Singapore holds a record that may sound alarming, with its debt-to-GDP ratio standing at around 170 percent, making it the third most indebted country in the world after Japan and Sudan. This figure is even higher than those of Greece, Italy, and the United States.
Yet the world’s three largest global credit rating agencies, S&P Global Ratings, Moody’s Ratings, and Fitch Ratings, all assign Singapore an AAA rating, the highest grade a country can receive.
There is no market panic and no fiscal crisis. So, what is actually happening?
How Much Debt Is Still Considered Safe?
External debt, also known as foreign debt, refers to borrowing by governments, corporations or households from foreign lenders, including international institutions such as the World Bank, the Asian Development Bank (ADB) and the International Monetary Fund (IMF).
Globally, external debt has continued to rise over the past few decades, and its consequences have not always been positive. Poorly managed debt burdens have contributed to slower economic growth, financial crises, and turbulence in capital markets.
So, how much debt is still considered safe?
There is no single universal threshold. For developing non-industrial economies, a debt-to-GDP ratio of around 40 percent is often seen as the point where risks begin to increase.
Meanwhile, for low-income countries that rely heavily on exports, debt exceeding 200 percent of total export earnings has been empirically associated with a high risk of default.
Still, these thresholds cannot be applied rigidly. Countries with rapidly growing exports, or those whose debt is largely denominated in their own currency, tend to be more resilient in handling large debt burdens. Singapore falls into this category, and arguably goes even beyond it.
Debt That Is Not Used for Spending
The key to understanding Singapore’s paradox lies in what the debt is used for, not how large it is.
Nearly 99 percent of Singapore’s public debt is not used to finance the government’s day-to-day spending. Most of it is issued for three specific purposes.
First, to develop the domestic bond market. After the 1997 Asian financial crisis, Singapore realized that companies needed alternatives to bank loans in order to access capital.
The government therefore began issuing bonds, not because it needed money, but to help build a deep and healthy domestic bond market. These instruments account for around 40 percent of the country’s debt-to-GDP ratio.
Second, to support the social security system. Singaporean citizens are required to contribute part of their salaries to the Central Provident Fund (CPF), a mandatory savings scheme for healthcare, housing, and retirement.
All CPF funds are handed to the government, which in return issues special government securities. Their value alone exceeds 90 percent of GDP.
Third, to manage foreign exchange reserves. Singapore’s central bank often accumulates excess Singapore dollars from foreign exchange market interventions. These excess reserves are then transferred to the government for long-term investment, recorded through government securities worth roughly 40 percent of GDP.
Only 1 percent of total debt is directly linked to actual government spending. Even then, it is not used for arbitrary expenditures, but only for strategic infrastructure such as flood barriers and underground rail systems.
The requirements are also strict: projects must have a minimum value of S$4 billion, a useful lifespan of at least 50 years, and must remain government-owned. Borrowing for routine spending is directly prohibited under Singapore’s constitution.
The Sector of “Rarely Seen Assets”
Singapore’s large debt figure only becomes meaningful when viewed alongside the other side of the balance sheet: its assets.
The government manages national wealth through three institutions: Temasek Holdings, GIC, and the Monetary Authority of Singapore. The combined value of their assets is estimated at three to four times Singapore’s annual GDP, surpassing the sovereign wealth funds of resource-rich countries such as Norway and Saudi Arabia.
S&P estimates that the government’s liquid asset portfolio alone has surpassed US$1 trillion, equivalent to around twice Singapore’s GDP.
These assets are also highly productive. Over the past five years, government investments have generated returns equivalent to an average of 7 percent of GDP annually. Half of those returns are transferred into the national budget, nearly matching total corporate tax revenues, and often turning budget deficits into surpluses.
Singapore demonstrates that high debt is not automatically dangerous, as long as it is managed with discipline and backed by assets that far exceed its liabilities.
