Heng Swee Keat’s words that interest rates could change very quickly proved to be prophetic

borrow, infrastructure, rate, soft spending, heng, swee, keat

Back in Feb 2021 during the budget debate, Associate Professor Jamus Lim of Workers’ Party (WP) had suggested that borrowing be used to fund soft capital like education. 

Jamus Lim and fellow WP MP Louis Chua had argued that  the notion of infrastructure should be expanded to include “soft infrastructure” like human capital.

Then Finance Minister Heng Swee Keat disagreed. 

Where to draw the line for borrowing?

‘Soft infrastucture’ is a nice name to coin, he said. It makes for an alluring, populist argument to argue for borrowing instead of collecting taxes to fund public services.

But if clear lines are not drawn in defining ‘infrastructure’, then almost anything from defence, to cybersecurity, health care and social  could be described as “soft infrastructure” spending as these are all about human capital. Where then will we stop at borrowing to fund ‘soft infrastructure’?

More than 30% of expenditure each year goes to  and healthcare. If Singapore borrows every year to fund such spending, the debt burden will go up over time. Future generations will end up paying the heavy price.

Interest rates are low for now, but this can change quickly and when they change, existing debts have to be refinanced and a higher interest rate could quickly worsen the fiscal situation, Mr Heng said.

One year later, Mr Heng’s words proved to be prophetic. Interest rates have been rising and still rising. 

Fortunately, the PAP Government has resisted borrowing for recurrent expenditure. The Government continues to take a very prudent approach to spending. 

This prudent approach has earned them a triple-A credit rating by major credit rating agencies in the world. The Government’s prudent stewardship of our reserves is why Singapore is probably the only country in the world that has not needed to borrow to support both people and businesses during this pandemic. Which means no debt burden for Singaporeans to bear. 

Heng Swee Keat

Wise words to remember:

“Borrowing is not a form of revenue. Borrowing gives us cash for liquidity planning but it does not create free monies for spending. Today’s debt is paid for by tomorrow’s growth and tomorrow’s generation.”

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