“Unusual” plan to help Covid’s economic recovery

SINGAPORE – As Singapore’s economy continues to decline due to the pandemic-induced recession, analysts expect the government to bear a rare budget deficit at the start of its new term.

“This will be unusual, as the government usually begins the first year of its new term with a sizeable budget surplus,” economists at Maybank brokerage Kim Eng said in a report in late January.

“However, given that the economy needs continued support to climb out of the steepest recession in Singapore’s history, the current governing term is likely to start with a deficit in FY2021,” they said.

Singapore held its general election in July last year amid the Covid-19 pandemic. So the 2021 budget – which will be delivered by Finance Minister Heng Swee Keat on Tuesday – is the first for the current governing mandate.

The country’s constitution requires that government revenues and expenditures be balanced over a typical five-year period. In the last few election cycles, the government has accumulated surpluses at the beginning of its term – which has allowed it to fund larger budgets later.

The Singapore government’s fiscal prudence is one of the reasons behind its coveted AAA credit rating by international agencies.

However, Prime Minister Lee Hsien Loong warned that with the coronavirus pandemic affecting the economy, his government “may take some time” to “return to prudence and balanced budgets.”

Like many governments globally, Lee’s team spent a lot last year to mitigate the economic downturn of the pandemic. The Southeast Asian city-state has dug into its reserves to fund part of its stimulus package worth more than $ 90 billion Singapore ($ 67.5 billion) – or about 20% of domestic product crude.

Economists are divided on how much deficit the government can afford to bear so early in its term.

Maybank economist Kim Eng has forecast a deficit of about 4% of GDP. Others like Irvin Seah of DBS have projected a smaller deficit.

“The start of the first fiscal year in the red could prove to be a challenge amid uncertainty about the fiscal outcome in the next fiscal year,” Seah wrote in a mid-January report. He forecast a deficit of about 2.1% to 2.5% of Singapore’s GDP.

“Moreover, the government may want to keep its powder dry to protect itself from any unforeseen growth shock in 2021,” he added.

Seah said the 2021 budget is likely to be “highly targeted”.

Singapore’s economy is recovering from the pandemic, so the government would channel its finances to support vulnerable segments of society and industries still in difficulty, the economist said.

Here’s what economists expect to see in the budget:

• Measures to subsidize wages, create new jobs and support the skills of workers, especially for the most affected sectors, such as tourism and aviation.
• Cash withdrawals to help households manage living expenses and schemes to supplement the incomes of young employees.
• Cash flow support to help severely affected businesses stay afloat and finance new businesses to promote entrepreneurship.
• Incentives to encourage wider adoption of low-emission vehicles; as well as supporting efforts to increase solar capacity and research into other renewable energies.