The GIC and Temasek Endgame

Balding's World

The question I have gotten most often throughout my series on Singaporean public finances is: what does this mean for Singaporeans? It certainly isn’t good but I doubt it is as bad as it could be. Let’s start with the bad news first. Singaporean public finances display very worrying characteristics throughout their revenue, expenditure, and wealth accounts. For instance, we still have no expenditure reporting that would account for the large surpluses and if the surpluses were invested, national wealth should be much higher. However, as we continue to dig we get closer and closer to the truth.

Here is the official Singaporean government balance sheet as of March 2009 and here it is in March 2011. The 2009 balance sheet lists assets of $615 billion SGD. I know some of you are temped to say “Aha!” The missing $500-600 billion SGD Prof. Balding is talking about. However, take a closer look and you see that it simply confirms what we already know and what I have been saying. There are three points. First, the balance sheet list $118 billion SGD in cash we know is held at MAS. So let’s take that out. Second, we know that Temasek was listing $185 billion SGD in assets in its 2009 annual report. So let’s take that out. Third, that leaves us with a GIC value of $312 billion SGD that is pretty close to the estimates of $220-250 billion USD we have been assuming from different sources. In other words, Singaporean government documents confirm what I have been saying. We have an implicit estimate of the size of GIC.

However, if we now compare the 2009 balance sheet to the 2011 balance sheet, major problems emerge. From March 2009 to March 2011, Temasek claims to have earned 22% annually and while GIC does not specifically break out their 2 year average, let’s assume quite conservatively that they averaged 5% in a period when global capital markets enjoyed good returns. Given their collective assets of about $500 billion SGD in 2009, they should now manage around $620 billion SGD in 2011.

However, according to the 2011 Singaporean balance sheet, after stripping out the governments cash position which is virtually unchanged from 2009, their assets only total $580 billion SGD. If we accept take Temasek’s asset valuations and returns, this would imply that GIC assets under management actually fell by nearly $10 billion SGD!!

Unfortunately, it only gets worse. While the assets of the Singaporean government grew by $90 billion between 2009 and 2011 from $615 billion SGD to $705 billion SGD, Singaporean public debt grew by $60 billion SGD. In other worse, despite supposedly having more than $500 billion SGD in assets under management and Temasek reporting an annualized 2 year return of 22%, net asset growth totaled only $30 billion or an annual return of 2.4%. What makes this net asset growth of $30 billion all the more concerning, is that Singapore reports a total budget surplus in 2010 and 2011 of $40 billion!! So how did a $40 billion SGD surplus turn into $30 billion SGD of net asset growth?

The key question for Singaporean when considering what will happen is very simple: what are the assets compared to their liabilities. According to the Singaporean government, assets as of March 2011 are nearly twice as large as liabilities. However of the $700 billion SGD in assets, less than $300 billion of this is in quoted securities. Another $290 billion SGD is in unlisted securities and government stock. As banks will tell you, trying to sell unlisted, illiquid securites to raise funds can be difficult. In other words, while the assets appear to be comfortable enough to pay the debt, primarily to CPF account holders, given their reliance on unlisted securities and government stock on their balance sheet, is slightly worrisome.

The last point to keep in mind is that we are no closer to finding the amount of money thatshould be controlled by Singapore. Given nearly 30 continuous years of budget surpluses and enormous levels of borrowing, the question should be instead, why is there so little in the bank? There is still by the most conservative estimate, $500 billion SGD missing from Singaporean public finances. We still need to find this money.

To sum up, if the primary question is can Singapore continue to meet its obligations to CPF account holders than there appears to be a very low risk of default. Since most Singaporeans are worried about their own money, I would say there currently appears little reason to worry the government will defaults on its obligations. Though given the amount of unlisted securities we cannot rule out that there is a more risk. However, if the question is more broadly focused on Singaporean public finances, the more we discover the more worrying the picture becomes.

Update: I would like to sincerely thank Kenneth Jeyaretnam Secretary General of the SingaporeanReform Partyfor sending me the 2009 and 2011 balance sheet. These were immensely helpful in writing this post and better understanding Singaporean finances and arriving at an implicit value of GIC.