Singapore’s surprise budget surplus: Unexpected currency moves among contributing factors

Singapore’s surprise budget surplus: Unexpected currency moves among contributing factors

The S$4.6 billion surge in statutory board contributions came from the Monetary Authority of Singapore and JTC Corporation.

Monetary Authority of Singapore MAS
File photo of MAS building. (Photo: AFP/Roslan Rahman)

SINGAPORE: “Strongly positive” currency translation effects led to the surge in contribution from the Monetary Authority of Singapore (MAS) to the Government’s coffers over the past financial year, while higher gains from the sale of assets also boosted JTC Corporation’s input. 

Together, the central bank and the national industrial estate developer lifted statutory board contributions – the main reason for Singapore’s hefty budget surplus of S$9.6 billion in FY2017 – to S$4.9 billion. Estimates made a year ago had put these contributions at S$0.3 billion.  

The Ministry of Finance (MOF) told Channel NewsAsia that MAS accounted for S$4.5 billion out of the S$4.6 billion rise in statutory board contributions. 

The remaining S$0.1 billion increase is “mainly attributable to better-than-expected contributions from JTC”, a spokesperson said in response to queries.


“After offsetting past deficits, MAS contributed S$4.5 billion to the Consolidated Fund,” said its spokesperson via email. The central bank's contribution is based on 17 per cent of its net profit for the year after offsetting past cumulative deficits.

The larger-than-usual contribution came as net profits in FY16/17 rose to S$28.7 billion, thanks to larger investment gains and “strongly positive” currency translation effects reflecting the movements of the Singapore dollar against the currencies in which MAS’ foreign financial assets are invested. The MAS follows an April to March financial year.

“Currency translation effects were strongly positive due mainly to the depreciation of the Singapore dollar against the US dollar and the Japanese yen,” wrote the spokesperson. 

“Investment gains were much larger than in previous years due to higher interest and dividend income, higher realised capital gains, and lower valuation provisions – all reflecting the strong performance of global markets during the period.” 

According to remarks made by MAS’ managing director Ravi Menon last June, the central bank’s FY16/17 net profit was a “record profit”.

The MAS made a gain of S$30.1 billion from its investment of the official foreign reserves. Discounting currency translation effects of S$8.2 billion, underlying foreign investment gains amounted to S$21.9 billion. This was markedly higher than the S$5.2 billion from the previous financial year.

MAS’ annual report stated that the central bank held S$362.8 billion of official foreign reserves on its balance sheet at the end of the financial year.

Investment-grade bonds in the advanced economies make up the largest allocation in the portfolio, which is “well-diversified” across cash, bonds, equities, as well as advanced and emerging markets. About three quarters of the official foreign reserves are denominated in the G4 currencies, namely the US dollar, euro, yen and pound, according to the FY16/17 report.

When asked why the contribution to the Government’s coffers in FY2017 managed to beat estimates by a wide margin, MAS replied: “While MOF had tried its best to project the SBC (statutory board contributions) from MAS, MAS’ net profits tend to vary considerably from year to year mostly due to currency translation effects.

“Currency translation effects are difficult to forecast as they depend on movements in currency markets, which are volatile,” its spokesperson added.

For the year ending March 2017, both the greenback and Japanese yen strengthened against the Sing dollar as key drivers swayed global forex markets. These include heightened uncertainty fuelled by major geopolitical events such as the Brexit referendum in June 2016 and continued monetary policy normalisation by the US Federal Reserve.

Moving forward, the MAS said it does not expect the level of contribution seen in FY2017 to occur every year. Over the past 10 years, statutory board contributions from the central bank have ranged from zero to S$1.3 billion, with 7 years being zero, its spokesperson added.

For JTC, contributions were drawn from its FY2016 net surplus and that amounted to S$0.22 billion. That was higher than the previous fiscal year’s contribution of S$0.15 billion, as net surplus rose from S$0.74 billion to S$1.1 billion.

“The net surpluses are inclusive of gains on disposal of assets. Disposal gains in FY2016 were significantly higher than in FY2015, which led to the higher net surplus,” said JTC in a reply to Channel NewsAsia.

The gains on disposal of assets were S$0.57 billion in FY2016, up from S$0.19 billion in the preceding fiscal year.


Apart from “exceptional” statutory board contributions, Singapore’s overall budget surplus also got a lift from higher stamp duties, due to the boom in property transactions. At S$4.7 billion, stamp duty collections will be S$2 billion more than initial expections.

Corporate income tax will also come in better than expected at S$14.4 billion, versus the anticipated S$13.6 billion. As will the other taxes, including foreign worker levy, water conservation tax, development charge and annual tonnage tax, which are expected to come in slightly better at S$0.4 billion collectively.

Lower-than-expected contributions are due from the Goods and Services Tax, motor vehicle taxes and vehicle quota premiums, while the likes of personal income tax and assets tax are in line with expectations

Taken all together, total operating revenue for FY2017 will come up to S$75.15 billion, 8.2 per cent more than the anticipated S$69.45 billion.

Expenditure, on the other hand, is expected to be S$73.92 billion, down 1.5 per cent from expectations on the back of lesser ministry expenditure in certain sectors, such as healthcare and transport.

Net investment returns contribution (NIRC) will rise to S$14.61 billion, up from the S$14.11 billion estimated previously.

This will more than offset the S$6.23 billion in special transfers and top-ups to endowment and trust funds, while flipping a basic deficit into an overall budget surplus that will be five times more than the initial expectation of S$1.91 billion.

In absolute dollar terms, the surplus of S$9.61 billion will be Singapore’s largest in about 30 years.

But as a percentage of gross domestic product (GDP), the expected surplus, which worked out to 2.1 per cent of GDP, was lower than those recorded in the financial years of 2007, 2000, 1999 and 1997, said MOF.

Finance Minister Heng Swee Keat in his Budget statement stressed the one-off nature of the handsome budget surplus. The ramp-up in statutory board contributions and stamp duties were “exceptional factors” that cannot be expected to occur every year, he said.

He reiterated that when he spoke to reporters following a post-Budget TV forum on Wednesday (Feb 21) when asked if the wider-than-expected budget surplus made the GST hike a tougher sell.  

“It certainly has made the job of explaining it more difficult, but it is very important for all of us to bear in mind that the surplus we had last year is not likely to be repeated again and again,” answered Mr Heng.

Experts agreed that the bumper surplus is likely an anomaly and relying on it would not be a right move for Singapore in terms of maintaining fiscal sustainability.

“It was way above expectations,” said Mizuho Bank’s head of economics and strategy Vishnu Varathan who had estimated a surplus of “somewhere in the ballpark of sub-S$4 billion”.

The beating of estimates by a huge margin could be attributed to the Government’s practice of having “very conservative” revenue estimates, as well as the past year being “extranormal” with several “upside surprises” in economic growth, the local property market and global asset markets, he told Channel NewsAsia.

However, the bigger picture remains that growth in the Government’s revenues has been “pretty static” over the past years, with the exception of FY2017. On the other hand, expenditure saw a “sustained increase” over the same period.

Said Mr Varathan: “When you get a flat line on revenue and an upward trajectory on expenditure, at some point these are going to cross paths.”

With the need to maintain a prudent fiscal policy, the Government is planning in advance. “One thing we’re known for is planning ahead and to be a little ‘kiasu’ but that’s not a bad thing,” added the economist.

That was a point echoed by DBS economist Irvin Seah.

“Although Singapore has enjoyed years of overall fiscal surplus, mainly attributed to the robust NIRC, her primary balance has been in deficit for the past few years and projected to remain so in FY2018,” he wrote in a note.

The primary budget excludes investment returns on Government reserves, as well as the special transfers and top-ups to endowment and trust funds.

With more spending likely needed on areas like healthcare, education, security and infrastructure in the years ahead, the announcement of tax hikes, in particular the increase in the GST, should “come as no surprise”, Mr Seah reasoned.

Mr Richard Mackender, tax partner and indirect tax leader at Deloitte Singapore and Southeast Asia, said: “Singapore’s approach to a sustainable fiscal budget has been to always bank the good returns, while being prudent in ensuring that tax revenue continues to be stable and reliable to support Singapore’s future needs.

“Hence relying on one budget surplus is not a sound basis for a sustainable fiscal model.”

Source: CNA/sk