“Unusual” plan to aid Covid’s economic recovery


A man wearing a protective face mask walks past an indoor waterfall at Jewel Changi Airport in Singapore.

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SINGAPORE – With the Singapore economy still being hit by the downturn caused by the pandemic, 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 starts the first year of its new term with a sizeable budget surplus,” brokerage firm Maybank Kim Eng economists said in a report in late January.

“However, as the economy continues to need support to emerge from the steepest recession in Singapore’s history, the current administration is likely to start with a deficit in fiscal 2021,” they said.

Singapore held its general election last July in the middle of the Covid-19 pandemic. The 2021 budget, made available by Treasury Secretary Heng Swee Keat on Tuesday, is the first for the current term in office.

The country’s constitution requires that government income and expenses be balanced over a typical period of five years. In the last electoral cycles, the government accumulated surpluses at the beginning of its term that enabled it to fund larger budgets later.

The Singapore government’s fiscal caution is one reason for the coveted AAA ratings from international agencies.

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

Like many governments around the world, Lee’s team spent large amounts of money over the past year to ease the economic blow from 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 dollars (67.5 billion US dollars) – or around 20% of its gross domestic product.

The start of the first financial year in the red could prove difficult in the following financial years given the uncertainty about the budget outcome.

Irvin Seah

Senior Economist, DBS

What to expect in the 2021 budget

Economists disagree about how much deficit the government can afford when it comes up this early in its term.

Maybank economist Kim Eng forecast a deficit of around 4% of GDP. Others, like Irvin Seah of DBS Bank, forecast a smaller shortfall.

“The start of the first financial year in the red could prove difficult in the following financial years, given the uncertainty about the budget result,” wrote Seah in a report in mid-January. He forecast a deficit of around 2.1% to 2.5% of Singapore’s GDP.

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

… the government may want to keep their powder dry to protect itself from unforeseen growth shocks in 2021

Irvin Seah

Senior Economist, DBS

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

Singapore’s economy is recovering from the pandemic, so the government would use its finances to support vulnerable sections of society and still-troubled industries, the economist said.

What economists expect in the budget:

  • Measures to subsidize wages, create new jobs and promote the skills of workers, especially in the hardest hit sectors such as tourism and aviation.
  • Cash handouts to help households manage the cost of living and income supplement programs for low paid workers.
  • Cash flow support to help hard-hit businesses stay afloat and start-up funding to grow 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.