Government Borrowing (Miscellaneous Amendments) Bill

Order for Second Reading read.

3.00 pm

The Minister for Finance (Mr Lawrence Wong): Mr Speaker, I beg to move, "That the Bill be now read a Second time".

Sir, earlier this year, this House debated and passed the Significant Infrastructure Government Loan Act, or SINGA for short, to reactivate Government borrowing for financing nationally significant infrastructure, subject to strict safeguards.

The borrowings under SINGA are clearly distinguishable from a separate category of Government borrowing for non-spending purposes under the Local Treasury Bills Act, or LTBA, and the Government Securities Act, or the GSA.

The LTBA and the GSA allow the Government to borrow, not for spending, but for specific purposes, such as market development and meeting the investment needs of the Central Provident Fund. To emphasise, the proceeds from such borrowings cannot be spent by the Government.

So, to delineate between the two types of borrowing in legislation, the borrowings which are done under SINGA for SINGA projects and borrowings which cannot be spent, this Bill before the House seeks to merge the LTBA into the GSA, and to streamline our legislation on Government borrowings. This will help to provide better clarity on the profile of the Government's debt.

Let me share some background on the LTBA and the GSA.

The LTBA authorises the issuance of Treasury Bills to develop the domestic short-term debt market and to meet market demand for short-term Government debt securities. The GSA authorises the issuance of longer-tenor securities, like the Singapore Government Securities, or SGS, to develop the domestic debt market and meet the investment needs of the Central Provident Fund.

Both the LTBA and the GSA expressly provide that the proceeds of borrowings raised are to be paid into the Government Securities Fund. This is an important safeguard, because the monies in the Government Securities Fund can only be invested. This is why the monies raised under the LTBA and GSA cannot be used to finance the Government's spending needs.

While the LTBA and GSA were introduced separately with different processes, the Government has gradually harmonised the treatment of Treasury Bills and SGS over the years.

For example, the LTBA was amended in 1996 to account for the proceeds and expenditures of Treasury Bills under the Government Securities Fund, instead of the Consolidated Fund, similar to Government securities in the GSA.

In 2001, the minimum denomination for Treasury Bills of $10,000 was revised downwards to $1,000 to facilitate greater retail participation, similar to that for tradable securities under the GSA.

And in 2004, the GSA was amended to change the borrowing limit of Government securities issued from a gross to a net limit for a more meaningful measure of Government's liabilities, similar to that for Treasury Bills under the LTBA.

So, given the overlaps in purpose and the harmonisation of treatment of securities under both Acts, this Bill is therefore introduced to merge the LTBA into the GSA.

The Government Securities Act will be renamed as the Government Securities (Debt Market and Investment) Act, which I will refer to as the renamed GSA for short, to reflect this consolidation within the name of the Act.

The renamed GSA will provide for the issuance of Treasury Bills and the existing LTBA will be repealed.

The changes introduced through this Bill are largely administrative in nature with no change to the substance of the individual Acts.

There is no change to the provision, limiting the use of monies in the Government Securities Fund from being used solely for investment purposes. Therefore, the monies raised under the Bill cannot be used for spending.

With the merger of the Acts, the current borrowing limits under the LTBA and GSA, which are $105 billion and $960 billion respectively, will be combined to form a single borrowing limit of $1,065 billion under the renamed GSA. There is no change to the overall borrowing limit.

As is the practice today, the Monetary Authority of Singapore (MAS) will continue to calibrate Treasury Bill and SGS issuances based on market development needs. And to ensure transparency, MAS will continue to publish the breakdown of outstanding SGS and Treasury Bills.

There is also no change to the existing features and outstanding issuances of Treasury Bills and Government Securities issued under the LTBA and the GSA. The outstanding Treasury Bills will be automatically subsumed under the renamed GSA.

Besides the merging of LTBA into the GSA, this Bill will also repeal borrowing provisions in other Acts that are no longer necessary.

Specifically, the Bill will repeal the External Loans Act and Treasury Deposit Receipts Act, as well as borrowing provisions in the Developmental Investment Fund Act.

There are no outstanding borrowings under these Acts. So, with the SINGA and renamed GSA, the Government does not foresee the need to borrow under these Acts.

The Constitution and other acts, such as the MAS Act will be amended to substitute references to LTBA and GSA with the renamed GSA, and remove references to the External Loans Act. The amendments to the Constitution will be raised by the Minister for Law after this.

We have consulted the President on both this Bill and the amendments to the Constitution, as they provide for the raising of loans by the Government and a single borrowing limit for Government securities and Treasury Bills. The President is supportive of the Bills.

Mr Speaker, let me conclude. This Bill consolidates various pieces of legislation on Government borrowings for specific non-spending purposes into a single legislation under the renamed GSA.

Going forward, the Government will rely on the renamed GSA to borrow for specific non-spending purposes and the SINGA to borrow for spending on nationally significant infrastructure.

We will ensure that the borrowings for spending and non-spending purposes are transparent and clearly differentiated in the processes for the issuances of securities, reporting and public communications. For example, the new SGS issued for infrastructure financing has been named as SGS(Infrastructure) bonds and the existing SGS bonds renamed as SGS(Market Development) bonds to reflect the different purposes of borrowing.

And again, I would like to emphasise that the Singapore Government has a strong balance sheet with no net debt. Borrowings for non-spending purposes, which will be consolidated under the renamed GSA in this Bill, will continue to make up the majority of Singapore Government's borrowings. Through this Bill, we will provide greater clarity on the Government's debt profile. Sir, I beg to move.

Question proposed.

Mr Speaker: Mr Liang Eng Hwa.

3.08 pm

Mr Liang Eng Hwa (Bukit Panjang): Mr Speaker, I wish to declare my interest that I work in a financial institution which trade and transaction in securities, including Government securities.

Sir, the Government has issued more debts over the year, largely for investments, and also to develop the bond market and to manage the CPF monies.

Earlier this year, the House has also passed the Significant Infrastructure Government Loan Act (SINGA) in which the proceeds raised can only be used to fund major and very long-term key infrastructures.

So, the Government's balance sheet has indeed expanded and hence, it does make good sense do some "housekeeping" to the various Government borrowing legislations, and in particular, this Bill to consolidate the GSA and LTBA as well as make consequential amendments and repeals to the other Acts.

Sir, notwithstanding my support, I have three questions for the Minister.

Firstly, can I use this opportunity to seek an update on the outstanding amount of securities that the Government issued under the GSA and the LTBA?

Secondly, clause 14 of the Act merge the two borrowing limits, the GSA and the LBTA, into a single borrowing limit of $1.065 trillion. Can I ask the Minister for the basis of this change?

The reasons for my question are as follows.

Firstly, SGS are long-dated debts greater than one year, while the Treasury Bills tends to be just a few months to a year. Both debts come with different tenures, repayment obligations. The Treasury Bills tend to be more liquid in the trading markets because it is shorter dated. Hence, from the credit market standpoint, the two debts, say, the three-month Treasury Bill versus 20-year SGS would be accorded with different risk ratings.

Does MOF see the need to retain this separate borrowing limits for these two buckets of issuances given that they both have different risk profile?

My third question is, the main bulk of the securities issued by the Government is the Special Singapore Government Securities (SSGS) which I believe account for about over 70% of the SGS. This is issued to CPF Board so that the Government can pay the bond coupon rates to the CPF members, which match the interest that CPF members receive. These bonds are not traded in the market and are directly placed with CPF. Hence, this is not for the purpose of creating high quality liquid assets for the financial institutions or to build a domestic risk-free yield curve, as opposed to the purpose of SGS.

Because of its sheer size, this SSGS, and that it will continue to grow in tandem with higher wages and growth in our resident workforce, we can expect the SSGS to get even more sizeable as the CPF savings increase.

As the SSGS is aggregated with the SGS, the overall debt level of the Government will come across as very high relative to our GDP and give the impression that a lot more SGS is issued or traded in the market.

These CPF related issuances, the SSGS, are also not invested by external investors because it is hold by the CPF Board, and its size of issuance and coupon rates therefore do not have any impact on the Singapore bond market nor its liquidity.

Hence, I would suggest that MOF consider classifying these private placed securities which it privately placed to CPF Board as CPF Bond rather than called it the SGS, and it should come under a separate borrowing limit and, of course, to be approved by Parliament and the President.

These would give greater clarity to the market participants and analysts on the level of the borrowing by the Government. Sir, notwithstanding my queries, I support the technical amendments in this Bill.

Mr Speaker: Assoc Prof Jamus Lim.

3.12 pm

Assoc Prof Jamus Jerome Lim (Sengkang): Mr Speaker, I understand that the stipulations in the Government Borrowing (Miscellaneous Amendments) Bill, are of a largely technical nature, aiming to repeal various mostly spent acts, and to consolidate any borrowing by the Government across sectors. This is fairly obscure, so obscure, in fact, that I noticed that, initially, I was the only Member slated to speak on this but evidently, two others have since found this topic similarly irresistible.

I favour such simplification and I do not have substantive concerns about the specificities in the proposed amendments. I do wish, however, to make a few points that I think have more to do with potentially unintended consequences of the current iteration of the Bill. These have to do with the debt limit precluding the acceptance of advance deposits by the MAS for Treasury Bills and the lack of justification for rejecting sales.

The first point worth noting is that clause 14 with the Bill proposes to set the borrowing limit for Government loans at $1.065 trillion, which represents the combined limits of $960 billion for the Government securities and $105 billion Treasury Bills that currently exists under two separate Acts. This new limit may then be increased by Parliamentary resolution, which simplifies, since logically, all forms of debt, whether short-term or long-term should, of course, be treated as a component of the overall liability picture and, hence, subject to the same form of debt ceiling discipline.

Given this observation, would it not also make sense to enfold remaining instruments under Government borrowing, such as single bonds issued under the Significant Infrastructure Government Loan Act to the same limit? I understand, of course, as Minister Wong has mentioned that this is, in fact, a separate accounting convention.

This limit, to be clear, is relatively small, at $90 billion and there is a clear benefit through consolidating under one roof, which is that a consolidated limit would simplify monitoring and allow fiscal policy-makers to ultimately focus on the single figure.

So, the natural objection, of course, is this, is that the Government maintains these separate limits for debt that serve developmental objectives, such as infrastructure, which is the case for SINGA versus those issued under risk transfer and investment purposes for the purposes of CPF funds as mentioned earlier, or to fulfil liquidity and debt functions.

MOF has steadfastly held that all these require separate limit accounts. But from the perspective of understanding the underlying economics, all monies is ultimately fungible and it is unclear why debt issued under one type of accounting constraint cannot subsequently be redeployed to other functions so long as it is only a matter of protocol, rather than one entrenched in actual legislation that prevents subsequent transfer.

Of course, such deviations need not occur under this Government but it could easily occur under another perhaps more profligate one. Hence, even if we did wish to maintain separate debt ceilings for the purposes of accounting, perhaps it may be worth nevertheless incorporating these distinct limits into this Bill.

This is especially the case since insofar as financial markets are concerned, they view the consolidated Government balance sheet as a whole, as they should. Indeed, SINGA bonds do not appear to have affected the Singapore Government's overall credit rating, which is yet another economic reason to not hive off such limits for the instrument.

Concomitantly, it is also important to calibrate the frequency with which this limit is modified. While fiscal rules such as a reasonable debt limit have been used in many countries and can play an important role in ensuring the sustainability of fiscal affairs, a debt ceiling that is too frequently binding can wreak havoc on the efficient operation of government, as the experience of the United States, where bipartisan brinksmanship routinely plagues efforts to raise the debt ceiling, reminds us.

To this effect, may I inquire whether this Government has considered whether this limit is appropriate? What is the premise or justification behind the current debt limit ceiling amount of $1.065 trillion? Is there a body that routinely examines the veracity of this debt limit and how frequently should we expect to change this?

The second point, Mr Speaker, I wish to raise has to do with how clause 20 of the Bill restricts the ability of other Government entities, in particular, MAS from accepting advance deposits in anticipation of raising loans by way of Treasury Bills.

While this may be a sound principle in practice, history is rife with examples of central banks that have gone ahead and monetised debt on behalf of a profligate sovereign, breeding inflation as a result.

It is worth noting that two recent developments may yet necessitate additional flexibility for the monetary authority to act in an anticipatory manner.

The first such circumstance, as Members of this House would be aware of, has to do with the zero lower bound faced by nominal interest rates. Although Singapore has never quite faced this problem in the aftermath of the Global Financial Crisis of 2007/2008 and the MAS, unlike most central banks, targets the nominal exchange rate rather than the policy interest rate, it is nevertheless worth keeping in mind that one prescription to the problem of the zero lower bound is to allow for central banks to intervene directly in short-term money markets by issuing securities on their own account.

The second situation is to do with the emerging central bank digital currency landscape (CBDC). Such CBDCs are likely to become a permanent part of the future of central banking worldwide and I understand that MAS is on the forefront of this and even commissioned the sandbox for studying the usage of such currencies.

While the detailed findings of this exercise have yet to be made public, it is reasonable to ask if the practical implementation of CBDCs may yet require flexibility for MAS to be able to accept such advance deposits for Treasury Bills and if this Bill would preclude such action.

Hence, while I accept that these two conditions are somewhat unusual, it is nevertheless worth asking if this particular clause in the Bill may unnecessarily tie the hands of the MAS to operate in a modern global macroeconomic environment.

Finally, clause 24 of the Bill explicitly states that the authority may, "refuse any application to take up Government securities or Treasury Bills issued without assigning any reason."

While I accept the prerogative of the Government to reserve the right to refuse the sale of his debt to any given entity, it is also surely reasonable, at least, for Singaporean purchases to be provided some form of explanation for why they are unable to purchase the debt of their own Government.

Notwithstanding these reservations and questions, Mr Speaker, I support the Bill.

Mr Speaker: Mr Louis Ng.

3.20 pm

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I support this Bill, which will bring about greater clarity by consolidating and harmonising the Government's borrowing powers.

I have two points of clarification to make.

My first point is on the merging of limits under the Government Securities Act and the Local Treasury Bills Act. The new section 11 of the Act will replace the separate borrowing limits for Government securities and Treasury Bills with a single borrowing limit.

My concern is that we currently have a much higher borrowing limit for Government securities than for Treasury Bills – more than nine times as much. The Government had its rationale for maintaining this disparity.

As such, I have three related questions:

One, what was the initial intent of having a much higher borrowing limit for Government Securities and Treasury Bills? Does the Ministry see this initial intent as no longer relevant, given that this intent is no longer reflected in the combined borrowing limit?

Two, will this combined limit now result in a greater reliance on Treasury Bills compared to Government securities?

Three, will the Government internally maintain a separate borrowing limit for Government Securities and Treasury Bills?

My second point is on the approval required for borrowing beyond the $1.065 trillion limit.

Both the existing section 11 and the new section 11 allows the Government to borrow beyond its limit as long as there is a Parliamentary resolution and presidential concurrence. I would like to seek some clarification on the approval process.

In both cases, all the Government needs is for the Parliament to pass a resolution by simple majority and for the President to concur. The $1.065 trillion limit appears to make no difference.

Is the borrowing limit merely meant to signal the Government's stance on maximum borrowing? Relatedly, will the Ministry consider introducing a strengthened check-and-balance for when the Government seeks to increase its borrowing limit or to borrow beyond the existing limit?

For example, we could require such activities to require a two-third vote of approval by the Parliament in addition to the President's concurrence. This process change would reflect the sanctity of the borrowing limit and the severity of increasing or bypassing it.

Sir, notwithstanding these clarifications, I stand in support of the Bill.

Mr Speaker: Minister Lawrence Wong.

3.22 pm

Mr Lawrence Wong: Mr Speaker, I thank the Members of the House who have shared their views on this Bill.

Let me first reiterate that this is largely an administrative exercise. As Mr Liang Eng Hwa said, it is housekeeping. There is no change to the substance of our borrowing legislation, the overall borrowing limit and the safeguards to raising the current limit. But let me clarify some of the questions and points that Members have raised.

Mr Liang Eng Hwa asked about the outstanding amount of securities under the Local Treasury Bills Act (LTBA) and the Government Securities Act (GSA).

As at 30 September, we have $65 billion under the LTBA and $699 billion under the GSA.

Both Mr Liang Eng Hwa and Mr Louis Ng also asked about the rationale for merging the LTBA and GSA borrowing limits. Let me explain.

First, with the introduction of SINGA, we thought that it would be timely to consolidate legislation of Government borrowings for non-spending purposes so as to distinguish these from borrowing for spending purposes under SINGA. By pooling the LTBA and the GSA together under the renamed GSA, this will emphasise that the borrowings issued under this Act are entirely for non-spending purposes.

This would also address what Assoc Prof Jamus Lim was saying. He had suggested to pool it together as one combined limit, together with SINGA. But from the Government's point of view, for better governance and for better control of processes, we want to distinguish between borrowing for non-spending, which is done under LTBA and GSA, and borrowing under SINGA, which is borrowing for infrastructure, which we spend. I think it is prudent and advisable to have different limits for both.

Between GSA and LTBA, both are borrowing for non-spending reasons – one for short-term securities, another for longer-term securities. And we felt that there is no need to distinguish so much between the two. Furthermore, over time, the processes for treatment of LTBA and Treasury Bills and Government securities have become harmonised over the years. Therefore, we see scope for pooling them together.

Second, a combined limit under this renamed GSA will also provide MAS greater flexibility to calibrate the issuances and tenors of debt issuances based on market conditions. In fact, other countries such as the US and Germany similarly manage their short and long-tenor securities under a single limit.

With this combined borrowing limit, we do not expect the proportion of short- and long-term securities under the renamed GSA to be significantly different from today. This is because a large proportion will continue to be used to issue Special Singapore Government Securities (SSGS), which is mainly driven by CPF balances and its investment needs. As Mr Liang Eng Hwa has correctly highlighted, the amount of SSGS issuances is expected to increase over time due to growth in our resident labour force and wages.

The remaining borrowing limit will mostly be utilised by the issuance of Treasury Bills and Singapore Government Securities (SGS) to support market development and it is market demand and conditions that will influence the amount and the tenor of such debt to be issued.

In particular, MAS will calibrate the amount and tenor of such issuances to meet the regulatory needs of financial institutions for high quality liquid assets and to establish a robust sovereign yield curve to support the development of the Singapore dollar corporate bond market. Indeed, it will not be in the Government's interest to issue debt of certain tenors beyond what the market can reasonably absorb as it would skew the interest rate curve used to price Singapore dollar denominated financial instruments and result in capital misallocations.

So, to reiterate again, we are combining all the borrowings that are for non-spending purposes – CPF, market development – pooling them together under this renamed GSA.

We believe it is prudent and, from a financial point of view, provides better control – to have this differentiated from borrowing for SINGA projects, which is borrowing which will be used for financing of actual projects. That will be governed separately under SINGA and with a separate limit.

On Mr Liang Eng Hwa's suggestion for a separate borrowing limit for SSGS, I think he highlighted the need to provide clarity to market participants and analysts.

Here, we do not believe there is a need for a separate limit – to carve out SSGS – because if the purpose is to provide clarity and transparency, indeed, the composition of borrowing, be it SSGS, SGS or Treasury Bills, this will be published and will be subject to public and parliamentary scrutiny. MAS will continue to publish monthly the breakdown of outstanding SGS and Treasury Bills that are issued.

Next, Mr Louis Ng asked about the purpose of this borrowing limit and if the governance over increases in borrowing limits could be further strengthened to reflect the sanctity of the borrowing limit and the severity of increasing or bypassing it. I think Assoc Prof Jamus Lim also alluded to this in his response.

Let me clarify. There is really nothing sacrosanct about the borrowing limits. These are not permanent hard caps. In fact, the Government reviews the borrowing limits periodically and we will come back to the Parliament to raise the limits through Parliamentary resolutions where required. The most recent was in January this year.

For example, as demand for SSGS grows due to rising CPF balances, then, we will start to reach the limit. Likewise, demand for SGS and Treasury Bills will change, depending on regulatory and investment needs and market conditions.

What is important to understand is that the key safeguard, the key legislative safeguard in the Government Securities Act is that none of these borrowings can be spent. Like I said, it is differentiated from SINGA borrowings. Under the GSA, all of the borrowing proceeds are invested. Therefore, such borrowings do not lead to additional debt burdens.

Given that we already such a legislative safeguard under the GSA, some may ask why then is there still a need for a borrowing limit?

Our view is that this borrowing limit, while it is not a permanent hard cap, serve as an additional layer of checks and safeguards. It is useful for monitoring and each time we get close to the limit and we need to raise the limit, the Government would then have to come back to Parliament and get the agreement to raise this through Parliamentary resolution. Thereafter, the President will act independently in her discretion to concur with this resolution.

With the merger of the LTBA into the GSA, there will not be any change to the existing safeguards and processes that we have in place today.

Finally, Assoc Prof Jamus Lim also asked about two clauses of the Bill, clause 20 on the acceptance of advance deposits by MAS and whether this unnecessarily ties the hands of MAS. We do not believe so. Clause 20 does not hinder us from effective monetary policy at all today. Clause 24 on the reserving the right to refuse a sale of debt to any entities, yes, that is in place in legislation. But should such a scenario were to arise, the Government will make clear its reasons for refusal.

But in any case, we will continue to review and update all aspects of legislations and should there be new developments in the marketplace or new requirements, we will periodically update legislation where necessary.

In summary, Sir, this Bill seeks to provide clarity on the Government’s debt profile, and reflect that the majority of the Government borrowings will continue to be issued under the renamed GSA for non-spending purposes.

I assure Members of this House that our fiscal position remains strong with borrowings. We will review our debt limits regularly to ensure that we continue to borrow within our means and remain in a net asset position. With this, Sir, I beg to move.

Mr Speaker: Any clarifications? Very good. Everyone is short and concise today.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr Lawrence Wong].

Bill considered in Committee; reported without amendment; read a Third time and passed.