Parliamentary Speech by Ms Indranee Rajah, Second Minister for Finance on Singapore's Subscription to the Capital Increase for the International Bank for Reconstruction & Development; and the 19th Replenishment of the International Development Association05 Nov 2019
Motion on Singapore’s Subscription to the IBRD
1. Mr Speaker, Sir, I beg to move,
2. “That this Parliament, in accordance with Section 7(3) of the Bretton Woods Agreement Act (Chapter 27 of the 2012 Revised Edition), resolves that the total subscription of Singapore to the International Bank for Reconstruction and Development be increased to a sum not exceeding Eight Hundred and Fifty-Eight Million United States Dollars (US$858 million).”
3. I will also be moving a second related motion on Singapore’s subscription to the International Development Association. The background and rationale for both motions are addressed in this speech.
IBRD Capital Subscription
4. The International Bank for Reconstruction and Development, or IBRD, is the main institution of the World Bank Group that lends to developing countries.
5. In October 2018, the Board of Governors of the IBRD adopted resolutions to increase the capital of the IBRD by about US$60 billion. The IBRD intends to use the capital to support the 2030 Agenda for Sustainable Development, more commonly known as the Sustainable Development Goals or SDGs. It does this, for instance, by supporting inclusive and sustainable economic growth through investments in infrastructure; as well as delivering higher climate co-benefits and focusing on crisis prevention.
6. As a member of the World Bank Group, Singapore subscribes to capital of the IBRD. The Bretton Woods Agreement Act, or the BWAA, governs Singapore’s subscription. In 2014, Parliament raised the threshold for our cumulative subscription to the IBRD for the first time since 1966 to US$672 million. Today, our subscription stands at US$671.82 million.
7. We now propose to fully subscribe to the 1,540 shares allotted to Singapore in the 2018 IBRD capital increase exercise. This amounts to close to US$186 million, which will bring our cumulative subscription since 1966 to about US$858 million. We are therefore seeking Parliament’s approval to again raise Singapore’s subscription threshold to the IBRD.
8. I should explain that not all the amount subscribed to needs to be disbursed. The capital subscription comprises two categories:
i. Paid-in capital; and
ii. Callable capital
a. The remaining US$165 million of callable capital will not be drawn upon unless in extreme circumstances such as when the IBRD cannot meet its obligations on borrowings or guarantees.
b. Historically, this has not happened.
c. The IBRD is a triple A-rated institution with a long history of sound balance sheets.
d. Nevertheless, the full increase in Singapore’s subscription to the IBRD’s capital will be charged to the Consolidated Fund, as the callable capital represents an increase in the Government’s financial liabilities.
10. Mr Speaker, the World Bank Group also offers concessional loans and grants through the International Development Association or IDA to its least developed member countries to reduce poverty as well as promote economic and social development.
a. IDA was started in 1960 and is replenished every three years. Governments are due to pledge their contributions for the next three-year tranche from FY21 to FY23 this December under the 19th IDA Replenishment exercise or IDA19.
b. IDA has been playing a leading role in helping the world’s poorest countries by providing loans and grants for programmes that boost economic growth, reduce inequalities and improve living conditions.
12. For IDA19, we believe that the majority of IDA donors are likely to support a total replenishment size of about US$82 billion over the period of FY21 to FY23. This will enable IDA to channel more resources to countries in fragile and conflict-affected situations; support programmes that prioritise capability building and economic transformation; as well as enhance crisis response and pandemic preparedness.
13. The IDA Act guides our subscription to the IDA.
a. In 2016, Parliament raised the threshold for Singapore’s IDA subscription to US$1.1 million to enable our IDA18 contributions, up from the earlier US$1 million stipulated by Section 4(2) of the IDA Act.
b. We now propose to contribute up to US$70 million over three years for IDA19, which will bring our subscription component to up to US$1.3 million. As a result, we are also seeking Parliament’s approval to raise the subscription threshold to the IDA from US$1.1 million to US$1.3 million.
14. In addition to the foregoing, I would like to update and inform Parliament that Singapore has voted in support of the resolutions to increase the capital of the International Finance Corporation, or IFC, by US$5.5 billion. The IFC is the private sector arm of the World Bank Group. It will leverage the additional capital to mobilise private sector investments in developing countries, creating markets to advance sustainable development.
15. Singapore’s present cumulative subscription to the capital of the IFC stands at less than US$0.2 million.
a. We will be fully subscribing to the 8,612 shares allotted to Singapore in this IFC capital increase exercise. This amounts to US$8.61 million and will bring our total subscription close to US$9 million. The actual disbursement will be less than that, at US$7.44 million as US$1.17 million worth of shares will be allotted through the conversion of retained earnings.
b. This subscription, however, is contingent on the passage of the Board of Governors’ resolutions to increase the capital of the IFC. Voting for these resolutions is open until 18 March 2020.
17. We are participating in the IBRD and IFC capital increase exercises as well as the IDA 19th Replenishment for the following reasons.
a. First, it is important that we do our part as a responsible member of the international community by contributing to the efforts of the development institutions to alleviate poverty and boost shared prosperity.
b. In 1966, Singapore joined the IBRD and subsequently received 12 loans from the Bank for a variety of infrastructure projects – from port expansion and telecommunications to the capitalisation of then-Development Bank of Singapore and the construction of the National University of Singapore campus. Our final loan with the Bank was signed in 1975.
c. Having seen and experienced first-hand how timely financial support could accelerate development efforts, we moved from being a borrower to a donor and partner of the World Bank Group in the early 2000s.
d. We are supportive of the World Bank Group’s strategic directions for achieving the 2030 SDGs and are keen to join the international effort to supplement its resources to generate more targeted assistance to those in the region and beyond.
e. Second, the presence of the World Bank Group in Singapore benefits Singapore and contributes to our growth.
f. As members may know, the World Bank Group has an Infrastructure and Urban Development Hub in Singapore. In FY18, the IFC mobilised more than US$1.5 billion in private capital for the Asia Pacific region, three-quarters of which was done with the participation of Singapore-based banks and financial institutions. This has strengthened Singapore’s status as a regional financial hub.
g. Singapore companies and services have also benefited from the World Bank Group’s advisory, project preparation, structuring and financing activities in the region. These activities add to the vibrancy of Singapore’s infrastructure ecosystem and reinforce our position as a major infrastructure hub for Asia, creating opportunities for our businesses and our people.
18. Mr Speaker, Sir, I beg to move.
19. Mr Speaker, I beg to move, “That this Parliament, in accordance with Section 4(2) of the International Development Association Act (Chapter 144A of the 2003 Revised Edition), resolves that the total subscription of Singapore to the International Development Association be increased to a sum not exceeding One Million and Three Hundred Thousand United States Dollars (US$1.3 million).”
20. Mr Speaker, Sir, I have addressed the reasons in the earlier speech. Mr Speaker, I beg to move.