Quora Answer: What are the Principles behind Singapore’s National Reserves?

The following is my answer to a Quora question: “What are the principles behind Singapore’s national reserve?”

Every few years, some well-meaning commentator demands Singapore disclose the exact size of its reserves.  They call it transparency.  I call it economic illiteracy dressed up as civic virtue.  Singapore built one of the most disciplined reserve protection systems on the planet because most governments cannot be trusted with a blank cheque, and the data on what happens elsewhere proves the point.

What the Reserves Actually Are

The Constitution of the Republic of Singapore defines reserves as the excess of assets over liabilities of the Government, statutory boards, and government companies.  Strip away the legal language and the concept is simple.  Assets include cash, shares, land, and buildings.  Liabilities include Singapore Government Securities and Special Singapore Government Securities issued to the Central Provident Fund Board.

Under the Government Securities (Debt Market and Investment) Act 1992, the Government cannot spend the proceeds raised from issuing Singapore Government Securities.  Most countries borrow to fund deficits.  Singapore borrows to develop its domestic bond market and park the proceeds as reserves.  Singapore’s headline debt-to-GDP ratio looks large on paper.  It is also, functionally, a sovereign savings instrument rather than a sovereign liability in the conventional sense.  Compare that discipline to governments that borrow to cover today’s payroll and leave tomorrow’s taxpayer holding the bill.

The Two-Key System

Lee Kuan Yew, first Prime Minister of Singapore, raised the idea of giving the presidency veto powers over the reserves in August 1984.  Six years later, Goh Chok Tong, then First Deputy Prime Minister and later second Prime Minister of Singapore, introduced the Constitution of the Republic of Singapore (Amendment No. 3) Bill in Parliament.  Parliament passed it on 3^rd January 1991.  It took effect on 30^th November 1991.

The mechanism is simple to describe and brutal to circumvent.  The Government holds one key.  The President holds the other.  Neither can access past reserves alone.  Ong Teng Cheong, the first President elected under this scheme, worked with the Government through 1999 to develop the working principles that still govern drawdowns today, tabled in Parliament on 2^nd July 1999.

The system has been tested in real crises, not hypothetical ones.  In October 2008, at the height of the global financial crisis, the Government sought presidential approval for a S$150 billion guarantee on all local bank deposits, backed by past reserves.  In January 2009, Sellapan Ramanathan, sixth President of Singapore, gave the first approval in the history of the elected presidency for a S$4.9 billion drawdown to fund the Budget.  That is the system functioning as designed: access in an emergency, friction against casual raiding.

The Checks beyond the President

The President can withhold assent to any Supply Bill, Supplementary Supply Bill, or Final Supply Bill that is likely to draw on past reserves, which blocks the entire Budget for the year.  Statutory boards and government companies listed under the Fifth Schedule, among them the Central Provident Fund Board, the Housing and Development Board, the Jurong Town Corporation, the Monetary Authority of Singapore, GIC, and Temasek Holdings, must present their budgets to the President for approval before each financial year begins.  The accountant-general and auditor-general must flag any proposed transaction likely to draw on past reserves.

Even the presidential veto has a check on itself.  The Constitution requires the President to consult the Council of Presidential Advisers before deciding.  If he withholds assent against the Council’s recommendation, Parliament can overrule him with a two-thirds majority resolution.  Nobody holds unchecked power here.

Who Manages the Money

The Monetary Authority of Singapore manages the Official Foreign Reserves, the most conservative of the three pools, weighted heavily toward liquid financial instruments because its job is defending the currency, not chasing returns.  Reserves stood at S$427.9 billion as at July 2025.

GIC Pte. Ltd. manages Government assets with a mandate to preserve and grow the international purchasing power of the reserves over the long term, investing conservatively across a globally diversified portfolio.  GIC has never disclosed an exact figure, stating only that it manages “well over US$100 billion.”  The Sovereign Wealth Fund Institute has estimated the true figure closer to US$800 billion, though that remains an outside estimate, not an official one.

Temasek Holdings, by contrast, is an active, value-oriented equity investor answerable to no government representation on its board.  Its net portfolio value reached a record S$434 billion for the financial year ended 31^st March 2025, up S$45 billion from the year before, with a total shareholder return since its 1974 inception of 14 per cent per annum in Singapore dollar terms.

The Opacity is Deliberate

The Government has never published the combined total.  Publishing MAS and Temasek figures alongside an exact GIC number would hand the market the complete picture, and a complete picture is a target.  Consider what happened to Thailand in 1997.  The Bank of Thailand spent down its foreign reserves defending the baht against speculative attack until the reserves were effectively exhausted, forcing a float of the currency, a collapse in value, and an International Monetary Fund bailout that triggered the wider Asian Financial Crisis.  A central bank with a known, finite, and dwindling war chest is an invitation to speculators.  Singapore’s refusal to publish an exact total denies anyone that invitation.

Sri Lanka offers the harshest recent lesson on what happens when a nation treats its reserves as a slush fund rather than a sacred trust.  By April 2022, Sri Lanka’s usable foreign reserves had fallen to US$50 million, nowhere near enough to cover fuel or food imports for a population of twenty-two million.  Fuel queues stretched for kilometres.  Rolling power cuts lasted up to thirteen hours a day.  Mass protests stormed the presidential residence, and Gotabaya Rajapaksa, then President of Sri Lanka, fled the country and resigned by email from Singapore, of all places.  Sri Lanka defaulted on its external debt for the first time in its history that same month.

That is the counterfactual Singapore’s constitutional architects were guarding against from 1984 onward.  Nobody builds a two-key system and a Council of Presidential Advisers because they expect their own Government to behave responsibly forever.  They build it because they have watched what happens to countries that assumed theirs would.

From Net Investment Income to Net Investment Returns

Two constitutional amendments reshaped how much of the reserves’ earnings the Government can spend.  The Constitution of the Republic of Singapore (Amendment) Act 2001, passed on 12^th January 2001, capped annual spending at 50 per cent of Net Investment Income, the interest and dividends earned from past reserves, net of costs.  Before that amendment, there was no cap at all.

The Constitution of the Republic of Singapore (Amendment) Act 2008, passed on 21^st October 2008 and effective from 1^st January 2009, broadened the base.  Net Investment Returns replaced Net Investment Income as the spending benchmark, now incorporating the long-term expected real rate of return from GIC and MAS alongside the investment income earned through Temasek.  The 50 per cent cap stayed in place.  The pool it applied to simply grew larger.

The result is the Net Investment Returns Contribution, which supplements the annual Budget directly.  It came to an estimated S$19.6 billion in Financial Year 2021 alone, funding education, research and development, healthcare, and infrastructure.  It has, in recent years, stood as the single largest contributor to Singapore’s Budget, ahead of corporate income tax and ahead of the Goods and Services Tax.  Few taxpayers appreciate that the single biggest line item funding their hospitals and schools is not a tax at all.  It is compound interest, protected by a president who cannot touch the principal without consulting a council, consulting Parliament, and surviving a two-thirds vote against him if he gets it wrong.

That is the principle behind Singapore’s national reserve.  Not secrecy for its own sake.  Not hoarding for the sake of a number on a page nobody is permitted to see.  Structural paranoia, codified into the Constitution, because the alternative has a body count measured in fuel queues and collapsed currencies, and Singapore had no intention of learning that lesson the way Sri Lanka did.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code