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Singapore puts out clarification regarding ‘$22 billion loan’ on Gov.sg

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The Singapore Government has put out a clarification about the ‘$22 billion loan’ issue highlighted by NCMP Mr Leon Perera.

Mr Perera had earlier put up a Facebook Post about the Parliamentary Session on 4th June 2020. He has highlighted that the Budget deficit for FY2020 is $74.3 billion, with up to $52 billion financed from a reserves draw-down and $22 billion financed through loan capital, described as “fiscally neutral”. The rest will be financed from accumulated surpluses.

leon perera 22 billion loan question dpm heng singapore
Archived on 22nd June 2020. Source: NCMP Mr Leon Perera

Wrong Interpretation

Based on the Parliamentary Replies published on the Ministry of Finance website, there needs to be additional clarification on the term “loan capital”.

Gov.sg has posted a clarification on their website which is archived for this article:

Corrections and clarifications regarding “Government borrowing” to fund COVID-19 measures

“There are online reports alleging that the Government had borrowed $22 billion to fund the Budget measures to address the COVID-19 pandemic. This is inaccurate. 

The $22 billion loan capital mentioned in DPM Heng Swee Keat’s response on 4 Jun 2020 to NCMP Leon Perera’s Parliamentary Question is not a borrowing by Government to finance its budget. 

On the contrary, the Government has set aside the $22 billion loan capital to provide financing support to companies, similar to measures taken during the Global Financial Crisis and during this crisis by other international governments. Banks can tap on the Government’s loan capital, if they need to supplement their own capital to provide loans to companies under the financing schemes launched, such as the Temporary Bridging Loan programme. 

Disbursement of the loan capital by the Government is not a fiscal expenditure, as it is expected to be repaid. We have separately set aside a budget to meet the Government’s share of the risk for loans that may not be fully repaid.”

Source: Gov.sg

Language Issue

Loan capital, which we expect to be repaid in the future and is hence fiscally neutral, makes up $22 billion of the total COVID-19 package.

DPM Heng Swee Keat, 4th June 2020

DPM Heng’s reply could be interpreted in several ways:

  1. That the loan is taken by the Government & expected to be repaid by the Government.
  2. That the loan is to be disbursed to someone by the Government & is expected to be repaid back to the government. Hence, it is “fiscally neutral”.

How is the loan capital used & what are the risks?

The loan capital referred to by DPM Heng is $22 billion set aside to provide financing for businesses during this pandemic. Banks can tap on this loan to supplement their own capital, to provide loans to companies.

There are risks of non-payment during this pandemic as the economic downturn takes effect. Gov.sg has clarified that the Government has set aside a separate budget to meet the Government’s share of risk should the loans not be repaid.

What is the Government’s share of risk?

The Temporary Bridging Loan Programme (TBLP) has been launched as part of the Solidarity Budget 2020. Eligible companies may apply to borrow up to $5 million with interest rates capped at 5% per annum.

The TBLP allows businesses to apply to defer principle payments for 1 year to aid their debt management.

The Government will provide 90% risk-share on these loans for new applications initiated from 8 April until 31 March 2021.

Source: Enterprise SG

Relation to the Budget

For perspective, this $22 billion loan capital is a component of the Budget 2020, which is almost $100 billion. A quarter of the budget is set aside to aid businesses during this tough operating climate to reduce attrition and retain jobs.

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