Singaporian Public Financial Management (PFM)
Like many other countries in the region, Singapore had a fairly tumultuous history. The island was first under the direct control of Britain. During WWII, however, it was occupied by the military forces of the Empire of Japan until 1945. After a dramatically failed attempt to merge with Malaysia in 1963, Singapore gained full and complete independence in 1965. The subsequent years saw Singapore’s government undertake aggressive economic policies, including opting for a market economy, massive investment in education, manufacturing industry, and public housing. The government also adopted a sound and disciplined public financial management (PFM) to meet its challenges of highly rampant unemployment, housing crisis, and the absent natural resources.
Ultimately, these measures paid off, for Singapore has well established itself as an industrialized and high-income country, an advanced economy (World Bank, 2016; and Asher. et. al., 2015). It is, therefore, unequivocal that the government has been playing a prominent role in Singapore’s economic success. As such, I venture to review Singapore’s PFMs in order to fathom Singapore’s fiscal mechanisms that have ensued in its economic prosperity. The review is organized as follows: the next section reviews Singapore’s fiscal rules, which more or less define the boundaries and regulate its PFMs. The penultimate section reviews the government’s PFMs under the framework of the fiscal rules and its contribution to Singapore’s success story. The final section analyzes the limitations of the present PFM mechanisms and the challenges ahead—especially with the rapidly ageing population and the constantly changing global economic environments—and, therefore, suggests that Singapore should keep pace with these changes so as to sustain its economic development and guarantee a harmoniously sustainable and inclusive economic prosperity.
Behind Singapore’s economic success in the last decades lie well-defined fiscal rules which ensure that the country’s PFMs are undertaken responsibly and sustainably. More precisely, the constitution guarantees a fiscal prudence for accountability and a long-term fiscal sustainability for a resilient economic growth. Broadly, there are four legal frameworks that regulate Singapore’s PFMs (Asher, M. G. et al., 2015; and Blöndal, 2006). These rules are summarized in the following table (Table 1).
Table 1: Summary review of Singapore’s Fiscal Rules
|A balanced budget over each term of government.||Each government is elected for a maximum of five years throughout which it has the obligation to balance the budget within the period of its tenure. That is, the government is not allowed to utilize previously accumulated surpluses to finance spending of its current tenure.|
|The government can use up to half of the annual net investment income from the accumulated reserves.||As it will be explained later, the accumulated budget surpluses do not stay idly in the reserves; rather, they are invested by government agencies. Hence, the government can use up to half of the net investment returns or investment income to finance its budget.|
|The “two-key” safety mechanism.||It is an “escape clause” to the first rule in the sense that it allows the government, under emergency or drastic situations, to run over the previously accumulated surpluses. As its name suggests, however, there are two “keys” to the reserves: the government must request (with convincing justifications) its needs to draw on the reserves, and both the Parliament and the President of the Republic must consent. Therefore, the Presidency principally acts as the fiscal guardian in Singapore.|
|Only the government can initiate motions to reallocate or change the composition of its spending.||Each fiscal year, the government has to submit a budget proposal for the expenditures of the subsequent year. The Parliament is empowered to accept, amend, or reject the proposal. The assent of the President of the Republic is also required. Nonetheless, after it is approved and enacted into a law (known as the Supply Act), the government maintains a tight control over the budget.|
Data source: Author’s adaptation from Asher. et al., (2015); Lledó. et al., (2017); and Blöndal, (2006).
The Government and PFM
Singapore’s public financial management (PFM) undoubtedly focuses on the supply-side of the economy. As explained above, the fiscal rules insist on balancing the budget and categorically avoiding persistent deficits; hence, the PFMs or fiscal policies are issued to guarantee macroeconomic stability, increase investors’ confidence, and support a resilient economic growth.
Nevertheless, before reviewing in detail Singapore’s PFMs, it would be more convenient to briefly summarize its structure and composition. Therefore, the following table (Table 2) presents the four “pillars” constituting Singapore’s PFMs.
Table 2: Summary structure of Singapore’s PFMs
|The budget sector.||The government’s budget is solely comprised of tax revenues, user fees, and a part of the net investment income from the previously accumulated reserves (as expounded above).|
|The Central Provident Fund (CPF  ).||Unlike the policies on social security systems in many other developed countries, the budget sector in Singapore does not cover social services such as social transfers, Medicare, retirement funds, family protection, etc. Instead, it is based on “personal responsibility” system, whereby the CPF is a mandatory monthly saving scheme to self-provide the necessary social services. The CPF is therefore financed by payroll contributions from both the employers and employees throughout the latter’s working-life. This is one of the particular PFMs that is unique to Singapore, for the CPF is a fully-funded social security system independent of the budget sector.|
|The government investment agencies.||Another uniqueness of Singapore’s PFMs is the government investment agencies, which take the charge of investing and managing the extensively accumulated positive fiscal budget and the funds generated by the CPF over the years. Thus, these agencies momentously generate important yearly investment income.|
|Other funds.||These funds are not consolidated into the government’s overall budget position. Nor are they included in the fiscal budget submitted to the parliament for approval.|
Data source: Author’s representation.
As this summary reveals, the structure and composition of Singapore’s PFM reduce the burden of the public expenditures. In fact, it is a driving principle to keep a lean public sector (a minimalist public sector, that is) while ensuring its efficiency in promoting medium- and long-term economic objectives. Not surprisingly, all ministries have “block budgets”—a ceiling expenditure for each ministry—while the overall government spending has been well-below 20% of the GDP.
This adequately contributes to Singapore’s supply-side economy no less because little to nothing is spent on social security provisions while the corporate tax rate is amongst the lowest, if not the lowest, globally. According to Asher. et al., (2015), for instance, there is currently no income tax on interest income, dividends, most capital gains, and foreign-earned income while the taxes on capital income have been substantially low for many years. Singapore has been, therefore, successful in gaining and maintaining investors’ trust and confidence. These policies entrust private sector to create jobs and encourage households to spend and save. In fact, according to the official websites  of Monetary Authority of Singapore (MOS) [central bank] and that of the Ministry of Finance (MOF), “Singapore’s fiscal policy is directed primarily at promoting long-term economic growth, rather than cyclical adjustment or distributing income”. As such, “the private sector is the engine of growth, and the government's role is to provide a stable and conducive environment for the private sector to thrive; tax and expenditure policies should be justified on microeconomic grounds and focus on supply-side issues”. In short, Singapore’s PFM is built on increasing its trustworthiness vis-à-vis investors by adopting and maintaining prudent fiscal policy, which is translated into consistent budget surpluses for many years.
It is noteworthy remarking that, despite its low rate, corporate income tax, followed by goods and services tax (GST), takes the largest share in government operating revenue. On public spending, however, “Social Development” combined with “Security & External Relations” take more than half of the expenditures. While the former (Social Development) broadly encompasses education, training, life-long learning, etc., the latter is comprised of defense, home affairs, borders control, and so forth.
Drawbacks & Challenges Ahead
Singapore’s PFMs have significantly contributed to its resilient economic prosperity. Yet there are unequivocally numerous drawbacks to its fiscal approach and many challenges (i.e. income inequalities  , an ageing population, changing business environments, etc.) ahead that must be innovatively addressed for a more sustainably inclusive economic prosperity.
Moreover, with the constantly changing global economic environments, Singapore needs innovative approaches to keep pace due to the small size of its economy, and particularly owing to the fact that its economy is highly linked to international trade and multinational corporations (MNCs). One such example of a dramatic change that will momentously impact how MNCs behave is the massive corporate tax cuts in the US. Therefore, only constant innovations will ensure that Singapore durably maintains its economic performance.
Beyond the international economic environments, however, Singapore will direly need to review its PFMs in order to meet the growing pressures on public expenditures, namely in healthcare, retirement fund, and other social securities. Like many other advanced economies, Singapore’s population is rapidly ageing while income inequalities continue to widen due to its nearly regressive tax system—especially with the increase in goods and services tax (GST) to 7 percent in 2007—and the non-existent social transfers. As the economy continues to grow, however, so will the expectations of higher quality public services, better housing, healthcare provisions, and family protection. In a world of intermittently declining corporate tax (a determinant factor in its public revenues), Singapore will need to rethink its PFMs to balance its engagement to deal with the aforementioned challenges and its medium- and long-term economic growth and resilience by maintaining its attractive environment for investment and talented labor force.
If there is a crucially important lesson to be learnt from Singapore’s experience of economic prosperity, it is this: a disciplined and discretionary PFM can unleash a resiliently sustainable economic prosperity.
As this review plainly demonstrates, the legal constraints to guarantee a responsible and sustainable fiscal budget, the ensued accumulation of budget surpluses over years, the contribution of the government investment agencies—which extensively invest these reserves and those of CPF—in generating more investment income, Singapore’s ability to constantly create attractive, confident, and credible environments for investment and human talents, the transparency in its PFMs, and its ultimate trustworthiness are all contributing factors in its story of economic development.
Nonetheless, Singapore should keep in mind that there is no room for complacency, for there are significant shortcomings to its PFMs and many challenges (i.e. income inequalities, an ageing population, changing business environments, etc.) ahead that must be innovatively addressed for a more sustainably inclusive economic prosperity. In a nutshell, in a world of intermittently declining corporate tax, Singapore will need to rethink its PFMs to balance its engagement to deal with challenges ahead while guaranteeing its medium- and long-term economic growth by maintaining its attractive environment for investment and talented labor force.
 According to Asher. et al., (2015), only in 2009, following the collapse of Lehman Brothers and the subsequent 2008 economic crises, was this mechanism ever used.
 In Singapore, the Central Provident Fund (CPF) is a compulsory comprehensive savings plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare, and housing needs.
 See MOS’s website at: http://www.sgs.gov.sg/The-SGS-Market/Fiscal-Policy.aspx; and at of MOF at: http://www.mof.gov.sg/.
 See Department of Statistics, Singapore, (2014) for further details.
Asher, M. G., Bali, A. S., & Kwan, C. Y. (2015). Public financial management in Singapore: key characteristics and prospects. The Singapore Economic Review, 60(03), 1550032.
Bai, Y., Shi, C., Li, X., & Liu, F. (2012). Healthcare system in Singapore. Columbia University, 1-15.
Blöndal, J. R. (2006). Budgeting in Singapore. OECD Journal on Budgeting, 6(1), 45.
Department of Statistics, Singapore, (2014). Key Household Income Trends.
Lledó, V., Yoon, S., Fang, X., Mbaye, S., & Kim, Y. (2017). Fiscal Rules at a Glance.
Monetary Authority of Singapore (MAS). http://www.sgs.gov.sg/The-SGS-Market/Fiscal-Policy.aspx
Singapore’s ANALYSIS OF REVENUE AND EXPENDITURE Financial Year 2016. http://www.singaporebudget.gov.sg/budget_2017/.
The Global Economy.com. http://www.theglobaleconomy.com/Singapore/Government_size/.
World Bank, (2016). http://www.worldbank.org/
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