Singapore’s high debt: Internal debt is ok?

Singapore’s debt: higher than that of US or 8 times debt per capita over Malaysia

Singapore is in the top 10 list of countries with the highest debt. Comparing to our neighbor Malaysia, we have 8 times more debt per person. However the PAP defends the high debt saying that Singapore doesn’t owe any countries money, and this internal debt is properly managed through a set of sound fiscal policies, meaning to say if the debt is internal, it doesn’t matter. Or is it?

Most people, including many from the Singapore’s Opposition, are largely influenced by the PAP government thinking Singapore’s debt is safe because the debt is internal. But lets first explain how does this “internal” debt come about:

1) CPF Account Holders, being mostly Permanent Residents and Singaporeans, contribute to the CPF Board monthly so they could get their housing and retirement, hence the CPF Account Holders are the real creditors.

2) CPF Board owes the account holders their funds but how do they pay interest? CPF pays their account holders interests through a special government bond. In short, the CPF lends the Singapore government money by buying their bonds which pays the equivalent CPF interest rates. Over here, the CPF is the Singapore Government’s creditor. As all CPF funds pays interest rates, we can safely conclude that all CPF monies are in the hands of the Singapore Government at any moment.

3) The Singapore government, being the debtor, uses the 2 sovereign wealth fund companies, Temasek Holdings and GIC, to invest these funds from the CPF. So technically if Temasek Holdings and GIC lose money, the Singapore Government loses money, but the CPF doesn’t, simply because CPF doesn’t care if the Singapore Government loses money, so long as they are able to pay up. How much does the Singapore Government or the 2 soverign wealth fund companies have? Nobody knows.

So when debt chalked up and we call it internal because all these debts are money owing to the people. Does an internal debt means the Singapore Government doesn’t has to pay up?

This couldn’t be further away from the truth. There ought to be a losing end and that is the creditor(the CPF). The real creditor of course is CPF account holders which the CPF obliges to pay under law. When there are so many people retiring, the creditor has to meet payments but the creditor is conveniently covered by its debtor(the Government) who makes the law.

You can imagine the Government telling CPF: “Look, don’t worry about not being able to pay back the people, we make the laws. CPF Minimum Sum will be increased and Withdrawal Age is increased to help you ease your obligations.”

CPF Account Holders, or Singaporeans and PRs, are the ones having their retirement jeopardized so the Government doesn’t have to pay CPF so much at this instance. And when the Government loses money here and there everywhere, so how do they pay the debt owing to CPF? Like all governments, they increase taxes, money supply and manipulate the currency to pay off debts. CPF Withdrawal Age has been raised to 67 years old and Minimum Sum has increased 50% in just 8 years during Lee Hsien Loong’s premiership.

If the debt is external, the government needs to pay other countries similarly through the raising of taxes, money supply and manipulation of fiscal policies too. We have exactly the same scenario as Greece: the people will likewise be the ones paying heavy taxes and have their retirement jeopardized too.

So now does it matter if the debt is internal or external? Next time when an investment from Temasek Holdings and GIC goes under water, would your CPF funds be affected? Yes of course. If the Government loses too much, they have nothing to pay CPF who have nothing to pay you. Logically, how is it possible that Singapore is in the top 10 list of countries with the highest debt, and yet it is the only one that is prospering while all of them are struggling in their economy? Or is this Singapore system just a time bomb waiting to explode in the people’s face?

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