An “unusual” plan to help Covid’s economic recovery

SINGAPORE – With Singapore’s economy still falling 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 typically begins the first year of its new term with a sizable budget surplus,” Maybank brokerage economists Kim Eng said in a report in late January.

“However, with the economy needing continued support to rise from the strongest recession in Singapore’s history, the current government term is likely to start with a deficit in 2010-2021,” they said.

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

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

The fiscal prudence of the Singapore government is one of the reasons for the coveted AAA ratings of international agencies.

However, Prime Minister Lee Hsien Loong has 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 soften the economic blow of the pandemic. The city-state of Southeast Asia deepened its reserves to fund part of its stimulus package worth more than $ 90 billion ($ 67.5 billion), or about $ 20 billion. % of gross domestic product.

Economists are divided over the deficit that the government can take on so early in its tenure.

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

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

“In addition, the government may want to keep the dust dry to protect itself from unforeseen shocks of growth in 2021,” he added.

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

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

This is what economists expect to see in the budget:

• Measures to subsidize wages, create new jobs and support the job training of workers, especially for the most affected sectors such as tourism and aviation.
• Cash distributions to help households manage living expenses and plans to supplement low-wage earners.
• Cash flow support to help affected companies stay afloat and funding for emerging companies to promote entrepreneurship.
• Incentives to encourage wider adoption of low-emission vehicles; as well as supporting efforts to increase solar capacity and research on other renewable energies.