Governance of a City-State
Commentary: Should Singapore look beyond a balanced budget to ensure we will always have enough in our reserves?

The national reserves is often a topic of considerable public discussion, what more in the lead-up to a Presidential Election since the Head of State holds the second key to any plans of the government to use them.

In a recent interview with CNA, Prime Minister Lee Hsien Loong described the reserves as providing “one extra card to play” in tough times and said that the “biggest misconception” that Singaporeans can have about the reserves is that “there is such a thing as enough”.

It was only to be expected that news this July that two institutions which manage Singapore’s reserves saw losses in the last financial year drew public attention.

Temasek Holdings’ net portfolio value declined by 5.2 per cent, or S$21 billion. The Monetary Authority of Singapore lost a record of S$30.8 billion as the value of its holdings of foreign currency shrunk against the Singapore dollar – kept higher to mitigate rising costs domestically – and due to higher interest expenses on its money market operations.

Against this backdrop, the government’s subsequent announcement was a surprise: Singapore’s overall fiscal position went from deficit to surplus in the same period.

The latest government financial statements indicated that while the previous budget estimated a deficit of S$2 billion (US$1.48 billion), the outcome was a surplus of S$1.7 billion, thanks to a better-than-anticipated recovery from the COVID-19 pandemic.

These developments remind us not to take Singapore’s fiscal sustainability for granted. Also, budget surpluses are vitally important if our greater ambition is to provide future generations of Singaporeans with access to at least the same real value in these funds as we have had.


This is in addition to the concern that the government must always have enough to fund its priorities and projects for the country.

The Ministry of Finance previously warned that while rising expenditure can be balanced by revenues in the coming years, there is some danger that a fiscal gap equivalent to 2 per cent of gross domestic product annually could emerge towards the end of this decade under some revenue and expenditure scenarios.  

Currently, the government is already obliged by the Constitution to achieve a balanced budget and not incur a deficit at the end of a parliamentary term. Is there a need to target a net surplus as a point of principle, in light of these considerations? Why?

Try this thought experiment: You have a million dollars in savings and are told that, over the next decade, inflation will run at a consistent 3 per cent each year. If nothing else changes, the fund will fall to 76 per cent of its original value at the end of 10 years, and to merely 56 per cent after 20 years.

This information might prompt you to work towards earning a surplus of least 3 per cent to keep up with inflation, perhaps even another 3 per cent more to maintain the level of disposable income and standard of living.

Take any sum out of your savings and you may need to earn a larger bonus to replace it in value.


The same logic applies to our reserves: Singapore’s sovereign wealth funds must earn enough to maintain their value, but more is needed to replace spending, if not to go even further to grow the principal sum.

These were among the issues raised at workshops attended by experts and over 90 ordinary citizens on national policies related to Singapore’s finances and reserves organised by the Institute of Policy Studies in April and May.

Participants recognised that returns on investments of reserves have the dual role of maintaining that store of value over extended periods of time, and funding annual budgets in the form of Net Investment Returns Contribution (NIRC). Fiscal prudence – spending within our means and leaving something for the future – was both important to participants.

The good news is that our sovereign wealth funds have been able to deliver returns above 4 per cent in the 20-year horizon and provide contributions to the annual budgets.

NIRC added between 12.1 per cent and 21.3 per cent of total revenue in the budgets of financial year 2009 to 2021. Without this, taxation rates would have had to be higher than they are, and the economy, less globally competitive as a result.

However, the fluctuation of global market forces means NIRC cannot be taken for granted. If returns on investments are lower than expected, budget surpluses at the end of a term of government are a critical backstop to any erosion to the stock of funds in our reserves in real terms.

The government has put into the reserves a net balance of S$8 billion, S$11.3 billion and S$1.4 billion, after the financial years spanning the last three parliamentary terms respectively (from 2006 to 2020). Notably, Singapore tapped the reserves for extraordinary COVID-19 measures in the last term.


The paradox is that as economic conditions become more volatile, it becomes harder to generate such surpluses just when they are needed the most.

In his Budget 2023 statement, Deputy Prime Minister and Finance Minister Lawrence Wong said that the S$40 billion drawn from past reserves to tide Singapore through the storm of COVID-19 was unlikely to be replaced.

Periods of high inflation and low growth will erode the real value of past reserves. We simply cannot begrudge periods of high growth, low inflation and budget surpluses akin to conditions that allowed Singapore to establish these reserves in the first place.

National financial planning requires prudence, much like we do with our household savings. The first step is to always be wary of the practice of spending what we have today, thinking that tomorrow will take care of itself.


As we head into an election to decide the President who will safeguard our country’s financial resources and look ahead to further policy moves under Forward Singapore and beyond, we can ask ourselves: Would we agree to policymakers targeting and achieving budget surpluses to build the principal sum of the reserves?

There might be concerns that doing so might take away from the needs of today. But back to the household analogy, being restrained with spending goes together with saving and investing for tomorrow.

Certainly, maintaining Singapore’s competitiveness is a non-negotiable as, all things being equal, taxation of rising GDP must be the primary route to raising state revenues and ensuring fiscal sustainability.

Beyond that, our own question reflecting on the IPS workshops is this: If budget surpluses are an important additional hedge against the erosion of our reserves, could the mark of good governance be to achieve more than a balanced budget?

How about the extent to which the government of the day targets to achieve surpluses that match a moving 10-year average of rate of inflation?

Another suggestion is to consider it a legitimate and valuable endeavour for the government to build back the amount it might have spent during a crisis through such budget surpluses, if it is still the same party in power.

Likewise, citizens should expect to hear of such plans from any political party hoping to form government – they should start from the position of fiscal prudence which remains an important value held by Singaporeans if our deliberation exercise is anything to go by.

Hence, like the useful though imperfect analogy of household accounts, national budget surpluses are critical for the sustainability of our national finances, and integral to the concept of intergenerational fairness for a resource-scarce country in a tumultuous world.


Eddie Choo is a Research Associate and Gillian Koh, Senior Research Fellow at the Institute of Policy Studies, National University of Singapore. Both were part of the team that published the IPS Working Paper 51. Public Deliberation on Singapore’s Fiscal Policy and National Reserves.

This piece was first published in CNA on 17 August 2023.

Top photo from Unsplash.

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