Speech by Mr. Derrick Goh, MP for Nee Soon GRC, at the Second Reading of the Significant Infrastructure Government Loan Bill (Bill No. 6/2021)
Mr Speaker sir,
In March this year, the local media reported that Singapore was ranked 11th in the world in the latest Schroders Global Cities index. This index ranked cities by measuring key dimensions such as economic dynamism, innovation, sustainable environmental policies as well as transportation. Transportation infrastructure is a new factor included by the researchers this year as they noted that it is critical to supporting social mobility, a key factor of great cities. Singapore will need to continue to invest in its infrastructure for its long-term development to continue to be amongst the top cities in the world for its citizens to live in and be an international place to do business.
Given the need to continue to develop our MRT lines, infrastructure to adapt to climate change as well as sewerage systems, it is logical and a sensible thing for our Government to finance these projects through borrowings to spread the lumpiness of the cost to match the benefits that will accrue over time. I fundamentally agree with this approach as it is also economically efficient given the ability of Singapore to tap the debt capital markets.
Given the past and continued strong track record of this government, we have every reason to be confident that the SINGA Bill would be used optimally for the benefit of our citizens. Notwithstanding this, I am glad that there have been ample safeguards built into this legislation such as:
(1) a precise definition of what an “infrastructure project” means to eliminate the possibility of using this Bill as a backdoor way to spend on soft investments; and
(2) a clear definition of “qualifying capital expenditure” to exclude expenditures such as the cost of repairs and maintenance which should be rightfully expensed when incurred and therefore not be allowed for capitalisation.
This will ensure that such expenses including soft investments will need to be transparently put before this house as part of our annual budget debate.
While we are on the topic of safeguards, since significant infrastructure have long development lead times as well as useful life, can the Minister clarify how will the financial mechanism be applied to decide on the borrowing tenor since most of these public projects are unlikely to have a clear cashflow stream? Minister had mentioned that the nationally significant infrastructure funding is managed on a bond portfolio approach. However, a portfolio is made up of many projects. The question I have is that at a project level, for example, if the useful life of the flood defences project is 50 years, can the government decide to fund this through a shorter borrowing tenor of say 10 years? If so, when the time comes for rolling over the borrowings, interest rates could have risen, potentially leaving the future term of government with a higher interest rate expense.
In short, as interest rate trends are not always predictable, the question more broadly is, how will the government hedge the interest rate risk since we ought to also protect the future generation from shouldering an unexpected debt servicing burden?
Section 5 (1) (b) limits the total effective interest rate paid on the securities issued under this legislation to be no more than $5 Billion. Effectively, the Bill provides an implied interest cap of around 5.5% against the total SINGA bonds of S$90 Billion. This rate appears to be a good and reasonable control in the context of today’s low interest rate environment. However, I note that 10 Year SGS yields were over 5% in the late 1990s.
If there is a resurgence of inflation which is not unlikely given the massive stimulus by governments such as the US and a corresponding rise in the level of risk-free rates, it is good that the future government be required to come back to debate and receive support from this House.
While this legislation will help address the funding of our significant infrastructure needs, from a financial market development standpoint, the issuance of SINGA bonds would help further deepen Singapore as an international financial market. Currently, there is lower liquidity at the longer end of the sovereign rate curve given that the government has had little need to issue longer dated financial instruments. With SINGA Bonds issued with longer tenors, this can help build out a longer term risk-free rate curve which financial institutions need for referencing the pricing of long-dated projects such as project finance loans as an example. Additionally, SINGA bonds would be a good asset-liability match for financial institutions such as insurers which have long dated funds that needs to be deployed as the insurance market grows further.
Mr Speaker Sir, in conclusion, I support the SINGA bill.
Watch the speech here.