Impact of Monetary Authority of Singapore's $7.4 billion Loss on Government Budget

Parliamentary Question by Mr Liang Eng Hwa:

To ask the Prime Minister (a) whether he can clarify the context on the loss of $7.4 billion reported by MAS in their financial statement for FY2021/22; and (b) whether the recorded loss will have implications on the Government’s strong Singapore dollar policy and overall budget position for the current financial year.

Parliamentary Question by Mr Ang Wei Neng:

To ask the Deputy Prime Minister and Minister for Finance (a) whether the Government is prepared for MAS to continue making net losses over the next one to two years should the tightening of monetary policy be maintained; and (b) whether and, if so how, will Government funding be affected by MAS’ financial position.

Parliamentary Question by Mr Vikram Nair:

To ask the Deputy Prime Minister and Minister for Finance (a) whether MAS’s $7.4 billion loss will have any impact on the Government budget; (b) if so, what is the impact; and (c) whether any reconsideration is needed on how MAS contributions in the Government budget is to be used given the volatility in its returns.

***

Parliamentary Reply by Deputy Prime Minister, and Minister for Finance Mr Lawrence Wong:

Mr Deputy Speaker, may I have your permission to take questions 4, 5 and 6 together, as they pertain to the $7.4 billion loss reported by MAS in its financial statement, and the impact of the loss on the Government’s budget position? 

First, in my capacity as Deputy Chairman of MAS, let me explain the context of the net loss. The net loss of $7.4 billion reflected a currency translation effect, in other words the effect of translating the foreign currency value of the Official Foreign Reserves (OFR) into Singapore Dollars. The negative currency translation effect is not relevant to MAS’ investment performance, which is measured in foreign currencies. It also has no bearing on the international purchasing power of the OFR, or on MAS’ conduct of monetary policy. 
 
For FY2021/2022, MAS made investment gains of $4 billion on the OFR. These investment gains were, however, outweighed by the negative currency translation effects of $8.7 billion arising from a stronger Singapore Dollar. As MAS tightened monetary policy in October 2021 and January 2022, the Singapore Dollar had strengthened against several of the foreign currencies in which the OFR are held.  This meant a currency translation loss when the OFR were reported in Singapore Dollar. 

The negative currency translation effect has no implication for the international purchasing power of the OFR. In fact, given the purpose of the OFR in safeguarding the international purchasing power of the Singapore Dollar, it is the foreign currency value rather than the Singapore Dollar value of the OFR that matters. 

MAS’ net loss in Singapore Dollar terms also has no implications for its conduct of monetary policy. The aim of MAS' monetary policy is to secure low and stable inflation as the basis for sustained growth over the medium term. MAS, as members know conducts an exchange rate-centred monetary policy, managing the Singapore Dollar against a basket of currencies of Singapore’s major trading partners. When inflationary pressures build up, as they have over the past year, MAS allows the trade-weighted exchange rate to appreciate faster.  Negative currency translation effects do not have any bearing on MAS’ ability to manage the exchange rate; rather they are a consequence of MAS’ conduct of exchange rate policy.

Next, let me in my capacity as the Minister for Finance answer the questions relating to the impact of MAS’ net loss on the Government’s budget position.  At the outset, let me clarify that MAS’ overarching mandate is to ensure macro-economic stability. The Government does not expect MAS to deviate from this mandate in order to maximise its contributions to the Government.

MAS contributes to the Government’s budget in two ways.

First, under the Net Investment Returns (NIR) framework, the Government can spend up to 50% of the expected long-term real return on the net assets invested by MAS, GIC, and Temasek. The NIR framework is designed to provide a steady, sustainable stream of income to help meet the Government’s expenditure needs. The NIR is based on the long-term expected returns of the three investment entities, and therefore is not affected by their short-term performance.  MAS’ reported net loss in the last financial year has no impact on the NIR that is available to the Government.

Second, similar to other Statutory Boards, MAS makes contributions to the Government in lieu of corporate income tax. This is based on 17% of the net profit for the year after offsetting cumulative losses from previous financial years.

In the case of MAS, the Government recognises that its contributions will vary considerably from year to year due to the combined effect of currency translation and investment returns on MAS’ balance sheet. This is why, since FY2019, the Government has smoothened the revenue volatility by requiring the annual contributions made by MAS to be paid in equal proportions over a period of three years. This means that even though MAS recorded a net loss for FY2021/2022, the Government will receive $1.1b from MAS, based on the contributions accrued for the previous two financial years, when MAS recorded net profits. The smoothening formula has helped to mitigate the impact of MAS' net loss on the Government’s budget. 

Investment returns are inherently volatile reflecting market conditions.  The Government has taken steps to ensure that this volatility does not unduly affect the Budget. It is neither responsible nor prudent for us to rely on windfall surpluses in any given year to fund our increased structural spending needs.