MAS $7.4 billion net loss: Why, how this affects us and what we can do

Youth fish at a largely empty Merlion Park in Singapore, on Aug 31, 2021.
PHOTO: Reuters

The Monetary Authority of Singapore (MAS) has reported a net loss of $7.4 billion in the financial year ended March 31, 2022. Additionally, Singapore’s official foreign reserves also recorded a net loss of $4.7 billion.

What could have caused the substantial loss and performance of Singapore’s central bank? Should we be worried about this? We examine the contributing factors, as well as impacts this could have on Singaporeans.

Factors leading to this fiscal performance

Let us take a closer look at the reasons behind MAS’s fiscal performance this year. Some of the major contributing factors include inflation, unsteady global economic growth and MAS’s monetary policies.

1. Large negative foreign exchange translation effect

A major portion of MAS’s huge loss is its net loss in Singapore’s official foreign reserves, amounting to $4.7 billion.

This is largely due to MAS employing its monetary policy, which involves strengthening the Singapore Dollar to curb rising inflationary pressures.

How does strengthening the Singapore dollar curb inflation? When the Singapore Dollar is stronger, imported inflation is reduced as imports would become relatively cheaper to Singaporeans, who rely a lot on imports.

With the Singdollar becoming stronger, export demand may have been dampened because Singapore exports become relatively more expensive, leading to a fall in export revenue. This resulted in a negative foreign exchange result of $8.7 billion. This loss was offset by investment gains of $4 billion, leading to a net loss of $4.7 billion in foreign reserves.

How much did the Singdollar appreciate by? Some key benchmarks would be the Malaysian ringgit, British pound, euro and Japanese yen, where the Singapore Dollar strengthened 3per cent, 4per cent, 5 per cent and 9per cent against respectively.

Malaysian Ringgit British Pound Euro Japanese Yen
SGD appreciated by 3 per cent 4 per cent 5 per cent 9 per cent

2. Total expenditure increased to $2.8 billion due to higher interest expense

MAS also spent a bigger sum this year as compared to previous years, mostly due to the higher interest rates causing higher expenses on Singapore’s domestic money market operations.

One of the core reasons behind all these measures is the rising core inflation in Singapore.

Core inflation has hit a new high of 4.4 per cent year-on-year in June. The prices of food, utilities, transport and more have surged and many of us have surely seen and felt the impact. The increase in inflation this time round is sharp, which makes it all the more necessary for MAS to employ these fiscal and monetary measures to curb this persistent and drastic inflation.

With the tightening of our monetary policy, price stability at least in the medium term would be ensured, to allow for sustainable economic growth for all.

Impact on the Singapore economy

The lingering question in all our minds, I believe, is whether MAS’s net loss would affect us badly. Well, it does, but only to a certain extent.

Due to the $4.7 billion loss, MAS would not be contributing to Singapore’s Consolidated Fund this year. This is the first time it has not contributed in 2 years, as MAS had contributed $2.17 billion in 2020 and $1.07 billion in 2021.

What is the Consolidated Fund? It is just like a bank account held by the Singapore Government, of which revenues are channelled towards and out of which Government expenditures are spent.

The Singapore Government can spend a maximum of 50per cent of the expected long-term investment returns generated and managed by MAS, Temasek and GIC.

With MAS not contributing to the reserves this year, annual Budget spending may possibly be lowered. This would affect areas such as defence, education, transport and health, where the higher proportion of the budget is usually allocated to.

Impact on individual Singaporeans

Despite the monetary measures taken by MAS, high inflation is a current global phenomenon and cannot be avoided fully. Sectors like food and energy are expected to see the highest increase in prices, with tight food and energy supplies arising from various factors such as the Russia-Ukraine conflict.

Since inflation cannot be avoided completely, prices will surely increase and hence, real incomes may fall as purchasing power falls. The economic growth in Singapore may be slowed and dampened in the short to medium term.

Most of us will be able to tide over the uncertain outlook

Although Singapore’s economy is forecasted to experience slowing growth, Singapore banks have maintained healthy investments and asset quality, allowing them to survive price and asset shocks.

For the average Singaporean, MAS has expressed that most should be able to tide over amidst the uncertain outlook and lowering of real incomes due to rising interest rates.

However, rising interest rates is still a worrying phenomenon, and some households may be priced out of the market.

How do I cope with the impacts of inflation?

1. Hunt for discounts

With inflation pushing up the prices of many of our daily necessities, it is sadly getting more and more expensive to maintain our standard of living.

In order to cope with this, we can try to make our money's worth by hunting for discounts. A great way to continue buying what you love, at better prices, would be to hunt for – you name it: offers, promotions, discounts, cashbacks and rewards.

We have some nifty tips and promotions up our sleeves this month, especially if you are a NSman who will be receiving your NS55 credit vouchers, or a Singaporean who will soon receive your GST vouchers. For the foodies, 1 for 1 buffets are one of the best phrases you would love to hear, getting to enjoy sumptuous food at half the price!

2. Use credit cards the smart way

As typical Singaporeans, we all love to get more bang for our buck. One way to make our spending less painful would be to fully utilise your credit cards, so as to maximise its rewards and make every dollar you spend worthwhile.

There are so many different types of credit cards which can help you gain rewards in your everyday spending. Some types of credit cards include miles, cashback, rebates and rewards cards. You can feel free to pick and choose the most suitable type of card for your spending.

Recommended Card: UOB One Card The UOB One Credit Card offers the highest flat rebate rate for spenders with budgets of at least $2,000 a month. You can earn easy cashback on your daily spend and even get rewarded for paying your bills.

With this credit card, you will be able to maximise your savings and cashback. Enjoy a 5 per cent flat rebate on all expenses, and an impressive 10per cent on Dairy Farm, Grab, Shopee and others. The UOB One card is surely one of the best cards that provides top rates for spenders.

Apply Now Apply Now Consider this if you want some of the best cashback rates in the market

  • Pros
    • Good fit for budgets of at least S$2,000 per month
    • Easy cashback on daily spend
    • Gives rebates for paying bills
  • Cons
    • Doesn't fit high budgets or low/inconsistent budgets
    • Annual fee

3. Invest

With inflation being a persistent problem that is set to ease only next year (though the outlook remains very volatile and uncertain, how should the normal Singaporean combat it?

Keeping your money in savings accounts with a low interest rate would mean that you’re ‘losing’ money, when we adjust for inflation.

In order to battle inflation, one of the best ways to cushion the impact of inflation on us would be to make smart investments. Invest in products that are safe and provide good inflation-adjusted returns so that you can beat inflation. Disclaimer though, all investments have an element of risk to them, so anyone should always research carefully before committing their money to the various investments available.

1. Saxo markets

The easiest way to get started on investing would be to do it via an online brokerage trading platform, such as Saxo Markets, which provide low fees and excellent market access.

With Saxo Markets, you will be able to trade on many investment products such as stocks, options, forex, ETFs and more, all of which may offer higher returns that help you to combat inflation. Access to a variety of international markets is also granted so that you can diversify your portfolio, at low commissions.

2. Endowus 

Robo Advisors are AI-assisted investment platforms which may be very suitable for the busy Singaporean worker. Endowus is one of the best robo-advisors in Singapore, with its very competitive fees and has an independent status.

Endowus boasts some of the best yields for investors, and at low user fees, this makes Endowus a very attractive option for investors.

  • Minimum Investment
    • $1,000
  • MAS Licence
    • Financial Advisor License

4. Gain additional income

The other way to stay afloat of inflation on top of savings and investment would also be to diversify your income streams and gain additional income from various sources, be it part-time jobs, side hustles and more.

You could also try to be more active in earning more and to clinch salary increments at your workplace. Employing the Fire movement would not only help you to tide over this period of inflation and high prices, but help you in earning and saving enough to retire early and enjoy your golden years in peace and happiness.

Conclusion

We now know that MAS’s net loss is largely due to their policies to help curb rising inflation in Singapore.

The main enemy is inflation due to the highly volatile economic conditions worldwide, and we may never know when it would finally ease.

For the time being, the only thing that we as Singaporeans can do is to amp up our financial knowledge and try our best to employ strategies such as investing, to cushion the impacts that inflation may have on us.

This article was first published in ValueChampion.