Financing a City: Developing Foundations for Sustainable Growth

Financing a City: Developing Foundations for Sustainable Growth

Most developing countries face challenges of setting up much-needed urban infrastructure while dealing with insufficiency of funds and multiple demands on the public purse. Singapore, however, stands as an example of how a country without natural resources, reliant entirely on its population, has met these challenges by financing long-term development towards achieving sustainability, and ranks today amongst the world’s most livable cities.

Following Singapore’s move from a colonial entity to self-governance, the government focused on building the physical infrastructure required for economic and social development, and the necessary frameworks and institutions required to set in place key urban systems such as public transport, roads, drainage and sewerage, and housing.

From then till now, fiscal prudence is the central principle guiding Singapore’s approach to financing the development of its economic and social infrastructure.

In order to ensure financial sustainability through cost recovery, a market approach to pricing public services was adopted. Initial investments were derived from a range of internal and external sources, but were all directed into infrastructure activity that was revenue-yielding and self-supporting, along four main lines – Housing, power and gas, water and port development.

Fiscal discipline was also ensured through a currency board system where every dollar issued had to be fully backed by foreign exchange reserves, and through a constitutionally-established government reserves protection framework.

To meet the challenge of raising sufficient revenue while still having a tax structure that was internationally competitive, an adaptive system of direct and indirect taxes through the introduction of GST (Goods and Services Tax), was set in place in 1994. At the same time, Singapore’s high domestic private savings rate allowed the government to borrow from domestic sources to invest in infrastructure development.

Budgeting systems kept pace with these policies, moving from colonial line-budgeting to performance-based Programme Budgeting in the 1970s, to fixing each ministry’s expenditure as a percentage of GDP in the 1980s, and the Budgeting for Results Framework in the 1990s, where funding was allocated to each ministry based on pre-specified outputs and targets, while greater accountability was ensured by auditing them against the same.

Continued improvement and expansion of public infrastructure, and rising social spending to address issues such as income inequality and the ageing population are inevitable, as is the need to keep the overall tax structure competitive while meeting these expenditures. Thus, Singapore’s saga of finding innovative and sustainable ways to meet its future public infrastructure financing needs is set to continue.