A Straits Times (ST) story’s headline today – “MAS clocks net loss on the back of inflationary pressures” – may give the wrong impression and arouse undue alarm.
The loss of MAS is not a matter of grave concern for the following reasons:
1. The loss came mainly from exchange translation losses. An exchange translation loss is a paper loss when you own foreign currency assets and that foreign currency depreciates against the Singapore dollar. By holding more than $400 billion of Official Foreign Reserves, MAS is constantly exposed to exchange rate fluctuations.
The paper loss may disappear in future if the foreign currency appreciates against the Singapore dollar. Even if that does not happen, the return from the foreign currency assets will eventually cover the exchange losses. For example, this year, the MAS recorded a translation loss of $8.7 billion but that was offset by investment income and gains of $4 billion. As the MAS is expected to continue to make investment income and gains, these will usually cover the translation loss over the next few years.
Compared to MAS, GIC and Temasek have greater ability to generate investment income and gains because they invest in stocks, property and private equity, which MAS does not. In the case of Temasek, which reported good investment results recently, the investment income and gains were more than exchange translation losses. And the same applies to GIC’s investment performance.
2. It is the role of the MAS trading team to manage the exchange rate fluctuations and they have been generally successful. However, in the last few months, the situation changed and there are two events that overcame the MAS trading team. Firstly, MAS allowed the Singapore dollar to appreciate faster to curb inflation. Secondly, the non-US dollar currencies (Euro, Yen, Pound etc.) in the Official Foreign Reserves depreciated sharply against the US dollar and Singapore dollar.
Of course, with perfect hindsight, the MAS trading team should have bought more US dollars but that is too much to ask. But given more time, the MAS trading team should be able to make changes to its portfolio to minimize future exchange translation losses. As has been demonstrated in the past, MAS normally generates an annual profit every year – 2022 is exceptional!
Hence the MAS’s loss should not be read as a great loss of fiscal revenue which limits the government’s ability to do more to help Singaporeans to cope with the pain caused by inflation. This was what the ST article was alluding to, by saying, “The net loss meant that MAS did not contribute to Singapore’s consolidated fund from which government expenditure is made.”
It is also not justified to say MAS’s loss “may strengthen the resolve to proceed with the planned GST hike starting from January 2023”.
The PSP strongly believes that the GST hike is unnecessary and should be rescinded as part of the package to fight inflation.
The ST article shows we need to read deeper into the narratives provided by the media.
Singaporeans deserve better.
For Country For People.