• The Significant Infrastructure Government Loan Act was passed in Parliament
• Finance Minister Heng Swee Keat said the Government will take loans to finance only "nationally significant infrastructure"
• A loan limit of S$90 billion was tabled but during debate, some MPs wanted it lowered 
• Opposition MPs asked if “soft infrastructure” such as education and health can be considered as well for loans
• Mr Heng rejected the suggestion saying definition of infrastructure has to be “rigorous”

SINGAPORE — A new law that will allow the Government to borrow money for long-term infrastructure projects was passed on Monday (May 10), after a debate where Members of Parliament (MPs) questioned if future generations may be burdened by such borrowing.

Finance Minister Heng Swee Keat reassured the House that strict safeguards are in place to ensure that future generations will benefit from these projects. 

Workers’ Party (WP) MPs also asked if the loans could be used for long-term “soft infrastructure” such as in health and education, but these ideas were shot down by Mr Heng, who is also Coordinating Minister for Economic Policies. 

The Significant Infrastructure Government Loan Act (Singa) will allow the Government to borrow for projects that will benefit future generations. 

These will be “nationally significant infrastructure”, including major rail projects such as the Cross Island Line and the Jurong Region Line of the MRT network, as well as projects for climate change adaptation, major highways and a deep tunnel sewerage system.

Such projects will have to cost at least S$4 billion and there will be a gross borrowing limit of S$90 billion, which reflects the projected pipeline of nationally significant infrastructure over the next 15 years, after adjusting for inflation, Mr Heng said. 

With increased spending on these projects, the Government expects development spending to be about 5 per cent of gross domestic product (GDP) annually — higher than the baseline development expenditure of 3.7 per cent.  

Borrowing under Singa will smoothen this "upcoming hump in development expenditure" and lower the average development expenditure over the next decade from around 5 per cent of GDP to 4.2 per cent, after taking into account depreciation and borrowing costs, said Mr Heng.

“Borrowing is a fair approach because it allows each generation that benefits from the infrastructure to pay for its share,” he added.

“Otherwise, taxpayers in the next decade will need to finance much of this lumpy infrastructure that has a useful life of 50 years or more.” 

SUGGESTION TO LOWER LOAN CAP

While it may be equitable to spread out some of the financial burden, some MPs wanted a more prudent approach. 

Mr Xie Yao Quan, MP for Jurong Group Representation Constituency (GRC), said that the proposed cap of S$90 billion represents roughly 18 per cent of GDP.

“This is quite significant, especially if a profligate government were to take over.”

He suggested that to maintain public confidence, the initial cap should be lowered to S$50 billion, representing roughly 10 per cent of the GDP. 

Mr Heng said that not all infrastructure will be funded through borrowing. 

“We are going to borrow this S$90 billion in order to smooth out the funding needs because of this hump, and over and above that, our development expenditure will continue,” he said. 

He added that compared with previous borrowing that the nation has done, and borrowing done by other countries, the S$90 billion sum is considered “prudent and sustainable”. 

For example, Singapore’s previous borrowing limits under its Development Loan Acts averaged abound 40 per cent of its GDP, and Canada has a recurrent debt ceiling that takes up 51 per cent of its GDP. 

Several MPs also asked if the new law will affect Singapore’s creditworthiness in repaying investors, as it presently has a AAA rating by credit rating agencies, the highest level, and can tap the debt market at favourable interest rates. 

Bukit Panjang MP Liang Eng Hwa asked how the rating agencies and international markets have responded to this new move.

Mr Heng replied that both the Ministry of Finance and the Monetary Authority of Singapore have engaged the three major credit rating agencies — S&P Global Ratings, Moody's, and Fitch Group — to explain Singapore’s approach to its borrowing. 

“They, too, recognised that our approach is underpinned by key principles of prudence and sustainability,” he said. 

“Even with the planned introduction of new borrowings to finance long-term major infrastructure, the credit rating agencies acknowledged that Singapore's fiscal position and credit rating remains strong.” 

DEBATE ON ‘SOFT INFRASTRUCTURE’ 

Sengkang GRC MPs Jamus Lim and Louis Chua from WP asked if the criteria for the loans could be expanded to “soft infrastructure” such as education and healthcare. 

This could include financing smaller class sizes at schools or to direct loans under the new Act towards vouchers so that parents may fund their children’s education. 

Associate Professor Lim said: “Investments in soft infrastructure such as human capital generally offer a higher payoff compared to hard infrastructure.

“We should invest more in the type of infrastructure assets that offer a greater bang for the buck.” 

Mr Heng replied that Singapore has already made “significant investments to ensure good outcomes” in the areas of health and education. 

For example, it has already achieved high levels of schooling, especially for younger cohorts, and its university participation rate is 42 per cent, comparable to advanced economies.

“It is a major risk if you don’t draw clear lines,” Mr Heng said. “Just coin some nice names and call it ‘soft infrastructure’… Isn’t defence soft infrastructure? Isn’t security soft infrastructure?

“Please be rigorous… rather than to keep blurring the arguments.” 

Assoc Prof Lim later clarified that he did not “just suggest some random expenditures in these areas”, but had spent time explaining specific conditions where human capital projects would qualify as “soft infrastructure”. 

He asked: “I wonder whether the minister will consider any form of soft infrastructure that satisfies clear conditions, or are these always going to be off the table?” 

Mr Heng then said that spending more on certain fields such as education may not always yield ideal outcomes. 

“It is important for us to be rigorous about it, make out the case as to the areas of education spending that are lacking and what exactly would we do… Human development takes time, takes effort, takes consistent investment of time and energy by parents, by students.”