SINGAPORE'S FINANCIAL POSITION (Statement by the Minister for Finance)

2.32 p.m.

The Minister for Finance (Dr Goh Keng Swee): Mr Speaker, Sir, I wish to report to the Assembly on certain aspects of our financial position.

When we assumed office, we made a detailed investigation of the finances of the country. The Government has reported that a deficit of $14 million has to be disposed of. The sum itself is not very large but what was of greater import is that for some time past current expenditure had been financed out of the reserves of the country. This points to a basic imbalance between revenue and expenditure which needs looking into.

The General Revenue balance now stands at about three months' revenue. It is therefore a matter of common prudence that the revenue balance shall not be permitted to go much below this limit unless new sources of liquidity are readily available. It has therefore been necessary to take a number of steps some of which have been severe in character.

The Government has frozen all vacancies arising in the establishment without making a distinction as to the reasons for such vacancies, whether they arise from retirement or resignation, or whether they are newly created posts. Special Expenditure has also been frozen so that a careful scrutiny can be made to weed out items which are not absolutely necessary. A Cabinet committee was formed, consisting of the Prime Minister as Chairman, and the Deputy Prime Minister and myself as the other members. We have gone through applications from Ministries and departments and have set up the most stringent standards.

Recently all Ministers have been asked to scrutinise the state of the vote and to report on what economies are possible. This whole process of freezing and vetting of expenditure constitutes a major operation. As a result, substantial economies have been effected and the total amount of reduction has reached the figure of $25.7 million. Of this, $20.1 million were reductions in the Ordinary Estimates and $5.6 million were savings in the Development Estimates. This is a considerable achievement and has been made possible through the co-operation of all departments of Government.

I wish to pay a special tribute to senior Treasury officials who have had to put in long and punishing hours of work in the course of this exercise. I also want to acknowledge the full-hearted support of my colleagues in this economy drive. My colleagues and I work as a team and it is because we work as a team that it has been possible to reduce the estimated expenditure by this substantial amount.

It will be idle to pretend, however, that the slashes in the economy drive of this magnitude can be brought out painlessly. Everyone is aware of the pained reaction to the cuts in variable allowances. Because of the freeze on vacancies, many Ministries have to work short-handed and this means that everyone works harder. Then many of the schemes which have been entered in the Estimates after years of tussle with the Treasury have now to be jettisoned or at least postponed.

The operation has not been a painless one but it is necessary, in the interest of financial solvency, that one sets one's face sternly against the cries of anguish coming from the stricken.

I am now in the happy position to report to the Assembly that, as a result of our exertions, the finances of the Government have now attained a healthier state. Before I present the facts and figures, there is one point to which I wish to draw attention. And this is that not only had authorised expenditure exceeded estimated revenue by a substantial amount when we took office but there were signs that certain items of revenue had not been keeping up with the estimated levels. In particular, the tobacco revenue has declined very seriously as compared with the amount estimated. This has increased both the difficulties of balancing the Budget and the urgency to do so. I show in summary form how the finances of the Government now stand. The figures are given in Table 1* which have been distributed to Members.

*Appendix I, cols. 629-30. APPENDIX I(Cols 0629-0630)

Details of the reductions by Ministers and sub-divisions of expenditure are shown in Table 2+.

+Appendix II, cols. 629-30. APPENDIX II(Cols 0629-0630)

The general position is that we are now faced with a small deficit of $2.9 million. This is a comparatively small sum. It is likely that we shall end the year on an even keel. There may be need for additional expenditure in respect of claims already submitted by Ministries and which are under examination. As against this, it is possible that we may tap new sources of revenue. As stated in the policy speech of the Yang di-Pertuan Negara, this Government will not consider revenue increases until all possible economy measures have first been applied. We have now reached this stage and are free to consider proposals to increase revenue.

When I said before that we shall probably "balance" the Budget, I used the word in reference to the accounting practice adopted in the past. It had been the practice for some time to finance part of the development by depleting reserve funds. In 1959, this practice has continued in the Estimates. Members will note in Section B 3 (iv) in the first Table that $18.5 million is to be transferred from the General Revenue balance to the Development Budget. As I said earlier, we should not allow the General Revenue balance to fall much below its present level and it will therefore be necessary to finance part of the Development Expenditure by loans. The Government has already announced its intention to float two loans of different maturities.

In this assessment of the financial position of the country, I must therefore make some reference to the state of the public debt and the accumulation of funds which the Government and various statutory bodies under its direction hold locally and abroad.

So far as the Government is concerned, the public debt has been very small. This has its virtues. At the same time, it must be borne in mind that there is no merit in not borrowing money from the public if this means retarding essential development schemes and services which are necessary to the growth of the economy. More especially where public savings are available, it is foolish to deny these sound opportunities for investment in this country - investments which would promote further expansion in various sectors of the economy.

So far as this Government itself is concerned, the position is that the total public debt stands at $115 million. Of this, sinking funds have been accumulated which amount to about $75 million. There is therefore a net public debt of $40 million or some $25 per head of population. There are very few governments which have a public debt as low as this. Further, we must take into account the various reserve funds which the Government has accumulated in the various funds and the loans advanced to statutory bodies. These latter total some $190 million of which $172 million are still outstanding. The Government itself emerges as an overall creditor.

To assess the financial standing of the country as a whole, it is necessary to take into account not only the resources of the central government but those of the statutory bodies. I give the total investments held in funds under the control of the central government and its statutory bodies. The details appear in Table 3** which has been distributed to Members.

** Appendix III, cols. 631-2. APPENDIX III(Cols 0631-0632)

The total value of all these funds comes to $417.6 million. Of this, $144.6 million are accumulated in local investments. The balance of $273 million is invested abroad. The breakdown of the overseas investments of Government and statutory bodies is illuminating and the figures are given in Table 4++. The picture which emerges is an extraordinary one. While we in Singapore have always

++ Appendix IV, cols. 631-2. APPENDIX IV(Cols 0631-0632) cried aloud for the entry of foreign capital, we have been unaware that we have enormous sums of money invested abroad for the development of countries most of which are far wealthier than us. If we take into account private Singapore investments abroad, the value of our total foreign investments will be even much greater. The latest estimate in respect of banks, places the net assets of Singapore banks held in foreign countries at $325 million. In addition, we have taken into account investments abroad by insurance firms operating in Singapore. There are also foreign investments by companies and private individuals resident in Singapore. The figures for all these are not readily available.

The above account of our investments abroad does not take into consideration the currency Reserve Funds. These funds, of course, do not belong solely to Singapore. We are only one of the participating members of the agreement establishing the Currency Board, the Federation of Malaya, North Borneo, Sarawak, and Brunei being the other parties.

The currency reserves are considerable, the latest figure being $1,110 million. All these are invested abroad. The future of the Currency Agreement is under discussion between the participating countries, and I do not wish to say more about this. I am not saying that there is any need to take precipitate action to withdraw these funds abroad for investment in Singapore. There are advantages in holding investments abroad. From the Government point of View, funds invested in London have the great advantage of liquidity. No doubt similar considerations have led to investment of bank balances in London. These bank balances are primarily used as a Reserve Balance in the financing of our foreign trade, and, as such, serve a valuable purpose. Considering that Singapore's imports and exports totalled $6,880 million in 1958, there is no ground for believing that these bank balances held abroad are excessive.

I make this brief review of Singapore's overseas balances in order to underline two points. The first is that, as a great trading centre, we are a part of the world economy, and have important financial and economic links in many parts of the world. Our continued prosperity depends on strengthening these links, and if we disrupt these links, we do so at our own peril. The second point is that we have invested large sums abroad. In return, there has been a substantial investment of foreign capital in our country, though the totals have not been reliably computed. It is almost certain that after taking these into account, we emerge very much on the credit side.

Since the end of World War II, it has become fashionable among the modern industrial nations of the world to speak of the need to assist under-developed regions, especially by way of capital investment. But in Singapore the relationship is exactly the reverse of what has now come to be accepted as normal. I do hope that when we have occasion to ask for loans from abroad, we shall not be treated as poor relatives in quest for assistance, for our moral position in this is surely very strong.