SINGAPORE – A new bill introduced on Monday April 5 will pave the way for the government to finance large national infrastructure projects through borrowing, which has not been done since the 1990s.
The Government Loans for Important Infrastructure Bill (Singa) allow the government to borrow up to $ 90 billion to finance infrastructure that will last at least 50 years. This means that the cost will be spread over many years, with each generation benefiting by supporting a part.
Deputy Prime Minister Heng Swee Keat said in a Facebook post shortly after tabling the bill, which will be debated in parliament next month: “Singa will allow the government to borrow to finance infrastructure of national importance that is essential to our long term. development.
“We are making significant investments in the coming years, such as the Cross Island and Jurong area MRT lines, and the Deep Tunnel sewage system.
“Borrowing for infrastructures of national importance will distribute this lump sum expenditure between the generations who will benefit from it. It is fair between generations. “
Singapore last borrowed for infrastructure in the 1970s and 1980s, to pay for the large upfront costs of building Changi Airport as well as the Republic’s first MRT lines. In the 1990s, with the rapid growth of the economy, the government paid for infrastructure in full from its revenues.
The country now faces another bump in its development spending needs, with plans for new railway lines and coastal protection measures against sea level rise.
This comes against an increasingly tight budget environment, exacerbated by the Covid-19 pandemic. Singapore is expected to record a budget deficit of $ 64.9 billion in FY2020, and is expecting to record another deficit of $ 11 billion in fiscal 2021.
During his budget statement in February, Heng brought up the idea of borrowing to finance large infrastructure projects, explaining that it made sense with interest rates close to zero.
He added that this was also a fair approach, as it would spread the costs among the generations of people who will benefit from the infrastructure.
He said guarantees will be in place to ensure that the borrowed money is used sustainably and responsibly.
The bill specifies the types of eligible projects and limits the amount that can be borrowed.
First, only certain “infrastructure of national importance” can be funded under the law. These are infrastructures that support national productivity or Singapore’s economic, environmental or social sustainability. Examples include major highways, water supply, recovery and treatment structures, and structures – such as dikes, groynes, dykes, gates, dams, and coastal pump stations – to mitigate risks associated with coastal hazards.
Such an infrastructure must last at least 50 years in order to benefit several generations. It must also be owned and controlled by the government or on its behalf.
Another criterion is that the expected cost of the infrastructure project must be at least $ 4 billion.
Second, to avoid onerous financing costs for future generations, the government can only raise $ 90 billion in total loans under the proposed legislation. This represents just under 20 percent of today’s gross domestic product.
The Ministry of Finance (MOF) said the amount is calculated based on the expected spending needed to develop infrastructure of national importance over the next 15 years.
There is also an annual interest threshold of $ 5 billion. Once it is violated, the government will no longer be able to borrow under the proposed law in the next fiscal year.
These limits can only be changed by passing a new bill in parliament to amend Singa, the finance ministry said, adding that it is about holding the government in place to account if it wishes to borrow from beyond. beyond the prescribed limits.
To begin with, the bulk of the loan will go to finance the new MRT lines in Cross Island and Jurong area.
In his Facebook post, Heng said the borrowing allows the government to tap Singapore’s debt market for long-term development. “With Singapore’s AAA rating and the current market environment, we can probably do this at favorable interest rates,” he said.
“Nonetheless, borrowing must be done responsibly and sustainably. After all, today’s debt will be paid by tomorrow’s generation.”
So, he said, the bill includes strict guarantees on projects eligible for borrowing and the amounts that can be borrowed.
OCBC economist Selina Ling believes the hard cap of $ 90 billion on borrowing will serve as additional protection against any potentially excessive debt financing and believes the move will not affect the sovereign credit rating of Singapore.
“There are clear guarantees for the Singa program with very well defined and tightly managed criteria for what qualifies for Singa,” she said. “In particular, any change to the gross limit and annual interest threshold would require the passage of a new bill, which should therefore reassure the market that Singapore’s fiscal position and funding framework remain strong. “