THE NEW BigO PLAIN-SPEAKING, STRAIGHT-TALKING, NO B.S. CONTEST NUMBER 1
June 24, 2010 – 11:09 amIt’s a simple world. But there are people who just like being complicated.
Take the simple query of why $ingapore’s recorded public debt is $255.464 billion? The information released by America’s Central Intelligence Agency [click here] made some people wonder why $ingapore is ranked 6th in the world for public debt.
The nation-builder press, June 17, 2010.
Click on the graphic for a better view.
What you think the professor is saying? [See article below.]
Every reader who posts a comment will get a link to some unreleased music. Enjoy.
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What $’pore’s Public Debt Reveals
News reports often mention the high debt of the United States and Japanese governments. At the same time, we are told $ingapore has low debt. Yet the 2008 Statistics of $ingapore notes that $ingapore’s public debt stood at $255.464 billion that year, while the Gross National Income was $250.387 billion. It would appear $ingapore too has pretty high public debt. Can you explain this anomaly? How do economists compute a country’s debt? What is included in the list of debt and what is not?
The reader has raised intriguing and relevant issues concerning $ingapore’s public finances.
First, $ingapore has a well-deserved reputation for the conservative management of its public finances. Yet its gross debt to Gross National Income (GNI) ratio exceeded 100 per cent in 2008. Some international sources project that ratio to increase to 112 per cent by the end of the year, which is equivalent to US$38,000 (S$53,000) per person (assuming a population of 4.9 million). This contrasts with a projected 2010 debt-to-GNI ratio of 60 per cent for the United States.
Unlike the US, however, $ingapore has exhibited persistent and large structural budget surpluses. Thus, $ingapore’s officially reported budget surplus averaged 7.4 per cent of GNI annually between 2003 and 2008.
The apparent anomaly of, on the one hand, having high structural budget surpluses, and on the other, a large public debt has puzzled analysts. Usually public debt is issued to finance government deficits. But past budget surpluses suggest $ingapore’s fiscal balance sheet has substantial accumulated balances, and there is no need to issue public debt.
The main limitation of the gross public debt indicator in assessing fiscal health is that it leaves out the Government’s assets from past surpluses, and whatever funds that may have been set aside, as $ingapore has done, to repay debt.
Net public debt would be a better indicator. Thus, if the net instead of the gross public debt were used, $ingapore will not exhibit any public debt. Instead, it will likely show a surplus.
In this regard, there is strong merit in routinely publishing the Government’s balance sheet, indicating the extent of past budget surpluses and their deployment. That way, we would avoid such puzzlement as the questioner has noted.
Second, why does the $ingapore Government issue debts and who holds them?
There is official data available on gross public debt according to instruments. In 2008, for example, 82 per cent of debt was in Registered Stocks and Bonds, and 14 per cent was in Treasury Bills, with the remaining 4 per cent in Advanced Deposits with the Monetary Authority of $ingapore (MAS) to be converted later into the other two categories. There is data available also on gross debt according to maturity. In 2008, for example, most of the debt was over a one-year period. There is, however, no data according to the holders of the debt.
The Central Provident Fund (CPF) Annual Report for 2008 stated that of its total investments of $153.4 billion, $150.8 billion was held in Hold-To-Maturity financial assets. Nearly all of the CPF’s assets were held between Special (non-marketable) government securities, and Advanced Deposits with the MAS. Thus, the CPF as an institution is the single largest holder of government debt. The CPF itself is passive in investing its members’ assets, content to receive administered rates of interest on its Hold-to-Maturity assets.
Other holders of $ingapore government debt include financial institutions that are required to purchase such debt as part of their prudential norms. The rest is distributed among other investors.
A major objective of issuing public debt is to facilitate intra-fund transfers within the broadly defined public sector. More recently, establishing a risk-free interest rate benchmark through issuance of longer period government securities has also been an objective.
To conclude, conventional aggregate ratios to assess fiscal health have important limitations. Specifically, they do not take into account the type of public finance management that $ingapore practises. Suitable changes in the way the Government presents its fiscal accounts could enable analysts to better assess $ingapore’s fiscal health. - Mukul Asher
Note: The writer is a professor at the Lee Kuan Yew School of Public Policy, NUS.
18 Responses to “THE NEW BigO PLAIN-SPEAKING, STRAIGHT-TALKING, NO B.S. CONTEST NUMBER 1”
Accounting standards in the US insure that each company presents its financials in the same way so the comparisons are meaningful. Countries should do the same. Singapore is like a country having a fund put aside for bad debts but not revealing the amount put aside so it seems on the surface that they are in a high risk situation which they are not.
By Jay Bartlett on Jun 24, 2010
I think he’s saying that while a one-year snapshot may suggest a deficit, the fact that several years of a (modest) budget surplus leaves the country ahead overall, with money “in the bank”. So the big picture doesn’t suggest a huge deficit.
By AR Wenner on Jun 24, 2010
It’s dead simple really
“Your Government has been stashing away huge sums of ’surplus’ public money every year. It doesn’t tell you how much money is hidden under the bed, but it’s a BIG pile of lollies.
“The Government, in its wisdom, knows that if it told you just how much it is sitting on, you might wonder why taxes remain so high, or - God forbid - ask why it doesn’t provide more public services for the poor.
“So you can expect the Government will continue to publish the less meaningful figure of Gross Public Debt, rather than the more significant indicator, Net Public Debt. This will continue as long as Government is determined to keep the public in the dark about how much money is hidden away for use on a ‘rainy day’ - what the rest of the world calls a slush fund.
“We can sum this up with the mnemonic Less Knowledge Yielded by Scheming Plutocratic Politicians (easy to remember if you just think of the Lee Kuan Yew School of Public Policy).”
By tk on Jun 24, 2010
In the U.S., there is very little media coverage of Singapore. Perhaps the government of Singapore is not providing accurate information to its people. I think a law should be passed to require an independent audit of the government so that the people have more reliable and truthful information about the government’s activities. Without accountability, the government is not answerable to the people, and thus has no legitimacy.
By psykomyko on Jun 24, 2010
well I read the article and now I have a headache trying to actually understand what was written ? Do these people try to confuse on prupose, does anyone really know what the prof. means here other than bafflegab ?
By sluggo on Jun 25, 2010
I think what this guy is trying to do is to impress everyone with his “finance speak” - the same bullsh*t Wall Steet did as they sold mortgage derivatives as actual mutual funds. In other words - it is a wankfest! The only good thing about this article is that I get a link to some cool music!
By Wingtouring on Jun 25, 2010
He is saying the Singapore’s debt calculation does not take into account their budget surplus, and that said surplus is not being applied to pay down the debt. So, based on the calculation of gross public debt it appears that Singapore’s economy is more unstable than it actually is. He then goes on to explain how the debt has been issued (bonds and T-bills) and who is holding the debt (which companies have purchased the bonds and T-bills as an investment vehicle.) Finally he concludes that traditional calculations are not a good way to determine Singapore’s overall fiscal health because they don’t take into account the specific way in which Singapore manages public assets and liabilities. And I don’t think he’s wanking, I think he’s just speaking in economist-speak. I think an economist reading this would not be confused by the language he is using.
By mrslaughter on Jun 25, 2010
Singapore’s debt and hidden surplus reveal an economy based on mistrust of any financial stability. Rightfully so. Once surplus is revealed, many leaches will want to grab hold and suck it dry, thereby causing financial instability. It may not be the best way to do it, but it is one way.
By SpeedwayBoogie on Jun 25, 2010
In plain speak, the writer believes $ingapore ain’t broke and the writer believes it don’t need fixin!
By Adam Dean on Jun 26, 2010
I guess I’d have to be convinced that any info from the CIA in USA is accurate. After all this country is ruled currently by Obama and his packrat Pelosi. The only thing Obama knows how to do is lie.
By phil winans on Jun 26, 2010
Living in the USA (but born in the UK), I am surprised about how little Singapore or any other country is heard about in the News over here. From the article, it appears Singapore is in better financial health than the US - although they appear to be hiding the fact. Well, I think that was what the article said!
By Red Dragon on Jun 26, 2010
Well, I don´t understand anything the professor wrote, but sure it reminds me my country´s government tying to explain why taxes reach the sky in Brazil.
By Belasco on Jun 26, 2010
My best reading of what he is saying is that different government authorities or agencies, such as the CPF (for my fellow Americans, that’s more or less the equivalent of Social Security) have debt for various reasons. Therefore, he’s saying, there’s a fairly high total of debt for the SG government, but that doesn’t take into account that other parts of the government have surpluses, so that if you take everything into account, SG is in the black even though it has debt. He’s arguing that the overall picture is the more important thing.
What he doesn’t really address is why the overall picture is more important. One is left to presume that the government could, if needed, take the surpluses to pay the debt off, but I don’t know enough about the situation to know if there are potential problems there.
By Brett Alan on Jun 26, 2010
Its basically the government not showing fiscal responsibility and this keeps those on the lower economic scale down while allowing those in a richer bracket to prosper. they are doing what many third world countries are doing
By Walter O on Jun 26, 2010
I think the rulers of Singapore are aggressively protecting their country by, 1) not showing the world and their public how much money they have. 2) showing a loss for the year which was real and not using left over funds to disguise it. and 3)using their past surplus monies to cover current deficits without claiming a false profit or financial situation. I think they are smart
By Richard Ridderbusch on Jul 1, 2010
As several others have pointed out, there are many sources for income and that Singapore’s “public” budget reflects the income for that year. Is it an attempt to hide their true holdings? I will leave that speculation for Singapore’s citizens.
By NAMoosedog on Jul 6, 2010
“Conventional aggregate ratios to assess fiscal health have important limitations,” professor Asher writes. “Suitable changes in the way the government presents its fiscal accounts could enable analysts to better assess $ingapore’s fiscal health.”
That’s professorial double-talk for, “Our current financial systems don’t work. We won’t know how bad our fiscal situation is until we use a more reliable accounting method.” Being an expert is writing lengthy essays that say nothing, Asher does not offer a solution to the problem.
bowman
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“Art will always be Art.” - Goethe
By bowman on Jul 17, 2010
In Singapore,as in most Western countries, the ‘money’ is not in the public domain. It’s held - well out of the reach of joe public, so that the rich become richer while the poor become poorer.
Because the media is ‘controlled’ we’re all suckered into believing that ‘debt’ is worldwide - b******t. As Bowman states the financial systems dont work (unless you control the flow of money).
By John Mclaughlin on Jul 27, 2010