‘Unusual’ plan to help Covid’s economic recovery

SINGAPORE – With Singapore’s economy still recovering from the pandemic-induced crisis, analysts expect the government to run into a rare budget deficit at the start of its new term.

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

“However, with the economy needing continued support to overcome the most severe recession in Singapore’s history, the current government mandate is likely to start with a deficit in EF2021,” they said.

Singapore held its general election last July, amid the Covid-19 pandemic. Therefore, the 2021 budget – to be delivered by Finance Minister Heng Swee Keat on Tuesday – is the first for the current government term.

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

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

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

Like many governments around the world, Lee’s team spent a lot last year to ease the economic blow of the pandemic. The Southeast Asian city-state dug in its reserves to finance part of its stimulus package worth more than Singapore’s $ 90 billion ($ 67.5 billion) – or about 20% of gross domestic product.

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

Maybank economist Kim Eng predicts a deficit of around 4% of GDP. Others, like Irvin Seah of DBS, projected a smaller deficit.

“Starting the first fiscal year in the red can be challenging amid uncertainty about the fiscal outcome in subsequent fiscal years,” wrote Seah in a mid-January report. He predicted a deficit of about 2.1% to 2.5% of Singapore’s GDP.

“In addition, the government may want to keep gunpowder dry to protect against unforeseen growth shocks in 2021,” he added.

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

Singapore’s economy is recovering from the affected 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 training of workers, especially for the sectors most affected, such as tourism and aviation.
• Cash donations to help families manage livelihood expenses and schemes to supplement the income of the poor.
• Supporting cash flow to help seriously affected companies stay afloat and funding for start-ups to promote entrepreneurship.
• Incentives to encourage wider adoption of low-emission vehicles; as well as support efforts to increase solar capacity and research into other renewable energies.