$45b to be pumped into GIC from Singapore's foreign reserves, Latest Business News - The New Paper

$45b to be pumped into GIC from Singapore's foreign reserves

This article is more than 12 months old

This is to support longer-term investments as Singapore has more reserves than it needs for now

A total of $45 billion will be pumped into Singapore sovereign wealth fund GIC from the country's official foreign reserves this month to support longer-term investments, as the country has more reserves than it needs for now.

The Monetary Authority of Singapore (MAS) announced this yesterday, in one of its first disclosures on such transfers.

It also said that from next year, it will also disclose information about its foreign exchange intervention operations from July 2020, without affecting their effectiveness.

The country held more than $404 billion in its official foreign reserves as of last month.

These reserves, managed by the central bank, act as a buffer against financial crises and global economic stresses, and defend the Singdollar when it faces speculative pressures.

The $45 billion transfer is "the excess over what MAS deems necessary to maintain confidence in Singapore's exchange-rate-centred monetary policy", it said.

Foreign reserves amounted to 82 per cent of Singapore's economy as of the first quarter of this year.

But in its latest review, MAS had assessed that a 65 per cent level was sufficient.

By parking the monies with GIC, they can be invested on a "longer-term basis with expected higher returns", said MAS.

Economists have said the transfer will help grow further the Net Investment Returns Contribution (NIRC) component of the annual Budget - already the largest component of government revenue.

The transfer amount is nearly three times the $16.44 billion revenue from NIRC in the 2018 financial year.

But it still pales in comparison to the staggering amount of reserves left in MAS' war chest to be used in times of crises, said Maybank Kim Eng economist Chua Hak Bin.

"MAS was not obliged to disclose these transfers previously, but the initiative is timely given the growing significance of NIRC to the government coffers," said Dr Chua.

The full size of Singapore's reserves - which comprise MAS, GIC and state investor Temasek - is kept confidential for strategic reasons but is estimated to be over $1 trillion.

CIMB Private Banking economist Song Seng Wun said the transfer implies that the low inflation, low interest rate environment of the past decade is likely to continue.

Mr Song said: "In such an environment, it is sensible to maximise investment returns through multi-asset class funds, and among the three arms of Singapore's reserves, GIC is in the best position to do so.

"MAS' decision shows that this environment will probably persist."