‘Unusual’ plan to help Covid’s economic recovery

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

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

However, with the economy needing continued support to climb from the steepest recession in Singapore’s history, the current government period is likely to begin with a deficit in FY2021, ”they said.

Singapore held its general election in the middle of the Covid-19 pandemic last July. Budget 2021 – which will be delivered on Tuesday by Minister of Finance Heng Swee Keat – is therefore the first for the current term of office.

The country’s constitution requires government revenues and expenditures to be balanced over a typical five-year term. In the last few electoral cycles, the government has built up surpluses early in its tenure, allowing it to fund larger budgets later on.

The Singaporean government’s tax prudence is one of the reasons for the coveted AAA credit rating from international agencies.

However, Prime Minister Lee Hsien Loong has warned that as the coronavirus pandemic hits the economy, his administration may “take a while” to “return to prudence and budgetary balances.”

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

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

Maybank economist Kim Eng predicted a deficit of about 4% of GDP. Others, like DBS Bank’s Irvin Seah, predicted a smaller deficit.

“Starting the first fiscal year in the red can prove challenging amid uncertainty about fiscal results in subsequent fiscal years,” Seah wrote 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 its powder dry to guard against unforeseen shocks to growth in 2021, ”he added.

Seah said the budget for 2021 will likely be “very focused.”

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

This is what economists expect to see in the budget:

• Measures to subsidize wages, create new jobs and support upskilling of workers, especially for the hardest hit sectors such as tourism and aviation.
• Cash expenditures to help households manage the cost of living and schemes to supplement the income of people on low incomes.
• Cash flow support to help hard-hit businesses stay afloat, and funding for start-ups to foster entrepreneurship.
• Incentives to encourage wider adoption of low-emission vehicles; as well as efforts to increase solar energy capacity and support research on other renewable energy sources.