Government Borrowing (Miscellaneous Amendments) Bil

Mr Louis Ng Kok Kwang (Nee Soon): Sir, I support this Bill, which will bring about greater clarity by consolidating and harmonising the Government's borrowing powers. 

I have two points of clarification to make.

My first point is on the merging of limits under the Government Securities Act and the Local Treasury Bills Act. The new section 11 of the Act will replace the separate borrowing limits for Government securities and Treasury Bills with a single borrowing limit.

My concern is that we currently have a much higher borrowing limit for Government securities than for Treasury Bills – more than nine times as much. The Government had its rationale for maintaining this disparity.

As such, I have three related questions:

One, what was the initial intent of having a much higher borrowing limit for Government Securities and Treasury Bills? Does the Ministry see this initial intent as no longer relevant, given that this intent is no longer reflected in the combined borrowing limit?

Two, will this combined limit now result in a greater reliance on Treasury Bills compared to Government securities?

Three, will the Government internally maintain a separate borrowing limit for Government Securities and Treasury Bills?

My second point is on the approval required for borrowing beyond the $1.065 trillion limit.

Both the existing section 11 and the new section 11 allows the Government to borrow beyond its limit as long as there is a Parliamentary resolution and presidential concurrence. I would like to seek some clarification on the approval process.

In both cases, all the Government needs is for the Parliament to pass a resolution by simple majority and for the President to concur. The $1.065 trillion limit appears to make no difference.

Is the borrowing limit merely meant to signal the Government's stance on maximum borrowing? Relatedly, will the Ministry consider introducing a strengthened check-and-balance for when the Government seeks to increase its borrowing limit or to borrow beyond the existing limit?

For example, we could require such activities to require a two-third vote of approval by the Parliament in addition to the President's concurrence. This process change would reflect the sanctity of the borrowing limit and the severity of increasing or bypassing it.

Sir, notwithstanding these clarifications, I stand in support of the Bill.

Mr Lawrence Wong (The Minister for Finance): Mr Speaker, I thank the Members of the House who have shared their views on this Bill. 

Let me first reiterate that this is largely an administrative exercise. As Mr Liang Eng Hwa said, it is housekeeping. There is no change to the substance of our borrowing legislation, the overall borrowing limit and the safeguards to raising the current limit. But let me clarify some of the questions and points that Members have raised.

Mr Liang Eng Hwa asked about the outstanding amount of securities under the Local Treasury Bills Act (LTBA) and the Government Securities Act (GSA). 

As at 30 September, we have $65 billion under the LTBA and $699 billion under the GSA.

Both Mr Liang Eng Hwa and Mr Louis Ng also asked about the rationale for merging the LTBA and GSA borrowing limits. Let me explain.

First, with the introduction of SINGA, we thought that it would be timely to consolidate legislation of Government borrowings for non-spending purposes so as to distinguish these from borrowing for spending purposes under SINGA. By pooling the LTBA and the GSA together under the renamed GSA, this will emphasise that the borrowings issued under this Act are entirely for non-spending purposes. 

This would also address what Assoc Prof Jamus Lim was saying. He had suggested to pool it together as one combined limit, together with SINGA. But from the Government's point of view, for better governance and for better control of processes, we want to distinguish between borrowing for non-spending, which is done under LTBA and GSA, and borrowing under SINGA, which is borrowing for infrastructure, which we spend. I think it is prudent and advisable to have different limits for both. 

Between GSA and LTBA, both are borrowing for non-spending reasons – one for short-term securities, another for longer-term securities. And we felt that there is no need to distinguish so much between the two. Furthermore, over time, the processes for treatment of LTBA and Treasury Bills and Government securities have become harmonised over the years. Therefore, we see scope for pooling them together.

Second, a combined limit under this renamed GSA will also provide MAS greater flexibility to calibrate the issuances and tenors of debt issuances based on market conditions. In fact, other countries such as the US and Germany similarly manage their short and long-tenor securities under a single limit.

With this combined borrowing limit, we do not expect the proportion of short- and long-term securities under the renamed GSA to be significantly different from today. This is because a large proportion will continue to be used to issue Special Singapore Government Securities (SSGS), which is mainly driven by CPF balances and its investment needs. As Mr Liang Eng Hwa has correctly highlighted, the amount of SSGS issuances is expected to increase over time due to growth in our resident labour force and wages. 

The remaining borrowing limit will mostly be utilised by the issuance of Treasury Bills and Singapore Government Securities (SGS) to support market development and it is market demand and conditions that will influence the amount and the tenor of such debt to be issued.

In particular, MAS will calibrate the amount and tenor of such issuances to meet the regulatory needs of financial institutions for high quality liquid assets and to establish a robust sovereign yield curve to support the development of the Singapore dollar corporate bond market. Indeed, it will not be in the Government's interest to issue debt of certain tenors beyond what the market can reasonably absorb as it would skew the interest rate curve used to price Singapore dollar denominated financial instruments and result in capital misallocations. 

So, to reiterate again, we are combining all the borrowings that are for non-spending purposes – CPF, market development – pooling them together under this renamed GSA. 

We believe it is prudent and, from a financial point of view, provides better control – to have this differentiated from borrowing for SINGA projects, which is borrowing which will be used for financing of actual projects. That will be governed separately under SINGA and with a separate limit. 

On Mr Liang Eng Hwa's suggestion for a separate borrowing limit for SSGS, I think he highlighted the need to provide clarity to market participants and analysts.

Here, we do not believe there is a need for a separate limit – to carve out SSGS – because if the purpose is to provide clarity and transparency, indeed, the composition of borrowing, be it SSGS, SGS or Treasury Bills, this will be published and will be subject to public and parliamentary scrutiny. MAS will continue to publish monthly the breakdown of outstanding SGS and Treasury Bills that are issued.

Next, Mr Louis Ng asked about the purpose of this borrowing limit and if the governance over increases in borrowing limits could be further strengthened to reflect the sanctity of the borrowing limit and the severity of increasing or bypassing it. I think Assoc Prof Jamus Lim also alluded to this in his response.

Let me clarify. There is really nothing sacrosanct about the borrowing limits. These are not permanent hard caps. In fact, the Government reviews the borrowing limits periodically and we will come back to the Parliament to raise the limits through Parliamentary resolutions where required. The most recent was in January this year.

For example, as demand for SSGS grows due to rising CPF balances, then, we will start to reach the limit. Likewise, demand for SGS and Treasury Bills will change, depending on regulatory and investment needs and market conditions.

What is important to understand is that the key safeguard, the key legislative safeguard in the Government Securities Act is that none of these borrowings can be spent. Like I said, it is differentiated from SINGA borrowings. Under the GSA, all of the borrowing proceeds are invested. Therefore, such borrowings do not lead to additional debt burdens.

Given that we already such a legislative safeguard under the GSA, some may ask why then is there still a need for a borrowing limit?

Our view is that this borrowing limit, while it is not a permanent hard cap, serve as an additional layer of checks and safeguards. It is useful for monitoring and each time we get close to the limit and we need to raise the limit, the Government would then have to come back to Parliament and get the agreement to raise this through Parliamentary resolution. Thereafter, the President will act independently in her discretion to concur with this resolution.

With the merger of the LTBA into the GSA, there will not be any change to the existing safeguards and processes that we have in place today.

Finally, Assoc Prof Jamus Lim also asked about two clauses of the Bill, clause 20 on the acceptance of advance deposits by MAS and whether this unnecessarily ties the hands of MAS. We do not believe so. Clause 20 does not hinder us from effective monetary policy at all today. Clause 24 on the reserving the right to refuse a sale of debt to any entities, yes, that is in place in legislation. But should such a scenario were to arise, the Government will make clear its reasons for refusal.

But in any case, we will continue to review and update all aspects of legislations and should there be new developments in the marketplace or new requirements, we will periodically update legislation where necessary. 

In summary, Sir, this Bill seeks to provide clarity on the Government’s debt profile, and reflect that the majority of the Government borrowings will continue to be issued under the renamed GSA for non-spending purposes.  

I assure Members of this House that our fiscal position remains strong with borrowings. We will review our debt limits regularly to ensure that we continue to borrow within our means and remain in a net asset position. With this, Sir, I beg to move.

Source: Hansard