It’s Not Just China: Singapore Manipulates Data Too

City-state shows a large discrepancy in investment returns

For recent readers of this blog, most of my work has focused on China with a not insignificant part of that writing focused on the statistical discrepancies we see in Chinese data.  However, this type of statistical manipulation is by no means unique to China.  Other countries have similar problems with data manipulation resulting in very large financial discrepancies.

Despite a reputation for clear and technocratic government, there is significant evidence that Singapore public finances present large unreconcilable differences too.  I have written about these irregularities previously and have completed an update to this working paper that compiles a more complete dataset.  For those unfamiliar with the financial irregularities in Singapore public finances, let me briefly provide some detail.

Singapore owns two sovereign wealth funds: the Government Investment Corporation of Singapore (GIC) and Temasek Holdings (Temasek). Singapore has never publicly disclosed the assets under management of GIC but has disclosed the long run rate of return.  Conversely, Singapore has disclosed the assets under management of Temasek and the long run rate of return.  GIC claims to have earned 7 percent in US dollars over the long run and Temasek claims to have earned 16 percent annually since inception in 1974.

Singapore publicly declares its financial assets and liabilities in its annual budget per IMF national accounting regulations. We know, or should know, based upon official data what amount of financial assets Singapore and its sovereign wealth funds hold.  This helps us match in-flows to the financial assets held.

For many years Singapore has run large operational public surpluses. Since 1974, the IMF-defined operational surpluses in Singapore have totaled approximately SGD$369 billion or approximately SGD$260 billion at current exchange rates.

Simultaneously, Singapore has become one of the world’s most indebted countries relative to GDP, primarily by public borrowing in a complicated arrangement with its social security scheme, the Central Provident Fund (CPF). In the arrangement, citizens pay mandatory amounts supplemented with an employer contribution receiving a guaranteed rate of return of between 2.5-4 percent for a total weighted return of about 3.5 percent.  The Singapore government then borrows these funds from the CPF providing the government with cash flow that it says it invests.  Total public debt stands at approximately SGD$390 billion or approximately 98 percent of GDP.

The free cash flow from operational surpluses and borrowing since 1974, the year Temasek was founded, total SGD$822 billion or SGD$580 billion. It should be emphasized at this point, this is simply the sum of yearly free cash flow and does not account for investment returns or known costs such as currency or interest costs.

It should be noted that Singapore claims that a significant portion of its operational surplus is not allowed by Singapore law to be spent. They argue instead that it is part of the national reserves that gets invested and should not be considered part of the yearly surplus.  While this is an accurate interpretation of Singaporean law, there are a couple of factors to note.  First, it is included in national accounting as part of the operational surplus because the IMF considers land sales operational revenue, not financial capital income.  Essentially, land is not a saved financial asset.  Second, regardless of how it is counted, land sales revenue becomes investment capital that should be invested and earn capital income.  To make a simple comparison, if a person created household spending rule that they would only spend the money they made in weekly salary but save all of their yearly bonus check, an analysis would still find their yearly savings was equal to their yearly bonus check.  The spending rule they created for themselves does not change the end result.  Also, how much they earn in future capital income is dependent upon how much they save now.  Money has to be spent or saved.  If it is not spent, then it must be saved.

Including data on government debt interest rates and currency rates given the financial results reporting of GIC, we can now reconstruct the expected investment results of Singapore. In other words, we have yearly cash inflows, annual investment results, associated costs such as debt and currency changes, and balance sheets for ten years which allow us to compare the expected assets to the reported assets under management.

By a range of plausible estimates on cash holdings allocation and the rates of return on cash holdings, the discrepancy between reported financial asset holdings and expected financial asset holdings ranges from SGD$650-850 billion or $459-600 billion. To provide some perspective on the discrepancy, the sum of free cash flow from net incurrence of liabilities and operational surpluses since 1974, the year Temasek was created, is SGD$822 billion.  In the most recent reporting period, Singapore financial assets of SGD$834 billion.  Given reported rates of return from GIC and Temasek of 7 percent in US dollars and 17 percent in Singapore dollars with debt interest costs significantly lower, this is a significant financial discrepancy.  Based upon the annual free cash in-flow, this would provide Singapore a post-cost rate of return of 0.1 percent annually.

There are numerous additional irregularities that are too lengthy and detailed to mention in a blog post. I have compiled an extensive data set on financial asset holdings, public finances, and methodology that recreates their expected asset holdings against their reported holdings for those that wish to delve further into the matter.  I simply cannot come close to reconciling the SGD$650-850 billion difference between reported and expected assets based upon free cash flow and investment returns.

Christopher Balding

Associate professor at the HSBC Business School of Peking University Graduate School.