SINGAPORE: Newly announced moves by the Government to explore borrowing arrangements by statutory boards and government-owned companies for upcoming infrastructure projects received the thumbs-up from Members of Parliament (MPs) on the first day of the debate on Budget 2018.
MPs who spoke on Tuesday (Feb 27) described the moves as a "refreshing" approach that could "kill two birds with one stone” as Singapore ramps up its spending on infrastructure.
Finance Minister Heng Swee Keat said in his Budget statement last week that the Government is looking at borrowing by statutory boards and Government-owned companies, such as the National Environment Agency, that build infrastructure.
This arrangement will help spread the cost of certain larger investments over more years, Mr Heng said.
He also said that infrastructure projects generate economic returns over many years after they are completed hence the borrowing arrangements for these projects will help distribute the share of funding more equitably across generations.
Such long-term borrowing will also help to develop Singapore’s bond markets, according to Mr Heng.
To help lower the financing cost, the Government is also considering providing guarantees for some of these long-term borrowings for critical national infrastructure, announced the Finance Minister last week.
Nominated MP Thomas Chua described this as an "excellent" strategy that would tap on the strength of Singapore’s reserves to back these projects, without directly drawing on the reserves.
"Our reserves are a financial linchpin that provides the country stability, and should not be tapped into so easily," he said. "Hence, mobilising resources from the society to continuously obtain funds to finance such construction is a wise decision."
Bishan-Toa Payoh GRC MP Chong Kee Hiong echoed a similar point, noting that the provision of Government guarantees backed by reserves "would certainly kill two birds with one stone" – namely providing assurance to investors while preserving Singapore's reserves to generate future returns.
But he also asked: "How will the government decide which entities and projects will receive these guarantees, the amounts and time frames for repayments? In addition, will there be a cap on the total amount of guarantees to be provided?"
Mr Chong also suggested designating a proportion of the borrowings to be in green bonds issuance. This will support the Monetary Authority of Singapore’s (MAS) initiative to grow the green bond market in Singapore, he said.
"This would help develop a green bond market of a significant size and add to the vibrancy of the bond market with greater variety of products attracting different investors.”
For Holland-Bukit Timah GRC MP Liang Eng Hwa, the consideration to provide Government guarantees is a "refreshing approach" that could mean lower borrowing costs.
"For the entity that build the Government-invested infrastructure, borrowing at the project level requires higher financing costs because of the risks associated, such as construction risk. This could result in a negative carry situation from the Government’s standpoint where the borrowing rates may be higher than the returns from investing the reserves.
"Hence, it makes smart sense to tap on a government guarantee to reduce the borrowing costs," he concluded. "This is a refreshing approach."
Mr Liang also welcomed the Government’s move to set aside surpluses and savings accumulated for "lumpy" infrastructure investments.
For instance, Budget 2018 unveiled the set-up of a new Rail Infrastructure Fund, which will start with an injection of S$5 billion in FY2018. This will be drawn from the bumper surplus projected for the financial year of 2017.
"This pre-funding approach demonstrates commitment and ensures that there is sufficient funding for projects with very high capital expenditures, such as the Cross-Island MRT Line," he said.