Singapore plans to dig deeper into government reserves for a new S$11 billion (248 billion baht) package to help households and businesses rebound from the Covid-19 pandemic and its worst economic contraction since independence.
“Even as our economy recovers gradually and some sectors grow well, some other sectors remain stressed,” said Deputy Prime Minister Heng Swee Keat, delivering the measures Tuesday in his annual budget speech to Parliament. “Our fiscal approach must strike a careful balance between addressing our immediate needs and meeting our longer-term structural needs in a responsible manner.”
The address comes after Singapore’s economy endured its biggest-ever contraction in 2020, with gross domestic product shrinking 5.4%. Growth is expected to rebound to 4%-6% this year, but the outlook remains challenging for some important sectors including aviation, transport and hospitality.
The benchmark Straits Times Index was up 0.3% at 4.35pm, little changed since before Heng began speaking. The local currency was nearly flat on the day at 1.3232 to the US dollar.
Heng, who is also finance minister, noted how the government had pivoted rapidly from focusing on pandemic relief to using the crisis as an opportunity to restructure the economy.
“What continues to distinguish Singapore are our investments in the future,” he said.
Normally fiscally conservative, the challenges of the pandemic will force the city-state to run a budget deficit of 2.2% of GDP -- or S$11 billion -- in the financial year starting April 1, much narrower than the record high of 13.9%, or S$64.9 billion, in the current financial year.
That compares with the global average for overall fiscal deficits of 11.8% of GDP in 2020 and 8.5% in 2021, according to International Monetary Fund projections. Before Heng’s remarks, analysts in a Bloomberg survey had projected the deficit would narrow to 4% in the coming financial year.
Tapping Reserves
The narrower deficit for 2021 reflects the impact of earlier tranches of spending, a daily local caseload near zero, a vaccination drive and medium-term concerns about keeping spending more in line with revenue.
Officials have signalled for months that they were ready to provide more aid after pledging about S$100 billion last year, particularly for vulnerable sectors.
Heng said the government will draw more on past reserves to fund the relief package. The president has given in-principle support to draw as much as S$11 billion from reserves in the coming year, after the government expects to tap S$42.7 billion in the current financial year.
“It was fiscal prudence and discipline that allowed us to accumulate our national reserves, which has enabled us to respond decisively to this crisis,” Heng said. “Beyond this crisis, we must return to running balanced budgets.”
GST Hike
Heng added more detail to plans to raise the 7% goods-and-services tax, clarifying that the hike will have to occur between 2022 and 2025, and “sooner rather than later.” Still, most Singaporean households will enjoy an effective delay in the tax hike of at least five years, he said.
Singapore plans to issue as much as S$90 billion in bonds to fund longer-term needs such as major infrastructure projects, Heng said, adding that the issue will be included in a bill to Parliament later this year.