Singapore: PM Lee posturing to avoid touching reserves

  • EVEN as GIC celebrates its many achievements over the last 4 decades, Singapore’s sovereign wealth fund must continue to anticipate and prepare for the challenges that lie ahead, said Prime Minister Lee Hsien Loong on 16 Nov 21.
  • Speaking at a dinner to mark the fund manager’s 40th anniversary, he noted that the economic uncertainties today are “only too apparent”, including the impact of prolonged low interest rates and record fiscal deficits.
  • “Inflation, long been dormant globally, is stirring again. It may yet prove less transient than the current complacent conventional wisdom holds,” he told an audience at the Shangri-La Hotel.
  • The prime minister said geopolitics will play a big role. He cited the strained tensions between the United States and China, which are already affecting global supply chains.
  • “Countries are also rethinking the downside of unfettered free flow of trade and investments, and putting new emphasis on supply-chain security and resilience,” he said.
  • Beyond this, he noted that the tensions and rivalry between the world’s two largest economies “could cripple markets and investments, even short of full-on conflict”.
  • He added that GIC will seek out new investment opportunities in green technologies, which are needed in this transition to a more sustainable world.
  • In Singapore, he said, there are evolving domestic conditions to watch out for, including an increased spending on social and healthcare policies, and a growing pressure on the government to draw more from the country’s reserves instead of raising taxes to pay for the higher expenditure.
  • “GIC has protected, preserved and enhanced the value of the reserves. This has enabled us to build up a valuable nest egg to make up for the oil, gems, timber and all the other natural resources that we do not have,” he said.
  • PM Lee stressed how Singapore’s reserves have been a “bulwark” to see the nation safely through AFC, 08, and COVID-19.
  • He also said that the reserves also play an important role, even in ordinary times, as they provide a steady stream of income to the government of the day.
  • Up to 50% of investment returns from the reserves contribute to the government’s annual budget, which equates to about 20% of the government’s annual revenue.
  • This, said PM Lee, is much more than what is collected from the Goods and Services Tax or corporate income tax, which are the biggest income sources after the investment returns.
  • “This provides the government additional fiscal space to invest in priority areas such as education, healthcare and infrastructure.

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