MAS to raise $2.6 billion in first-ever sale of Singa bonds to finance infrastructure

SINGAPORE – Singapore’s central bank intends to raise a total of $2.6 billion in the inaugural sale of bonds to fund infrastructure projects that will benefit both the current and future generations.

The size of the auction for the Singapore Government Securities (Infrastructure) bonds set for Sept 28 was issued by the Monetary Authority of Singapore (MAS) in a notice on its website on Tuesday (Sept 21).

Both institutional and retail investors can bid in the Sept 28 auction, as they do for the regular Singapore Government Securities (SGS) – now renamed as SGS (Market Development), according to MAS.

This will be the first SGS bond to be issued under the Significant Infrastructure Government Loan Act (Singa) that was proposed in February and passed by Parliament in May.

The Act authorises the Government to borrow up to $90 billion over the next 15 years to finance major long-term infrastructure, including the new Cross Island and Jurong Regional MRT lines, and pumping stations and tidal walls to protect the Republic against rising sea levels.

Borrowing under Singa will spread out the lumpy costs of infrastructure across generations.

Prior to this, the Government had been issuing other bonds to develop the domestic debt market and meet Singaporeans’ retirement needs through the Central Provident Fund (CPF).

There are also plans to issue the Green SGS bonds that MAS aims to kick off next year for climate change-related infrastructure.

The Government borrowed in the 1970s and 1980s to finance an increase in development expenditure required for the creation of the country’s first MRT lines and Changi Airport Terminals 1 and 2. Strong GDP growth in the ensuing two decades meant that such development spending could be covered by buoyant operating surpluses instead.

The Government is required by the Constitution to keep a balanced budget over each term of office. It does not borrow to fund recurrent spending, but to finance large-scale public infrastructure.

Recurrent government revenue will remain the source of funding for infrastructure projects that do not meet the criteria under Singa.

Credit rating agency Moody’s Investors Service in June said that debt servicing for SGS (Infrastructure) issuances will be met through budgetary revenue.

However, given the low interest rate environment and the plan to further expand the revenue base in coming years, including through an increase in the GST and higher excise duties on gasoline, the pivot to debt issuance will not weaken Singapore’s fiscal strength.

“The commitment to avoid direct government borrowing to fund recurring expenditure will help to preserve Singapore’s structurally strong fiscal position, and entail both increased revenue and expenditure restraint,” the agency said.

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