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What is the President’s role in safeguarding the reserves?


Under the Constitution, the President safeguards the Past Reserves of the Government and Fifth Schedule entities in the following ways:

  1. Approval of the Annual Budget of the Government and Fifth Schedule Entities

    The Government can only draw on Past Reserves with the approval of the President. For each year’s budget, the President may veto the budgets of the Government and Fifth Schedule entities if he is of the opinion that their budgets are likely to draw upon Past Reserves. (An example of this is a profligate Government spending more than its revenue and using up the reserves it has accumulated during its term.) The President’s assent to each year’s Budget is an important safeguard that ensures that, on an ongoing basis, there is no draw on Past Reserves without his agreement.

  2. Approval of appointment and removal of key Government officials and board members of the Fifth Schedule Entities

    The President also has veto power over the appointment and removal of: (i) Board members or directors in the Fifth Schedule entities; and, (ii) appointments of key public officers such as the Accountant-General, Auditor-General and Chief Valuer.

  3. Rules governing how investment returns from Past Reserves can be taken into each year’s Budget for spending

    Spending from Investment Returns

    The revisions to the Constitution that were passed by Parliament in October 2008 introduced a new framework for Government spending from investment returns. This framework allows the Government to take into the Budget, up to 50% of the long-term expected real returns on net assets invested by our investment entities, after deducting Government liabilities.

    The expected long-term real rate of return refers to the investment rate of return that can be expected to be earned over the long term, after netting off inflation.

    Expected (as opposed to actual realised) rates of return are used to provide some stability to the amount that can be spent. The expected rates are based on the judgment of experienced investment professionals at our investment entities and are the forward-looking expected rates of return over the long term. The expected rates of return have to be approved by the President each year. In the event that the Government and President do not agree to any of the expected rates of return, the 20-year historical average rate of return will be used to compute how much the Government can spend.

    This spending framework ensures that the investment returns on Past Reserves are tapped for spending in a disciplined and prudent way. It achieves this in the following ways:

    • The Government can only spend up to 50% of the long-term expected real returns;

    • The framework uses real rates of return, viz. after netting off inflation, to protect the real value of our reserves;

    • The framework allows the Government to spend only from returns on the net assets, i.e. the excess of assets over liabilities invested by our investment entities, minus the liabilities of the Government. This ensures that we set aside returns to cover the costs of servicing our liabilities.

    The ability to tap our reserves in a sustainable manner is a significant financial advantage for Singapore. Unlike many countries that have to service their debts and other liabilities from their budgets on an annual basis, we are able to take in money from the investment returns of our reserves to supplement our Budget. More importantly, tapping the investment returns of Past Reserves in a disciplined manner also ensures that our reserves can grow with the economy. This should provide future Governments with a steady stream of returns to support the Budget.

    Other than the normal operation of the spending rule framework, the Government can make use of Past Reserves only with the President’s approval.

    Click here for more information on the role of the President.

  1. "56 man-years" does not mean it takes 56 years to complete the task. A man-year is a measure of the amount of work to be done, and not of the time it will take to do it.

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