TL;DR – And what a wonderful thing that is!
Someone (who runs a fake news site, so let’s not link there) recently published an article saying that the Singapore government is in debt. The offending article concluded that as a result of this borrowing, we need to raise the GST in order to refinance our debt.
I couldn’t believe it. So I went to check.
And to my shock and horror, it is true!
Our government is indeed in debt. And heck of a lot of it!
Singapore’s massive debt
By some estimates, Singapore’s national (domestic) debt stands at about SGD470,000,000,000 . That’s 470 with nine zeros after it. In comparison, Singapore’s GDP is about SGD400,000,000,000. Yup, that’s 400 with nine zeros after it.
In other words, our government’s debt is more than the size of our entire economy.
Siao liao la. Singapore government owes so much money. We are in deep trouble la. Die la. Now government surely will raise GST, raise tax, raise whatever they can raise to make us Pay And Pay! As if life isn’t jialat enough.
Is a good thing
Hang on hang on. Do not panic. It’s OK that Singapore government has debt. It’s the smart thing to do.
Huh. How come?
Let’s use an example. Let’s say you have found a way to make solar panels that are 100 times more efficient than whatever is available in the market. They’re also 100 times cheaper and can be installed on any surface. It would reduce the world’s reliance on fossil fuels, and it will make you quite rich.
The problem is… you need to build a factory, get the raw materials, hire people, etc etc, before you can start production. And you don’t have the money. You are just a normal Singaporean living in a HDB flat. What do you do?
One thing you can do is to borrow money.
Let’s say you borrow SGD10 million to set up your company. You build your factory. Every year, you have to pay SGD300,000 in interest. But because your technology is so amazeballs good, in no time, your company is profitable, earning profits of SGD1million a year. Not bad right?
Then next, you want to expand. And you want it to do so rapidly. What do you? You can use your profit. But that would mean that you can’t expand your business as quickly. You can borrow some more. Say you borrow another SGD100 million to set up bigger factories, and distribution channels across the world. And before long, your business is making hundreds of millions of dollars a year in profit.
But you still have debt. And that’s OK.
Because you have invested the money you borrowed to build something that is worth far more than what you borrowed. For every dollar that you are paying in interest, you are earning three, four, or many more dollars back.
In such a situation, if you had such an opportunity, would you rather not take that debt? You would be stupid not to.
Because we use that debt to “grow” more money
And stupid the Singapore government isn’t. The Singapore government borrows money to invest. Our government borrows cheap and invests what we have borrowed. We use what we have borrowed to build infrastructure, and accumulate various assets. Overall, the net assets we have accumulated using what we have borrowed far exceeds what we have borrowed. That makes us a net creditor nation.
From what we have borrowed, we generate about SGD15,000,000,000 a year AFTER paying for interests and other costs of borrowing.
That’s right. After paying off all the costs of borrowing, every year, the investments we made using money we borrowed generate about SGD15 billion. In other words, if our government didn’t have debt, it would have SGD15 billion less to spend on things like health care, schools, roads, safety and security, and many of the other things that we take for granted.
So. Yes. Our government is in debt. And what a glorious thing that is.
What are external debts?
Total public and private debts owed to non-residents which are repayable in internationally acceptable currencies, goods, or services.
Why are our external debts so high?
Singapore had an external debt of US$1.766 trillion (as at Nov 2017).
Much of these gross external debts are debt liabilities in our banking sector. Did you know when a bank receives a deposit from you, it is recorded as a liability in the bank’s books? Because this deposit is considered as a “loan” from you and the bank has to pay back with interest.
Conversely, when the bank lends out the money, this is recorded as an “asset” because the borrower is expected to return the loan with interest.
Since Singapore is a major international financial centre, we receive large capital inflow from overseas and much of this money is deposited with its banks. So majority of our gross debts and liabilities are, in fact, deposits kept in Singapore banks by overseas banks and depositors.
This money is then used by the banks to lend to big overseas borrowers. Once that happens, it becomes part of Singapore’s external assets.
Taken as a whole, both the public and private sectors in Singapore are net creditors with a strong net asset position equivalent to around 200 per cent of our GDP. We’re a net creditor country, and not a net debtor country. In layman’s terms, others owe us more than we owe others.
What are government debts?
Government debt (also known as public interest, public debt, national debt and sovereign debt) is the debt owed by a government.
What about our government debts? Why are they high too?
The Singapore Government operates on a balanced budget over each term of Government. It does not borrow to fund its Budget. It only borrows for growth.
The Government issues three types of domestic debts. Other than Singapore Government Securities and Singapore Saving Bonds, one key component is our CPF. From the Government’s perspective, our CPF are their liabilities since they have to pay us the money at some point in time, with guaranteed interests too.