Singapore’s national reserves are the net assets (assets minus liabilities) of the country.1 Being a small nation lacking in natural resources and relying heavily on external trade, Singapore requires ample reserves as its security net to ensure a stable currency and to provide a cushion in times of crisis. The reserves also provide a continual stream of income for current and future generations.2 Recognising its strategic importance, the government has been building up the national reserves over the last few decades.3 To protect this nest egg from potential misuse, the government needs the consent of the president before it can draw on past reserves.4 In October 2008, the president’s approval was sought for a S$150-billion guarantee on all local bank deposits to be backed by past reserves. Then in January 2009, for the first time in the history of the elected presidency, former President S. R. Nathan gave his approval for the government’s proposal to withdraw S$4.9 billion from the reserves to fund the Budget.5
The Constitution of Singapore defines reserves as “the excess of assets over liabilities of the Government, statutory board or Government company”.6 The reserves comprise financial assets such as cash and shares as well as physical assets like land and buildings. Apart from the Monetary Authority of Singapore (MAS) managing the reserves, government-linked companies GIC Private Limited (previously known as Government of Singapore Investment Corporation) and Temasek Holdings (Private) Limited have been given the mandate to invest some of the reserves with the objective of maximising the long-term value of the assets.7
The Constitution also provides the definition of past reserves as “those that were not accumulated by the government during its current term of office, including relevant accretions”.8
Size and management of the reserves
The government has never revealed the actual amount in Singapore’s reserves for strategic reasons.9 For a rough idea of how much it could be, analysts often look at the amount of foreign reserves held by the MAS to maintain the stability of the Singapore dollar as well as the assets managed by GIC and Temasek.10 According to a report by the Ministry of Finance, Singapore’s official foreign reserves managed by the MAS totalled S$343 billion and Temasek’s portfolio was S$223 billion as at 31 March 2014, while GIC manages “well over US$100 billion”.11
System of safeguarding past reserves
In August 1984, then Prime Minister Lee Kuan Yew mooted the idea of giving the president more powers to help safeguard the country’s reserves. Six years later, then First Deputy Prime Minister Goh Chok Tong introduced in Parliament the Constitution of the Republic of Singapore (Amendment No. 3) Bill, which proposed the creation of an elected presidency scheme with veto powers to safeguard the national reserves and the integrity of the public service.12 The bill was passed on 3 January 1991 and took effect on 30 November 1991.13 Thus was born the so-called “two-key system” of protecting past reserves, with the government and the president each holding one key.14 The government would be able to tap on past reserves only if the president gives his approval.15
As the custodian of Singapore’s past reserves, the president can withhold his assent to any Supply Bill, Supplementary Supply Bill or Final Supply Bill – thereby blocking the Budget for the financial year – if it is likely to draw on past reserves.16 Similarly, statutory boards and government companies listed in the Fifth Schedule of the Constitution are required to present their annual budgets and supplementary budgets to the president for his approval before the start of each financial year. If a budget is likely to draw on past reserves, he may refuse to approve it.17
In addition, the accountant-general and auditor-general have to inform the president of any proposed transaction by the government that is likely to draw on past reserves.18 The same requirement is applied to the Fifth Schedule entities: Central Provident Fund Board; Housing and Development Board; Jurong Town Corporation; Monetary Authority of Singapore; GIC; and Temasek Holdings. If the president objects to the proposed transaction, he may exercise his veto.19
The president’s veto is final, with one exception. The Constitution requires him to consult the Council of Presidential Advisers (CPA) before he makes his decision on a possible drawdown of past reserves.20 If he withholds his assent to a Supply Bill, Supplementary Supply Bill or Final Supply Bill against the recommendation of the CPA, the government may overrule his decision with a resolution that is supported by at least a two-thirds majority in Parliament.21 Under the Constitution, the president may also request for additional information and the relevant agency has to comply.22
Former President Ong Teng Cheong had worked with the government to develop a set of working principles in 1999 to guide the actual implementation of the constitutional safeguards. The resulting white paper, The Principles for Determining and Safeguarding the Accumulated Reserves of the Government and the Fifth Schedule Statutory Boards and Government Companies, was approved by the Cabinet on 13 May 1999 and tabled in Parliament on 2 July 1999. The objective for these principles is to prevent any significant drawdown of the past reserves without the president’s consent.23
Major constitutional amendments
There have been two major constitutional amendments in relation to the amount of investment returns being channelled into past reserves. The Constitution of the Republic of Singapore (Amendment) Act 2001, passed by Parliament on 12 January 2001 and commenced on 8 February 2001,24 included an amendment to protect the net investment income (NII) derived from past reserves. NII refers to the interest and dividend income earned from investing Singapore’s national reserves, net of debt servicing and expenses on investment. With the amendment, the government would be able to spend only up to 50 percent of NII derived from past reserves each year because at least half of it would be regarded as part of past reserves and thus protected. Before the amendment, there was no such cap. However, the amendment did not apply to reserves under the Fifth Schedule entities.25
The second amendment involved a more fundamental change – a revision of the framework under which the government was allowed to spend the returns gained from investing the reserves. In effect, the changes increased the amount of investment returns that the government could spend each year while retaining the 50-percent limit.26 After much debate in Parliament, the Constitution of the Republic of Singapore (Amendment) Act 2008 was passed by Parliament on 21 October 2008 and enacted on 1 January 2009.27
Before the amendment, NII was the basis for determining the amount of investment returns that could be spent. Following the amendment, a broader definition of investment returns known as net investment returns (NIR) was adopted.28 NIR is made up of the long-term expected real rate of return on the reserves invested by GIC and MAS, as well as the NII on the remaining assets, comprising primarily Temasek Holdings.29 While NII consists of actual dividends and interest earned each year in nominal terms, total returns include capital gains or losses and are calculated based on the real expected returns over a long-term period of 20 years. The government stated that additional funds gained from the amendment would help meet spending requirements in times of emergency or when revenue falls.30
1. “What Comprises the Reserves and Who Manages Them?” Ministry of Finance, accessed 17 February 2020.
2. “Reserves,” Ministry of Finance, accessed 30 March 2020.
3. Anna Teo, “Singaporeans May Get Stake in Official Reserves,” Business Times, 7 September 1990, 1. (From NewspaperSG)
4. “All the President’s Power,” Straits Times, 30 December 1991, 14. (From NewspaperSG)
5. Zakir Hussain, “A Budget First: Govt to Draw $4.9b from Past Reserves,” Straits Times, 23 January 2009, 4. (From NewspaperSG)
6. Constitution of the Republic of Singapore, Singapore Statutes Online, rev. ed., 2020, article 2.
7. Ministry of Finance, “What Comprises the Reserves.”
8. Constitution of the Republic of Singapore, Singapore Statutes Online, article 142.
9. Ministry of Finance, “What Comprises the Reserves.”
10. Linda Low and Toh Mun Heng, The Elected Presidency as a Safeguard for Official Reserves: What Is at Stake? (Singapore: Times Academic Press; Institute of Policy Studies, 1989), 12–20. (Call no. RSING 339.35957 LOW)
11. Monetary Authority of Singapore, Management of Official Foreign Reserves: Annual Report 2013/2014 (Singapore: Monetary Authority of Singapore, 2014); Temasek, “Temasek Ends Active Year with S$223 Billion Portfolio,” press release, 8 July 2014; Ministry of Finance, “GIC Manages Its Investment Portfolio for the Long Term,” forum replies, 23 September 2011.
12. “All the President’s Power.”
13. Constitution of the Republic of Singapore (Amendment) Act 1991, Act 5 of 1991, Singapore Statutes Online.
14. “All the President’s Power.”
15. Lydia Lim, “No Loophole for Past Reserves to Be Spent, Says Govt,” Straits Times, 11 May 2004, 3. (From NewspaperSG)
16. “All the President’s Power”; Constitution of the Republic of Singapore, Singapore Statutes Online, article 148A.
17. “All the President’s Power”; Constitution of the Republic of Singapore, Singapore Statutes Online, articles 22B, 22D.
18. Constitution of the Republic of Singapore, Singapore Statutes Online, article 148G.
19. Constitution of the Republic of Singapore, Singapore Statutes Online, fifth schedule; Teo Chee Hean, “At 2nd Reading of Constitutional of the Republic of Singapore (Amendment) Bill,” speech, 7 November 2016, Prime Minister’s Office; Ministry of Finance, “What Comprises the Reserves.”
20. “The Powers of the President,” Gov.sg, accessed 30 March 2020.
21. Constitution of the Republic of Singapore, Singapore Statutes Online, article 148A.
22. Constitution of the Republic of Singapore, Singapore Statutes Online, article 22F.
23. Parliament of Singapore, The Principles for Determining and Safeguarding the Accumulated Reserves of the Government and the Fifth Schedule Statutory Boards and Government Companies: Presented to Parliament by Command of the President of the Republic of Singapore (Singapore: Government Printers, 1999), 4–6, 8. (Call no. RSING 336.5957 SIN)
24. Chuang Peck Ming, “Bill Passed to Protect Income from Past Reserves,” Business Times, 13 January 2001, 7 (From NewspaperSG); Constitution of the Republic of Singapore (Amendment) Act 2001, Act 2 of 2001, Singapore Statutes Online.
25. Parliament of Singapore, Second Reading of the Constitution of the Republic of Singapore (Amendment) Bill, vol. 72 of Parliamentary Debates: Official Report (Hansard), 12 January 2001, cols. 1300–1, 1303–4.
26. Zakir Hussain, “Unlocking More of the Reserves’ Returns,” Straits Times, 11 October 2008, 25. (From NewspaperSG)
27. Parliament of Singapore, Second and Third Readings of the Constitution of the Republic of Singapore (Amendment) Bill, vol. 85 of Parliamentary Debates: Official Report (Hansard), 21 October 2008, cols. 606–8.
28. Hussain, “Unlocking More of the Reserves’ Returns.”
29. Parliament of Singapore, Second Reading of the Constitution of the Republic of Singapore (Amendment) Bill, vol. 85, no. 3 of Parliamentary Debates: Official Report, 13 March 1967, col. 386. (Call no. RCLOS 328.5957 SIN)
30. Zakir Hussain, “The Keys to Nation’s Wealth,” Straits Times, 20 March 2009, 28. (From NewspaperSG)
The information in this article is valid as of March 2020 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.