Singapore's fiscal framework, including the budget process, has several unique and innovative aspects, according to a report by J.R. Blondal for the Organization for Economic Cooperation and Development (OECD). Not least of these is the use of two investment bodies, Temasek and the Government of Singapore Investment Corporation (GSIC), whose funds are used to pay for much of Singapore's social service expenditures and which are not included in the formal budget. The recent move by Temasek to open its operations to public review through publication of an annual report has been seen as a significant step forward in improving transparency. Extending this type of disclosure to the GSIC's operations would further improve transparency. The International Monetary Fund has been working with Singapore to develop a Report on the Observance of Standards and Codes, fiscal module, during 2006-2007.

General Overview

Writing in 2006 for the Organization for Economic Cooperation and Development's (OECD) Journal on Budgeting, Jon Blondal reported on the Singaporean public finance system overall, with particular focus on the specifics of the budget process. According to Blondal, Singapore employs a multi-pillared approach, comprising the budget sector; the Central Provident Fund (CPF), which handles the bulk of Singapore's social services; the government investment agencies (GIAs) tasked with handling budget and CPF surpluses; and the numerous special funds that are not consolidated within the formal budget. The CPF is essentially a mandatory savings program funded by employer and employee contributions. The primary GIAs are the Government of Singapore Investment Corporation (GSIC) and the Temasek Holdings Private Limited Company. These agencies report to the Minister of Finance (MoF). According to Blondal, the GIAs provide only a low degree of disclosure on their operations, due to the belief that such disclosure could trigger market speculation that could damage overall economic stability. The GSIC essentially serves as the government's fund manager. Temasek is nominally independent, but Blondal notes that 100% of its equity is held by the government. The "special funds" that constitute the fourth pillar of the public finance system are, as Blondal notes, "not consolidated in the reporting of the budget to Parliament" (p. 48). Rather, they are the subject of fund-specific legislation. They are used by the CPG to purchase bonds, by the government to purchase land, and include endowment funds to cover the costs of specific social initiatives. Blondal also notes that the Singapore budget includes almost no accounting for transfer payments funded by CPF accounts or for interest expenses.

According to Blondal, the Singaporean budgetary process is top-down, setting aggregate spending limits but providing a great deal of line-ministerial discretion in specific allocations. Blondal identifies six elements of the Singaporean budget formulation process as being "innovative and unique." First, fiscal rules are enumerated within the Constitution. The Constitution declares that a government should not rely upon prior governments' surpluses, requiring that budget balancing be achieved during a sitting government's term in office (maximum: 5 years) alone. The Constitution also requires that the government treat as revenue only a maximum of half of its annual net investment income from its accumulated reserves. Only realized income is recognized for the purposes of this provision. Finally, the Constitution permits deficit financing, but only with the consent of the president of the republic, and establishes the primary role of the president as the country's fiscal guardian.

The second innovation noted by Blondal is that the government sets multi-year spending ceilings for the ministries. Each ministry gets a "block budget" within which the individual ministries have broad discretion regarding final allocations, with no interference by the MoF. The ceilings typically run for a five-year period, within which it is possible to use future year funds to cover current year expenses, or delay appropriations for the current year to carry the fund over to a subsequent year. In the rare circumstance where additional action has been required, such as during the SARS crisis, the MoF does have the ability to intercede with additional allocations on an ad hoc basis. The ceilings are set as a percentage of an average of the GDP growth rate over a six-year period. This avoids susceptibility to volatility and, as Blondal notes "act[s] as a counter-cyclical element" (p. 53). The specific ceilings allocated to each ministry are not made public.

The third unique element of Singapore's budget process is the use of across-the-board spending cuts to cover reallocations across the ministries. This is achieved through a central Reinvestment Fund, to which ministries may submit bids for allocations. Blondal reports that, in 2004 and 2005, all the ministries were subject to "productivity dividends" which were, in fact, extractions from their operating budgets. Since 2006, these monies were replaced by "reinvestment dividends, based on a percentage (currently 5%) of the total ministerial budget. This, according to Blondal, "is designed to 'right-size' the ministries budgets and promote certain 'good behaviors'" (p. 54) by virtue of the fact that the Reinvestment Fund favors reallocation bids that involve inter-ministerial cooperation.

Blondal identifies the fourth budget innovation as the practice whereby budget surpluses are deposited in endowment funds whose annual investment income is used to pay for social programs. These funds are sometimes supplemented by budgetary allocations. Fifth, Blondal writes that "Central manpower controls (head counts) and a system of surcharges if they are exceeded" (p. 51). Within the budget, each ministry is allocated a set number of posts. The rationale behind this feature is the need, recognized in the late 1990s, to restrain the growth of government employees. The plan is to reduce government positions by 3% over three years, largely through attrition. Finally, Blondal reports that it is significant that Singapore's ministries routinely under spend.

According to Blondal, the budget formulation process begins in June prior to the budget year's commencement of April 1. Annual 'strategic review" meetings are held with the MoF's permanent secretary and each of the line-ministries' permanent secretaries. Simultaneously, the budget's economic assumptions are being calculated by committee comprised of representatives from the Monetary Authority of Singapore and the Ministry of Trade and Industry. Blondal notes that the committee "has no formal independence, and its conclusions are not submitted to any formal scrutiny" (p. 57). The ministries are advised by the MoF of their budget ceilings in July, at which time they are also notified of the amount they must turn back into the Reinvestment Fund. The MoF convenes a meeting or series of meetings with the whole of the government ministry secretaries in August to elicit inter-ministerial cooperation and avoid duplication of efforts. Ministries must submit their bids for reallocations to the Reinvestment Fund in September. Another set of bilateral meetings are then held between the MoF and the individual ministries in which the focus is on the previous year's budget performance. Ministries can then reconsider their allocations or formally appeal the decisions made by the Reinvestment Fund. In December, each ministry submits a draft of their individual budgets to the MoF for review. In January, the cabinet reviews the full budget proposal. In February, parliament does so as well. This is usually a pro forma process, and few if any changes occur at this time. Blondal finds several elements of Singapore's budget process to be noteworthy. First, he finds the use of the CPF to be exceptional in relieving the government of having to accommodate much of the social services function in the budget sector. However, he also cites "the very low level of disclosure concerning the operation of the government investment agencies" (p. 59).

In its 2004 Financial System Stability Assessment (FSSA) for Singapore, published in 2005, the International Monetary Fund (IMF) described Singapore's fiscal management policies as "sound," and credited them with contributing to the resilience of Singapore's financial sector. A long-time subscriber to the IMF's Special Data Dissemination Standard (SDDS), Singapore's fiscal data reporting is generally adequate for surveillance, and meets SDDS requirements for timeliness, periodicity, and coverage. However, the IMF's 2005 Article IV Consultation report, published in 2006, noted that some shortcomings on the data side need to be addressed.

Concurring with Blondal's assertion that the Singaporean budget system leads to under-reporting of revenues, closed-door discussions held by Institute of Policy Studies (IPS) concluded that "there are significant differences between Singapore's fiscal balance as computed by the IMF (in the Government Financial Statistics) and Singapore's official fiscal statistics. In particular, there is reason to believe that Singapore's official budgetary statistic may significantly underestimate some revenues (investment income), while excluding others" (p. 4). The IPS recommended that Singapore adopt practices that would permit reporting budgetary data according to international best practice, including the development of comprehensive statistics. In addition, the IPS noted that "independent analytical research on Singapore's fiscal policy issues is rather weak and needs to be urgently strengthened (pp. 4-5).

A 2002 OECD report on the Anti-Corruption Action Plan for Asia and the Pacific (last updated in 2004) adds that Singapore has endorsed the Plan and was developing more transparent fiscal measures and systems. It also moved to adopt existing international standards and practices for regulation and supervision of financial institutions, as relevant. Further, it was working to create appropriate auditing procedures for public administration and the public sector and to improve the timeliness of its public reporting on performance and decision making."

The 2005 IMF Article IV Consultation found that the 2006-2007 budget called for "a somewhat expansionary stance, reflecting increased outlays on social spending" (p. 15). The report noted that there has been a move to rely less on the discretionary measures of the past as a primary countercyclical measure. Some new measures, such as the "loss carry-back" were mentioned with approval. The IMF also approved of the Singaporean government's exploration of the use of public-private partnerships (PPPs), but cautioned that these must be properly designed in order to maintain transparency. The IMF further noted that current Singaporean policy over the medium term sought to balance the need to provide public support to low-income and long-term unemployed citizens and the desire to enhance economic competitiveness through tax cuts. While observing that Singapore's history of surpluses has contributed to its economic prosperity, it noted that "a sustained path of large surpluses begged the question as to whether the level of taxes was too high or that of expenditure too low" (p. 16).

With specific reference to improvements in fiscal transparency, the 2006 IMF report noted that Temasek continues to publish its annual reports. However, the IMF suggested that the publicly-owned Temasek might better account for "the impact of its investment on the economy's overall exposure to sectors and countries" (p. 16). In response, officials from Temasek declared that their entry into new markets was carefully done and subject to the oversight of an independent board. The IMF pressed for greater disclosure of government assets and for the public release of the consolidated public accounts. The IMF also applauded the government's decision to participate in an IMF Report on the Observance of Standards and Codes fiscal module, scheduled for 2006/7, and suggested that the GSIC follow Temasek's lead in publishing its financial position. In the Statistical Issues annex to the IMF's 2006 report, it was noted that Singapore's metadata as reported to the SDDS were "generally thought to be sufficient for surveillance purposes" (p. 33). Shortcomings in fiscal data and related statistical practices remain, however. The report noted that the Singapore Department of Statistics has updated its reference year for the system of national accounts to 2000, and has improved both its sources and methods. Fewer statistical discrepancies were noted in the reconciliation of national accounts estimates. Beginning in 2006, full merchandise-trade statistics were released, including the statistics for trade with Indonesia, which had previously been captured in the balance of payments data. Still to be remedied is the failure to provide information on government assets held abroad, or on the financial position of the consolidated public sector.

The Principles

Clarity of roles and responsibilities.

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The website of the Ministry of Finance discloses that it is engaged in the formulation of effective fiscal policy through the Fiscal Policy Directorate, which has the primary mandate to design fiscal strategy. The Directorate is also involved in coordination activities, both within the government and with international organizations and other nations. The SDDS website discloses that the primary laws regulating the budget process and the generation of national statistical data are the Constitution of Singapore, the Financial Procedure Act, Financial Regulations of 1990, the various Development Loan Acts, the Development Fund Act, and the Government Securities Act. As Blondal notes, the Constitution places fiscal responsibility as the primary duty of the Singaporean president, who is the "fiscal guardian" of the country (p. 64). Parliament has a much more restricted role. This, according to Blondal, is due not only to Constitutional provisions, but also to "the nature of the Singapore political environment and the fact that Singapore follows the Westminster tradition, where parliament's role in the budget process is limited" (p. 65). Oversight by parliament is facilitated by the role of the Auditor-General's Office (AGO), an independent public entity that investigates irregularities, non-compliance, and inefficiencies and reports on them to the parliament. The AGO also prepares performance audits. Parliament's Public Accounts Committee reviews audit reports and then calls for ministerial action to redress any issues raised therein. The publicly available information does not directly address Singapore's compliance with this principle, however.

Blondal reports that Singapore has 15 government ministries, each of which is the primary policy-maker in its area of expertise. The 15 ministries are supplemented 21 departments and 65 statutory boards, which carry out the execution of policy. Statutory boards tend to have greater operational independence than departments, and the trend is for departments to transform into boards. Ministries are headed by permanent secretaries, departments by directors-general, and statutory boards by chief executives. These are almost always career civil servants, not political appointees. Statutory boards have boards of directors comprised of academics, government representatives, and other outside stakeholders. Each board is subject to the specific legislation relevant to its statutory board.

Open budget processes

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According to Blondal, the budget formulation process begins in June prior to the budget year's commencement of April 1. Annual 'strategic review" meetings are held with the MoF's permanent secretary and each of the line-ministries' permanent secretaries. Simultaneously, the budget's economic assumptions are being calculated by a committee comprised of representatives from the Monetary Authority of Singapore and the Ministry of Trade and Industry. Blondal notes that the committee "has no formal independence, and its conclusions are not submitted to any formal scrutiny" (p. 57). The ministries are advised by the MoF of their budget ceilings in July, at which time they are also notified of the amount they must turn back into the Reinvestment Fund. The MoF convenes a meeting or series of meetings with the government ministry secretaries in August to elicit inter-ministerial cooperation and avoid duplication of efforts. Ministries must submit their bids for reallocations to the Reinvestment Fund in September. Another set of bilateral meetings are then held between the MoF and the individual ministries in which the focus is on the previous year's budget performance. Ministries can then reconsider their allocations or formally appeal the decisions made by the Reinvestment Fund. In December, each ministry submits a draft of their individual budgets to the MoF for review. In January, the cabinet reviews the full budget proposal. In February, parliament does so as well. This is usually a pro forma process, and few if any changes occur at this time. Blondal finds several elements of Singapore's budget process to be noteworthy. First, he finds the use of the CPF to be exceptional in relieving the government of having to accommodate much of the social services function in the budget sector. However, he also cites "the very low level of disclosure concerning the operation of the government investment agencies" (p. 59).

The 2004 OECD report states that the parliamentary oversight of government spending is based on the audit reports of the AGO, which is empowered by the Constitution to audit ministries, departments, and statutory boards. The AGO prepares the government's annual accounts and financial statements, as provided for in the Financial Procedure Act. These reports are submitted to the Public Accounts Committee of parliament for review, after which the committee reports back to the full parliament. The IPS's 2004 report recommended that the government improve transparency by reporting budget data according to international best practice. It also called for greater comprehensiveness in the overall government balance sheet. These, in the opinion of the IPS, are crucial improvements needed to facilitate the analysis of Singapore's fiscal policy. The publicly available information does not directly address Singapore's compliance with this principle, however.

Public availability of information.

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The IMF's SDDS website discloses that Singapore subscribes to the SDDS standard and meets the requirements for the public availability of information. It meets the requirements for coverage, periodicity, and timeliness of its data. Singapore makes advance release calendars available and generally releases relevant information to all interested parties simultaneously. Precise release dates are issued one-quarter ahead, and are posted on the website of Statistics Singapore. Statistics Singapore also publishes a Monthly Digest of Statistics. The Department of Statistics maintains an online database. Where early access is required by a particular ministry in the conduct of its duties, this is acknowledged publicly. Ministerial commentary is kept separate from the data that is released. The AGO prepares the governments accounts and financial statements, according to the OECD report of 2004, and the AGO submits its report, including recommendations for action, to the parliament. This report is published. The SDDS website discloses that the methodology used in formulating the budget and compiling budget data accords with the Government Finance Statistics Manual (GFSM) by the IMF. Government accounting policies and practices are made public in the Government Financial Statements, published annually. The publicly available information does not directly address Singapore's compliance with this principle, however.

Independent assurances of integrity.

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The 2004 OECD report and the SDDS website disclose that Singapore has in place a legal and administrative framework aimed at creating a transparent, accountable budget process. Officials employ a methodology consistent with the IMF's Government Financial Statistics Manual. However, the OECD report does caution that discrepancies remain between the official Singaporean fiscal statistics and those calculated in the IMF's Government Financial Statistics. The OECD report noted that by participating in the Anti-Corruption Action Plan for Asia and the Pacific, Singapore has assumed the responsibility of enhancing integrity and fighting corruption. This includes the development of appropriate oversight systems to monitor the discretionary actions of persons in authority, the adoption of personnel practices that would minimize the opportunity for corruption, the development of rules covering conflicts of interest, and other such pro-transparency measures. The OECD report notes that the Government Instruction Manual sets forth anti-corruption procedures and requires the establishment of supervisory and control systems. Other regulations provide for the disciplining of public officials who violate the guidelines of the Civil Service and of their particular departments.

According to the MoF website, the Singapore Quality Award (SQA) has been implemented in the public sector in order to foster excellence in the Singapore Public Service. This Award, which is the benchmark for business excellence in the private sector, has been incorporated into the public sector through the development of an SQA guidebook for the public sector, and the creation of SQA-Online, which permits self-assessments for those in the public and private sector aspiring to the Award. The publicly available information does not directly address Singapore's compliance with this principle, however.