Prudent or heavily in debt?

Prudent or heavily in debt?

SINGAPORE - Singapore's conservative fiscal spending has been lauded as a shining example of prudence, but a quick check online may bring one to data that points to the country having one of the world's highest debt to gross domestic product ratios.

For instance, the CIA World Factbook lists Singapore as having public debt equivalent to 105 per cent of its GDP, the 14th highest in the world.

Why the discrepancy?

Singapore's public debt as listed by CIA, and other websites, is gross debt, not net debt.

To understand the difference between the two, consider this: Say two men both borrow $1 million each. The first has no other asset, so his gross debt and net debt are the same: $1 million.

The second man actually has $1 million in his bank account, but took up a $1 million loan for investment purposes.

His gross debt is $1 million. But his net debt is zero.

So there is a big difference between a man with no money who borrows $1 million to spend, and a man with $1 million in assets, who borrows the same amount to invest.

Singapore has not borrowed to finance its spending since the 1980s, a critical fact that is often ignored by these statistics.

Singapore does issue debt but for very different reasons.

One type of debt that is regularly issued are the Singapore Government Securities, which are issued to develop the domestic debt market.

The other is the Special Singapore Government Securities, bonds issued to the Central Provident Fund (CPF). The bonds issued in this case are to pay the CPF interest rates that CPF members get on their savings.

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