1997 to 2009: Overcoming Multiple Crises

1997 to 2009: Overcoming Multiple Crises

In 1997, the Asian Financial Crisis swept the region, toppling governments and bankrupting companies, governments, and individuals. Singapore was also affected, and sunk into a deep recession in 1998. As companies folded under the poor economic conditions, thousands of Singaporeans lost their jobs.

The Asian Financial Crisis was the first of many crises that emerged in this 12-year period, and marked this period one of the most difficult in Singapore’s history since independence. In 2003, Singapore experienced SARS, which spread in the region and impacted travel. In 2008, the world was then confronted with the Global Financial Crisis.

Fortunately, we were able to weather these crises well, largely due to our strong reserves and prudent fiscal policies.

Singapore’s Constitution states that the government’s budget must be balanced over its term of office. In other words, the government cannot spend beyond its means.

Over the years, the government has been regularly recording surpluses as reserves. These past reserves cannot be spent without the approval of the Elected President. This ensures fiscal sustainability and prevents irresponsible spending. These reserves have, in turn, been invested to generate returns.

The reserves acts as a buffer against external shocks. In 1997, during the Asian Financial Crisis, though Singapore was not spared from the financial contagion, we were much less affected than our neighbouring countries.

Similarly, Singapore was able to draw on its reserves during the global financial crisis in 2008. In this period, banks collapsed and this threatened to tip the world into another depression. Governments rallied to prevent the catastrophe and spent trillions in the process. In 2009, Singapore tapped its reserves for the first time to fund the S$4.2 billion Jobs Credit and Special Risk-Sharing Initiative, which were aimed at saving jobs and supporting businesses. These were part of a bigger S$20.5 billion Resilience Package.

The measures worked. In 2010, Singapore’s economy grew 10%, among the fastest in the world. The strong economic recovery allowed the government to later return the S$4 billion to the reserves.

The strong reserves also give the government additional spending power to plan for Singapore’s future. In recent years, the laws have been tweaked to allow the government to draw on the returns from the reserves to fund its budget under the Net Investment Returns Contribution (NIRC) framework.

This sustainable approach to budgeting has had multiple benefits.

The returns generated over the years have been used by the government for its spending. For instance, between FY2015 and FY 2020, the NIRC supplied the government with about $90 billion of additional funds. Examples of large-ticket items that have been directly or indirectly funded by the returns include the Pioneer Generation Package, upgrading of transport infrastructure and the rise in social spending.

The government has also regularly distributed the surpluses to Singaporeans so the wider population can share in the country’s growing wealth.

Singapore also drew on our reserves to support the economy and Singaporeans during the COVID-19 crisis.

The reserves were built by a country that had no natural resources, but through discipline and the hard work of its people, noted DPM Heng: