Drawing lessons from Singapore’s success


Countless politicians claim that Sri Lanka should emulate Singapore. They assume that stable government; somebody to take charge and clean house, is all it takes. This is to miss some critical but intangible factors that underpin Singapore’s success.

In his memoirs, Lee Kuan Yew says: “If I were to choose one word to explain why Singapore succeeded, it is confidence. This is what made foreign investors site their factories and refineries here.” ‘Confidence’ is something that results from predictability – in policies, in actions. These, in turn, grow from rules-based systems. When politicians and bureaucrats enjoy wide discretion, decisions tend to be based on officials’ personal predilections leading to greater arbitrariness, inconsistency and unpredictability. Transparent and rule-based decision making, and evenly enforcing these creates consistency.

A state based on institutions and systems, as opposed to one based on personalities, is an attractive one for business. Singapore’s fiscal and monetary rules: to balance the budget and fix the exchange rate, brought macro economic stability. Adherence to the rule of law created a good investment climate.


Singapore maintained a currency board, an arrangement similar to the gold standard but where the local currency is backed by hard currency reserves instead of gold. “Both Keng Swee [the finance minister] and I decided in 1965, soon after independence, that Singapore should not have a central bank that could issue currency and create money.

We were determined not to let our currency lose its value… So we retained our currency board which issued Singapore dollars only when backed by its equivalent value in foreign exchange,” Singapore’s founding leader Lee Kuan Yew has said. While the value of the Singapore dollar remained stable, Ceylon replaced its currency board in 1950.

By 1953 the government had to pass the exchange control act to try and prevent the rupee from crashing. Regular currency depreciation ever since has created havoc for investors and consumers alike. To emulate Singapore, the Central Bank must be rule-bound.



Singapore’s fiscal policy during its growth period was simple: balance the budget. This means tight expenditure management leading to a light – and predictable tax regime. If expenditure is running uncontrolled, tax increases become inevitable. When these are postponed to the last, all manner of quick-fix taxes result meaning zero predictability.

Debt is also tightly controlled by rules. Both the country’s constitution and the Government Securities Act prevent the government of Singapore from spending any funds raised through debt securities. The money cannot be used to subsidise the annual budget but invested in capital projects that have sufficient economic benifit to service the debt that funded them.

If investment projects are compelled to be self-funding, then no white elephants are built. Sri Lanka has a long way to go. After the recent tax increases, in 2018, the current account was balanced—after decades of continuous deficits—but the shortfall on the capital account was about 30% of revenue. Trying to implement any of the recent election promises will end up busting the budget again.

While the value of the Singapore dollar remained stable, Ceylon replaced its currency board in 1950. By 1953 the government had to pass the exchange control act to try and prevent the rupee from crashing

Singapore did relax its fiscal and monetary policy slightly after the financial crises of 1997, 2001 and 2008. Some deficits occurred, but a further rule—that each government was expected to balance the overall budget over its term of office, ensured responsibility. A deficit would need to be covered by surpluses in other years and the current government cannot draw on resources accumulated in previous terms of government (unless approved by the President).

These rules provide an essential anchor for fiscal responsibility and create strong incentives for the government to err on the side of caution, namely to accumulate surpluses in good years during its term of office as a buffer against lean years when it may have to run budget deficits. Sri Lanka can emulate this by moving to Medium Term Expenditure Frameworks, budgets of 3-5 years that keep rolling forward and receive bipartisan approval. The opposition should also agree to adhere to the same plan, so expenditure and taxes don’t need to change if the government changes, bringing consistency in policy.


Adherence to the rule of law is essential for markets to work. Laws must be clear, public, fair, enforced and applicable equally to all of society, including the government. They must protect rights, including the security of persons and contract, property, and human rights.

“Our reputation for the rule of law has been and is a valuable economic asset, part of our capital, although an intangible one. It has brought to Singapore good returns from the MNCs [multinational corporations], the OHQs [overseas headquarters], the banks, the financial institutions, and the flood of capital to buy up properties in Singapore. A country that has no rule of law, where the government acts capriciously, is not a country, wealthy men from other countries would sink money in real estate,” said Lee Kuan Yew.

A basis had to be established on which people could interact with each other. That basis had to be secular and rule-based. It had to assure equality regardless of race, language or religion.

Minister for Law in Singapore, K. Shanmugam points out that: “Having an effective legal framework alone is insufficient for the rule of law. The key to making the rule of law a living reality and not simply empty rhetoric is access to justice through an independent and impartial judicial system. The ‘rule of law’ rings hollow unless the courts have the capacity and autonomy to enforce it. This is particularly important for foreign investors wishing to have the security that the courts will impartially enforce ‘the law’ rather than protect the interests of the State, or the domestic party, in any dispute.”

Provisions in the constitution enshrine and ensure the independence of Singapore’s judiciary, by protecting how they may be appointed, removed or remunerated. The speed of dispute resolution is essential. Endless delays in courts mean that justice is effectively denied. Singapore went through various reforms to eliminate delays in the legal system, automating tasks including the payments of fines and an electronic filing system.

Pre-trial conferences are also used to help disputing parties minimise or even resolve their issues before trial. Alternative dispute resolution mechanisms helped speed up the administration of justice and promote more amicable settlements. As Prime Minister Lee Hsien Loong remarked: “Individuals can get redress for their grievances, be it against their peers, persons in high positions or the Government….It means people trust the courts to hear their cases impartially and render judgements under the law and the facts.” The rule of law also helps maintain social peace.

Minister for Law K. Shanmugam explained the importance of building a cohesive society out of the various ethnic and religious groups. A basis had to be established on which people could interact with each other. That basis had to be secular and rule-based. It had to assure equality regardless of race, language or religion. Singapore was and is based on an ideal: that people of different backgrounds can come together and create a nation, and be assured of equal opportunities, even though one race, the Chinese, formed the vast majority – 75%.

That ideal could be achieved only through the rule of law. After the race riots of 1969 Singapore convened a constitutional commission to determine how the constitution should best protect the rights and welfare of all Singaporeans, regardless of their race, religion or language. One of the commission’s recommendations was the creation of a “Council of State” to advise the president on the impact that laws and policies might have on minority groups.

In an extraordinary crisis, reassuring investors that the government respected private property and would not sacrifice that principle for political expediency created trust.

This led to the establishment of the Presidential Council for Minority Rights in 1970. Singapore has remained peaceful since. Sri Lanka’s war is blamed for the country’s under-performance. It was also preceded by riots in 1958, 1977, 1981 and 1983. But what did the leaders do to prevent its escalation? What is being done now to stop the latest religious violence of 2013, 2014, 2018, 2019, from spiralling?

Returning to the subject of confidence, Mr Lee Kuan Yew provides an example. When oil prices quadrupled in 1973 the heads of the oil companies operating in Singapore: Shell; Mobil; Esso; and BP were informed that the Singaporean government would not lay claim over their stocks of oil. Had the Singaporean government decreed that the oil stocks could not be exploited, Singapore would have had enough oil to last two years and could have ridden out the shock comfortably.


In an extraordinary crisis, reassuring investors that the government respected private property and would not sacrifice that principle for political expediency created trust.

“The decision increased international confidence in the Singaporean government, that it knew its long term interest depended on being a reliable place for oil and other businesses.”

The increased confidence lead these companies to diversify into petrochemicals in the late 1970s and later to expand refineries further. By the 1990s Singapore had become the world’s third-largest oil refining centre and oil trading centre. Contrast that with the experience of Ceylon.

The assets of Shell, Esso and Caltex, were nationalised to form the Ceylon Petroleum Corporation in 1961. Ceylon did operate within the law, an act of parliament was passed to enable the takeover, but they ignored the principle of property rights, a case of rule by law as opposed to the rule of law. Rule by law is where the government creates laws for their convenience, despite the effect it has on broader freedoms that others enjoy. Today Sri Lanka has an ageing refinery that is a considerable drain on the treasury but no petrochemicals or oil trading industry. We did inherit 101 oil tanks with the capacity to store 1.2m tonnes of fuel from Britain.

Even by today’s standards, this is a decent size. In 1957 this was massive, and the was equivalent to essential infrastructure for oil trading. Yet lacking the knowhow to trade in oil these have rotted for over half a century in Trincomalee. They are merely a curiosity for tourists. The Indian oil company now uses 15 of the tanks but attempts to attract investors to develop this further have fizzled out in the face of opposition. While Sri Lanka focused on ‘protecting’ domestic businesses, Singapore emphasised FDI.

“Our best hope lay with the American multinational corporations (MNC’s). In the 1960s Taiwanese and Hong Kong entrepreneurs introduced low technology such as textile and toy manufacturing, labour intensive but not large-scale. American MNC’s brought higher technology in large-scale operations creating many jobs,” said Lee Kuan Yew.


Sri Lanka nationalised oil companies and other private businesses in the 1960s and 1970s so when the country began to seek foreign investment again it needed to send a signal that property rights would be respected. Article 157 of the 1978 constitution carried a guarantee against nationalisation of foreign assets without compensation. More recently however, policy flip-flops on ownership of land and the expropriation act of 2011 have cast doubt on this commitment.

Sri Lanka entered into an Free Trade Agreement [FTA] with Singapore but then appeared to want to withdraw. An economist commented at the time that “That adverse impact would not only be limited to FTAs but stretch to all the other international treaties where the interpretation would be that Sri Lanka’s word is not worthwhile.”

Is Sri Lanka projecting itself as a reliable place to do business? Is it an environment based on rules? Is it committed to attracting foreign investment and open to trade?

K Shanmugan, the Minister for Law noted in 2012 that “to demonstrate Singapore’s commitment towards protecting foreign investments, Singapore has concluded some 30 Investment Guarantee Agreements and some 13 bilateral Free Trade Agreements (“FTAs”).

Several FTAs are still being negotiated. This is another way in which Singapore operates to promote foreign investment generally.” To emulate Singapore is a worthy aim, but to succeed, we need to look beyond the obvious and work on fundamental principles that provide the foundation for its success.