment risks aimed at achieving good long term returns, without regard to the Government’s specific liabilities. The GIC’s investment mandate is to invest the funds on an unencumbered basis. (see Q26).

GIC has delivered creditable results from investing the Government assets over the long term. However, the Government bears the risk of GIC’s investment returns over any particular period falling below the interest rates it is committed to pay on SSGS. Investment returns can fluctuate widely, depending on global market cycles and shocks. This is, for example, what happened during the Global Financial Crisis (GFC) and its aftermath. The GIC experienced losses in investment value during the GFC, and low average returns for five years, before recovering (see GIC's annual report).

The Government is able to bear this investment risk because its substantial buffer of net assets ensures that it can meet its obligations. This enables it to give GIC the mandate of investing to achieve good long-term returns, in full knowledge that the portfolio will be exposed to significant risks over the shorter term as the markets experience cycles and volatility. The Government’s balance sheet absorbs these risks.

GIC’s long term returns are thus not earned by managing only SSGS proceeds, but the combined pool of Government funds that it is tasked with managing for long-term returns. It would be quite different if the GIC were to manage SSGS proceeds directly through a separate, standalone fund, without the backing of the Government’s net assets. A standalone fund would have to be managed much more conservatively, to avoid the risk of failing to meet obligations to CPF members – including not only a capital guarantee but the commitment to pay the minimum interest rates on CPF funds, regardless of market conditions. The fund would not be aimed at accepting risks that enable good long-term returns, but at avoiding any short-term shortfalls. The returns that such a fund would earn over the long term will be lower than what the GIC can expect to achieve with its mandate of managing the Government’s pooled assets on an unencumbered basis.

The investment returns in excess of the SSGS rates that the Government expects to make over the long term by taking the risks of long-term investments are not hoarded away in the reserves.

Under the Constitution, up to 50% of the returns from our reserves flow back to the Government’s annual Budget through the Net Investment Returns Contribution (NIRC). This has been explained in MOF's 2014 COS speech.

The NIRC has provided the Government valuable resources that have allowed us to embark on new priorities for Singapore, including the strengthening of our social safety nets.

Is our CPF money safe?

Singapore has high levels of Government debt as reported in the CIA Public Debt Factbook. Do we have enough assets to cover our liabilities?

If the Government runs balanced budgets or has budget surpluses in some years, why do we still need to borrow money?

Ask MOF

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