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Singapore Eyes SG$90 Billion in Infrastructure Bonds

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Singapore Eyes SG$90 Billion in Infrastructure Bonds

For the first time in 40 years, the state is seeking to borrow money to fund long-term infrastructure improvements.

Singapore Eyes SG$90 Billion in Infrastructure Bonds

The government of Singapore is about to do something it hasn’t done since Founding Father Lee Kuan Yew was still firmly at the helm – borrow money to finance major public infrastructure projects. As reported in The Straits Times, a new bill was introduced in Parliament in April called the Significant Infrastructure Government Loan Act (SINGA). If passed, the bill will authorize the state to raise up to SG$90 billion (US$67.3 billion) on capital markets, which will be specifically earmarked for public infrastructure with a useful life of at least 50 years. The main priorities for spending are expansions of the public transit system and coastal protection measures.

The last time the Singaporean government borrowed to finance major infrastructure spending was in the 1970s and ‘80s, when the country needed funds for the construction of Changi Airport and its nascent MRT system. By the 1990s, roaring economic growth, investment inflows, and exports created a comfortable surplus in the balance of payments and the state budget. Remarkably, this meant the government chose not to issue any more bonds for public infrastructure – everything could be paid for out of revenue, reserves, and surpluses.

Well, that’s partially true anyway. In actual fact, statutory government bodies like the Land Transport Authority (LTA) issue bonds on capital markets with some frequency, using the proceeds to invest in infrastructure and long-term capital improvements. The primary difference is that these are typically not guaranteed by the state, and they don’t count toward the national debt since the statutory board, at least in theory, assumes all of the risk.

This gives us a glimpse into the fascinating complexity of Singapore’s hybridized state capitalist system. What’s novel about the SINGA legislation is that for the first time in decades the state is going to do the heavy lifting on capital markets itself in order to finance major infrastructure projects. Rather than raise funds through its autonomous statutory boards, the government is placing the full weight of its sovereign power behind these bonds.

This is interesting because if you go on the Monetary Authority of Singapore’s website, you will find the following low-key technocratic flex: “The Singapore Government operates a balanced budget policy and often enjoys budget surpluses. It does not need to fund its expenditure by issuing bonds to borrow money.” But if it doesn’t need to, then why is it choosing to do so now? There are a couple reasons.

The state is forecasting a need for large-scale investment in public infrastructure, particularly climate mitigation efforts. If the government issues these bonds, rather than the LTA, it will likely get better financing terms, and yields on long-term government debt have been on the decline anyway. The average yield on a 15-year Singaporean government security in 2020 was 1.11 percent, compared to 2.9 percent in 2015, so if they are going to issue government bonds it would be financially prudent to do so now.

There is also an underlying belief in Parliament that doing these once-a-generation big ticket expenditures spreads the burden and the benefit out evenly over time for Singaporean citizens. That is to say, leadership is very cognizant of avoiding the appearance of running up big costs for projects with immediate benefits while saddling later generations with big debt hangovers. They want to be equitable in the way the costs and the benefits are distributed throughout society over time, and spending big once every 30 years on public projects that will last for 50 years ticks that box.

But it also reflects a kind of philosophical shift underway in how governments and investors and people think about global systems of capital, sovereign debt, and the role of the state. For a long time, the economic orthodoxy coming from places like the IMF and U.S. Treasury Department counselled against fiscal deficits and debt. Current account surpluses and balanced budgets have long been considered the gold standard for responsible growth, especially in emerging economies.

But if you look at the United States today, where a battle is raging about whether Washington should borrow trillions of dollars to invest in public infrastructure, you can see that the terms of this debate are changing. Some states are becoming more open to the idea of running deficits to fund investment in long-term growth and sovereign debt, at least in some circles, is seen as less of an albatross than it once was. That Singapore, a country which has avoided government borrowing to fund infrastructure for most of my life time, is now looking to do just that gives us some idea of how much the needle has moved.