Singapore Won’t Seek GIC, Temasek Strategy Shift for Budget Need

Singapore said its state-owned investment firms, GIC Pte and Temasek Pte, shouldn’t have to take greater risks in their investments to meet the government’s increasing spending needs.

“Our government spending needs will increase over time but that should not drive the investment strategies of GIC and Temasek,” Singapore Senior Minister of State for Finance Josephine Teo said in Parliament today. “The solution is not for our investment entities to take more risk in the hope of higher returns.”

The city-state’s government is stepping up measures to improve infrastructure and increasing support in health care and education as the economy adjusts to an aging population and tighter labor supply. Government expenditure will increase by 2 percentage points of gross domestic product by 2020 and by another 1 percentage point beyond that, Finance Minister Tharman Shanmugaratnam said on March 5. Both GIC and Temasek contribute part of their returns to the budget each year.

The government in February said it will spend S$9 billion ($7 billion) on health care and other benefits for the elderly.

Pension contributions from Singaporean workers into the pension system, the Central Provident Fund, are invested into the city-state’s government bonds, according to the Ministry of Finance. Current benchmark 10-year Singapore government securities have a coupon of 2.75 percent.

The CPF, as the pension system is known, pays at least 2.5 percent per year to account holders, according to its website.

During the global financial crisis, GIC’s returns were “much lower than what the government paid the CPF,” Teo said.

The equity selloff at that time pushed down the value of GIC’s portfolio more than 20 percent in the year to March 31, 2009, according to the state fund’s annual report published that year. GIC’s 20-year annualized real rate of return fell to 2.6 percent in the period from 4.5 percent the previous year, eroding its ability to contribute to the government’s spending needs.

Both investment firms should stick to their mandate as long-term investors, Teo said.

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