Rolf’s View of the World and Singapore’s Economy – Is Singapore over-leveraged? (Part 4)

This post is one of the series of posts I written earlier relating to my
view on the global economy. In
Part 1 & Part 2, I discussed about
the artificial harvest of the past and shared my views.
Part 3 describes how the
entire world has been leveraging up in recent times. This article is an
extension of Part 3 which we turn our attention back home to see if Singapore
is over-leveraged?
Debt profile of Singapore
Public (aka Government)
Singapore has all-time high debt to GDP of ~105% recorded as of end
2015. We ranked top ten in world’s most indebted nation relative to GDP. U.S. sits
just below Singapore in the indebtedness ranking. 

Over the last twenty years or so, our public debt to GDP ratio has increased close to 40% from a record low public debt-GDP ratio in 1994 at 66.9%
to the current level of more than a century percentage. 
Total debt
If we include debt associated with non-financial corporate sector and
household, our Total Debt to GDP is a staggering 382% in 2014 and we are within
the top 3 most indebted nation in the world. Japan tops the list with a 400%

 According to a report from McKinsey in Feb 2015, Singapore
had the fastest debt growth since 2008 only after Ireland. In particular, Singapore’s
corporate’s debt rapid growth had been nerve-racking and our household debt
incurred primarily via housing loans is one of the highest in the world. 
That said, it pays not just scratching the surface, and instead, let’s
delve deeper.
Why high corporate

“For some nations,
an unusually high debt
toGDP ratio does not signal imminent
These are places
that serve as business and financial hubs. The high level of financial
sector and corporate debt
that results may or may not involve heightened risks. Singapore and 
Ireland, for
example, have tax regimes and other regulations that make them attractive for 
locating operations
of global corporations. The debt incurred by these entities is used to 
fund activities in
other nations, so its relationship to the host country’s GDP is
not indicative 
of risk. 

As a major
business hub, Singapore has the highest ratio of non
financial corporate debt in the world,
at 201 percent of GDP in 2014, almost twice the level of 2007. However 
nearly twothirds of companies
with more than $1 billion in revenue in Singapore are foreign 
subsidiaries. Many
of them raise debt in Singapore to fund business operations across the 
region, and this
debt is supported by earnings in other countries. Singapore has very high 
financialsector debt as well
(246 percent of GDP), reflecting the presence of many foreign 
banks and other
financial institutions that have set up regional headquarters there.”

– Mckinsey Global
Institute Feb 2015 Report “Debt and Not Much Deleveraging.”
Why high government
SGS, T-Bills, SGSS,
Singapore government’s debts are in the form of security bonds. In
general, they are: 

1)     Singapore
Government Securities (SGS) and T-bills to develop the domestic debt and active
secondary markets. It also encourages issuers and investors, both domestic and
international, to participate in the Singapore bond market.

2)     Special Singapore
Government Securities (SSGS) that are non-tradable bonds issued specifically to
meet the investment needs of the Central Provident Fund (CPF) Board.  Central Provident Fund (CPF) monies are not
managed as a separate entity by the GIC but pooled and invested with the rest
of the Government’s funds.

Singapore Savings Bonds (SSB) started on Oct 2015 that are non-marketable
SGS issued to individuals to provide them with a long-term savings instrument.

Above table shown
is as of March 2013 and excludes SSB.
No external debt
According to Singapore Ministry Of Finance, borrowings are
not for spending as Singapore operates a balanced budget policy and often
enjoys budget surpluses. Therefore the lion share of debts are in fact Central
Provident Fund Board (CPF) which is the main holder of these debts. This means government
borrowed the most from the people’s CPF, and has no external debts owing to other countries or private entities.
Investment returns
more than sufficient to cover debt
Singapore Government cannot spend the monies raised from SGS and SSGS.
All borrowing proceeds are therefore invested. The investment returns are more
than sufficient to cover the debt serving costs. As of 2013, this can be seen from  the 
investment returns that are made available for spending on the
Government Budget – or Net Investment Returns Contribution (NIRC). Under the
NIRC framework, up to 50% of  the  long-term 
expected  returns  earned 
on  the  net 
assets  (i.e.  assets 
net  of liabilities)  are 
available  for  spending. 
The  NIRC  of 
about  S$7  billion  each 
year means  that  even 
after  deducting  all 
the  Government’s  liabilities 
(including  CPF monies), the remaining
net assets produce significant returns.  
Surplus returns belong to Past Reserves and cannot be spent by the
Strong balance sheet
The Singapore Government also has a strong balance sheet, with assets well
in excess of its liabilities. According to the 2013 MOF report, our S$396b
public debt also does not take into account the Government’s asset  position, which exceeds its liabilities, and
its ability to service debts through returns on its assets. Government’s assets
are mainly managed by GIC. The Government also places deposits with the MAS; in
turn, MAS as a statutory board holds its own assets on its balance sheet. In
addition, the Government is the sole equity shareholder of Temasek Holdings
(Temasek). Temasek owns the assets on its balance  sheet. 
Credit Ratings
Since 2003, Singapore has consistently achieved the top credit ratings
of triple-A with a stable outlook from the three main credit-rating
Why high housing
High ownership of
Singapore has 90% home ownership which is the highest in the world with
Germany at the other extreme with 53% home ownership. This high ownership is
largely due to our government policy that majority of the Singaporeans are
staying in HDB. As of 2013, 80% of our population is living in HDB with 95% of
them owning their HDB flat. Since HDB’s inception on 1 Feb 1960, it had built
1,077,103 flats up to end 2014.
CPF-HDB policies
As mentioned earlier majority of Singapore’s public debt is held by CPF
of the people. A large part of the CPF is also used to invest in HDB in
Singapore. So our government borrowed money from us (CPF), to build home for
us. They also invest for us to pay interest to our CPF. We then borrowed money
from the government to buy these HDB built. In order to repay the long term
debts of HDB, the people will then have to work their lifetime to repay the
debt and interest.
Therefore if the government invests more and more on public housing, our
government debt will increase. As the people borrowed more and more from the
government to buy housing, household debt will also increase.
But essentially, there is no external debt involved.
justification that Singapore is not over-leveraged
article from Strait Times (
refer here) in Nov 2014, further
justified why Singapore is not heading for a debt disaster despite our high
debt-to-GDP ratio.
Extracted essence from the article:
Ability to service debt
households have shown an excellent ability to service their debts, mainly
thanks to the robust job market and their ownership of liquid assets. Singapore’s
household have strong ability to liquidate our assets to pay in a timely
manner. Huge household liquid assets are held in the form of cash and bank
deposits. At the end of March 2014, it had in aggregate $329.4 billion in cash
and bank deposits, which exceeded the total liabilities of $282 billion.
household balance sheet
Assets of
Singaporean households were worth over six times their liabilities in each of
the past five years. In short, for every dollar that the household sector has
in debt, it has over $6 in assets for repayment.
Strict lending conditions
sub-prime crisis took place due to over lenient lending conditions. On the
contrary to US, Singapore has strict lending conditions with home loan capped
at 80% of property price. The 8 rounds of property cooling measures after the
GFC with the increased Sellers Stamp Duty (SSD), lengthened holding period and
introduction of Total Debt Servicing Ratio (TDSR) had proven this.
in practice, mortgage loans have been lower than the bank mortgage limits. The
Monetary Authority of Singapore (MAS) estimated that the average loan-to-home
value was 47.5 per cent as of the 1Q2014.
Reasonably low loans
As of
2014, personal loans were at 26 per cent of total liabilities, and credit card
loans at 3 per cent, throughout the last five years. There is no sign of a
significant change in consumer spending or borrowing habits.
The size
of bad loans for the banking sector in Singapore averaged only 1 per cent of
their lending portfolio as at the end of last year. Bankruptcy cases, while on
the rise from 1,748 in 2012 to 1,992 last year, represented only 0.14 per cent
of total credit-card users over the same period, an insignificant number at the
macro level.
Low unemployment
addition, the unemployment rate is very low at about 2 per cent, and job market
prospects still look healthy, barring unforeseeable economic calamities.
Flexibility of foreign workforce
special characteristic of the labour market in Singapore is the high proportion
of foreign workers: about 35 per cent of the workforce. Should unemployment
rise, the Government can activate pro-Singaporean worker schemes to promote
employment among the resident population. This makes it unlikely that a
prolonged high level of unemployment will threaten Singaporeans’ financial
The unexpected bear striking
If all
earlier said is true, then our high debt levels should then be no cause of
it pays to be prudent and there can be inconceivable scenarios which will push many Singaporeans to the corner. Below are some scenarios.
price shock
Our household
debt is backed strongly by household asset. However household asset value is
vulnerable to property price shocks. If the economy is not doing well, unemployment
rate will rise and income will fall. This will affects the ability to service
the mortgage debt. Auctions of “debt default” properties will soon become
widespread and put spiral down pressures on the property price. If outlook
continues to deteriorate, there will then be many desperate sellers. Then it
will not just be the price of property that matters, but the inability to find
buyers in a certain period of time.
rates in Singapore have a high correlation with US interest rates. The
Singapore dollar is pegged to a basket of currencies, with one of the
currencies being the US dollar. If for whatever reasons, Fed implements a rate
hike, households and corporations with large share of the loans on variable
rates will be drastically affected.
Imagine a
scenario which you use to have a good job with good income, servicing your
mortgage with 1-2% floating interest rate for the last 7-8 years. You are very
comfortable. Now you lose your job, and floating mortgage rate spike to 2-3,
then 3-4%, then 5-6%. Your cash is depleting faster than you expected without
income and yet have to service the hefty loan. Fearing that interest rate rise
further, you wanted a fixed interest rate financing. Unfortunately, you are
unable to re-finance because you have no job and no income. Even if you still
have income, the value of your house may have depreciated against your loan
value. This makes re-financing impossible unless you fork out additional cash
to top up the difference in the loan and the property valuation.
If you
are staying in a HDB, perhaps government is still kind enough for you to
default many payments of installments. If you are staying private property with
relatively high bank loan that you no longer can service, soon the bank will
take possession of your house.
rich but not cash rich
Singaporeans are asset rich but not necessarily cash rich. Furthermore, assets
and liabilities are not necessarily evenly divided among households. There
can be a possibility that the minority of the wealthy are contributing to the
healthy figures shown.
In an
unfavorable economic situation, there is high chance of corporate default in
debts. This will lead to more non-performing loans recorded in Banks. We already
had seen how DBS had been over-optimistic or not as transparent to say the
least in their handling of Swiber’s debts.
If corporations
and banks are not doing well, jobs will be lost. Unemployment heightens, income
of individual will fall. And if debt burden is rising faster than income, servicing
of mortgage or personal loans will become increasingly difficult. Cash of
individual household will deplete faster than expected. This will lead to
Government intervention and likely drawing from our past reserves to salvage
the situation. Not a situation we want to see.
If war do
takes place which is not totally unlikely and like one of the readers pointed
out during the Iraq war, even when it was nowhere geographically near to
Singapore, prices for daily necessity back then inflated rapidly due to the panic. Undersized panic, but not to be underestimated! Earnings fall, cost of living rise – double whammy! 
Rolf’s final thoughts
any external debt and with strong reserves coupled with a stable political
system, we are in a strong position to weather any downturn ahead (if any). 
While being paranoid, I am confident that Singapore is still able to do well or at least sustain economically for decades to come unless
we see a big screw up in our leadership. 
That said,
the short term possible knee-jerk events may mean sufferings for many Singaporeans.
As Warren
Buffett once said “Only when the tide goes out do you discover who’s been
swimming naked.”

For our survival sustainability,  a lot have to depend on the next generation in the 90s/ millennials. I am no big fan of them, but let’s even hope there can be an awakening to change their mindset. 
The thing that inflicts more concerns for the country I love TODAY is not just economically ….
In the past ……
As a boy in the 80s and 90s, I was always told by all my teachers that Singapore was well recognised by the world as the “Garden City” clean and green! Rarely heard that from kids nowadays. 

The two Lions that I am proud of, so prominent for all Singaporeans in the 80s / 90s! 
Today ……

We are more proud of these man-made structures today. The kids are talking about it. 

The landmark of Singapore to all tourists in the world is almost always – Marina Bay Sands! 

Oooops …. didn’t we realise that the CORE of MBS is a casino or at the very least owned by an owner whose wealth were acquired via gambling business. 

Think again…. Singapore’s landmark today…. A casino! 

ok what? You really think so? 

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16 thoughts on “Rolf’s View of the World and Singapore’s Economy – Is Singapore over-leveraged? (Part 4)

  1. not all metrics measure equally.
    not all metrics measure fairly.

    "Singapore has all-time high debt to GDP of ~105% recorded as of end 2015. We ranked top ten in world's most indebted nation relative to GDP. U.S. sits just below Singapore in the indebtedness ranking. "

    good highlight

    "The debt incurred by these entities is used to fund activities in other nations, so its relationship to the host country’s GDP is not indicative of risk."

  2. Perhaps the right metric is to be able to collect local industries leverage data eg. SME, GLCs. and look at the ratio to tell.

    1. Hi Cory,

      I do not have that data, perhaps u have something to share?

      Read an article today:

      Mas : corporate debt mkt grew at compound annual rate of 14% from 2010-14.

      Total outstanding debt $308b at end of 14.

      Sgd corporate bond ave 20-25b pa over last few yrs. As of 1H16, sgd bond outstanding at 140b. this incl. HDB bonds.

      Default of corporate bonds: Pacific Andes Jan16, Trikomsel Nov15 & Swiber Aug16.

      Don't think I will delve into details as I already mentioned Sg have no external debt and most debts are issued to CPF, so I reckon SG is not highly leverage as it seems.

    2. Hi Rolf, agreed to your comment SG is not highly leverage. Which is why when sometimes i come across analyst report that use general debt to rate country risk i shake my head.

  3. Time has really changed. From the Singapore Lion to Esplanade aka Durian to Marina Bay Sands. Anyone still remember the Singapore Flyer? What's next?

    1. Hi Sweet retirement,

      U mean the flyer failure?

      We do have a nice views of Sg during F1. It's stunning views which is something we should be proud of.

      Just that I am uncomfortable with a casino being our landmark today. Maybe I think too much.

  4. i suddenly remembered this old skool coin donation box (a girl with bear/dog?) for the Spastic Children's Association of Singapore ..
    are these still around?!

    1. Hi FC,

      Nice to see u back. Hope u r still "threading water" well in the oil and gas.

      I cannot recall about the donation box… any significance?

    2. hi Rolf,
      good to be back. stil threading precariously. situation has gotten only slightly better, only so very very slightly.
      there are rumors of projects coming up, so hopeful that turns out well.
      i am actively seeking other opportunities at the same time and trying to improve myself.

      no la, i saw the retro courtesy lion (singa?).. then just recalled that retro donation box too. no significance at all. haha

    3. Hi FC,

      Wish you all the best in your search.

      I am a believer that if we do good, the good will befall on us!

      I am sure you are a good person who do good things in life.

      Even retrenchments or losses in stocks may not be a bad things sometimes or they can be indication for us that we need a change and the change may be for the better!


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