Singapore’s economy is on a firmer footing two years into the pandemic, but challenges remain
With the unprecedented sum of some $100 billion allocated to fight the pandemic, Singapore’s economy, two years after the virus started spreading, has gotten back on a firmer footing.
The government estimates 2021 GDP to grow by 7.2%, marking a sharp reversal from the 5.4% contraction suffered in 2020. “Thanks to two years of a forceful bout of counter-cyclical fiscal stimulus, Singapore has seen a firm recovery, making it one of Asia’s outperformers in 2021,” note Yun Liu and Heidi Tang from HSBC’s Global Research team.
According to the economists, what set the republic apart from many other nations was its “enviable fiscal position” that enabled it to roll out timely measures for the hard-hit sectors and vulnerable households.
Against this backdrop, there are high hopes that 2022 will be the year that Singapore’s economy emerges from the shadow of the coronavirus pandemic. Irvin Seah, senior economist at DBS Bank, notes that the economy has already been on the mend, with over 90% of Singapore’s local population having received at least two doses of the vaccine. Such high vaccination rates imply higher resilience against the impact of Covid-19 and allows for the further reopening of the economy, adds Seah.
Singapore’s high vaccination rates allow for the further reopening of the economy, says DBS’ Seah (Photo: Albert Chua/The Edge Singapore)
Laundry list of wishes
Like Seah, several market watchers reckon that this will be the year to consolidate Singapore’s economic recovery, accelerate its transformation and rebuild its public coffers.
See also: Forging ahead with courage
With 2021’s high base, the economy is seen to grow at a more moderate pace of between 3% and 5% this year. Nevertheless, there are other positive indicators. Resident employment rates are expected to surpass pre-pandemic levels. On Jan 28, the government announced that in December 2021, overall unemployment rate declined by 0.1%-point to 2.4%, and the Ministry of Manpower expects this rate to further decline to pre-Covid-19 levels in the months ahead.
As the pandemic stabilises, broad-based aid such as the Jobs Support Scheme (JSS) — which, at its peak, paid up to 75% of local wages in some sectors — was gradually phased out, with a last extension for industries such as retail, F&B and tourism till Dec 19, 2021.
According to DBS’ Seah, efforts towind down support were already underway last year, despite setbacks during the Phase Two (Heightened Alert) curbs. “Such forms of spending are not sustainable, particularly when the economy is already firmly on this recovery path,” he explains.
Market watchers, economists, businessmen and ordinary citizens will look closely at the measures tabled by Finance Minister Lawrence Wong when he makes his inaugural Budget speech on Feb 18.
As expected, the wishlists of trade associations, economists and market watchers have already been making their rounds. For instance, Singapore Business Federation (SBF) chief executive Lam Yi Young — who named the JSS, rental relief and SGUnited training schemes as “instrumental in helping Singapore businesses” and saving jobs — says that worse-off sectors like construction and civil engineering, retail, hotels and restaurants “continue to need some form of assistance”. The SBF has thus called for three more months of JSS support at 25% for industries such as F&B and entertainment, compared with 10% at end-2021.
Similarly, Kwee Wei-Lin, president of the Singapore Hotel Association, is hoping for the JSS and Rental Support Scheme to be extended this year, along with the enhanced training support package and enhanced absentee payroll schemes that fund staff training. “Until additional revnue streams can be introduced, hotels will need continued government support and the JSS to preserve jobs and livelihoods,” she says.
Douglas Foo, president of the Singapore Manufacturing Federation (SMF), identifies with Lam and Kwee’s positions. “While our members are aware that such schemes cannot go on indefinitely, there are concerns with the continued rising operating costs brought about by Covid-19 such as rising logistics and supply chain costs,” he says, adding that his hope is for the measures to continue and ease off on a gentle slope.
Business leaders are also concerned about shortage of manpower, with one in three employers signalling this as one of their top two concerns, according to a poll of close to 500 members of the Institute of Singapore Chartered Accountants (ISCA). The other worry is the restriction on hiring foreign workers. Edwin Fong, executive director of the Restaurant Association of Singapore, is calling for quotas to be introduced based on specific job roles, rather than on the organisation as a whole.
Meanwhile, the same ISCA survey showed that the top concerns of auditors and accountancy and finance professionals were pay cuts and job losses. Some market watchers reckon that the employees with these paradigms could have lost their jobs due to technological disruption or a lack of relevance.
With Covid-19 having accentuated the structural challenges facing Singapore’s labour market, now is a good time to “relook at some of the fundamental labour issues” as well as the country’s response to them, says Mayank Parekh, CEO of the Institute for Human Resource Professionals.
For instance, while much has been done to encourage workers to go for reskilling courses, many still indicate that they are struggling to find employees with the requisite skills, notes Parekh. “I think we’ve done a lot of work already in terms of the SkillsFuture movement in encouraging both employers and employees to invest in their skills. Can we be more targeted?”
Aside from skills upgrading, market watchers say there is a need to accommodate a more agile workforce where employees — particularly the younger ones — do not wish to be confined to work within the standard hours of 9am to 6pm. “The workforce should be more task-oriented and allow staff to work at their own time and pace, so long as they can deliver their work,” suggests SMF’s Foo. He goes on to urge the government to give out grants for companies to send their staff overseas or to another organisation, so they can acquire new skills.
Aside from skills upgrading, market watchers say there is a need to accommodate a more agile workforce (Photo: Albert Chua/The Edge Singapore)
A green society
With the sustainability agenda at the top of many minds, there has been a call for the government to advance Singapore’s “green” agenda by setting up a $1 billion fund to drive green innovation. The proposal — made by KPMG — intends to drive low carbon technology adoption through 2030 amid the recent global energy crisis. Dubbed the green energy investment fund, the amount is a step up from the $10 million that Singapore has already pumped into low carbon research as well as the $55 million for projects in hydrogen and carbon capture, utilisation and storage, says KPMG.
“Even though most banks and multilateral agencies have started lending with an ESG lens, it will still take a few years before their portfolios decarbonise, given the nature of their lending to various sectors of the old economy,” says Ajay Kumar Sanganeria, partner and head of tax at KPMG in Singapore. He believes that the fund could complement a tougher stance against greenwashing. This would include implementing legislation requiring independent assurance of ESG data that is material to investors.
Aside from this, KPMG suggests tax deductions of as much as 200% as well as loans that could be given out to spur both the supply and demand of green buildings. On top of this, the company is proposing an enhanced regional headquarters incentive which includes concessionary tax rates of 10% for income from regional headquarter functions for businesses that still benefit from tax incentives.
Budget 2022: A package to rebuild the economy
Even as market watchers are hopeful of more support and initiatives, many envision that the upcoming Budget 2022 will not have out- sized economic rescue packages, even as some still-troubled sectors like aviation and tourism will continue to need a helping hand until travel restrictions are further eased.
Citi economists Kit Wei Zheng and Ang Kai Wei say the “overarching priority” is for the government to run a balanced budget before the current term is up by 2025. For FY2021 ending March 2022, they expect a much smaller short- fall than the record $64.9 billion deficit taken on in FY2020. The official projection released in July is for a deficit of $11 billion, which is equivalent to 2.2% of GDP.
Economists have pencilled in a varying range, with OCBC Bank’s chief economist Selena Ling expecting a deficit of $7 billion and UOB economist Barnabas Gan anticipating $5.75 billion. Meanwhile, DBS’ Seah expects the deficit to fall between $4 billion and $5 billion in FY2021, while Maybank Securities analysts Chua Hak Bin and Lee Ju Ye are expecting a shortfall of $1.1 billion.
Conversely, Barclays economist Brian Tan, citing tax revenue that is set to “vastly outperform” earlier projections, is expecting a surplus of 0.4% of GDP for FY2021. Data from the Accountant-General’s Department reveals that the government’s operating revenue between April and November 2021 — the first eight months of its fiscal year — came in at $55.05 billion. This already represents 72% of the government’s full- year estimate of $76.4 billion.
For comparison, the eight-month figure for FY2021 is 42.2% higher than the $38.7 billion collected in the preceding year, and 5.2% above the $52.3 billion collected in the corresponding pre-pandemic period in 2019, observe Chua and Lee. They are now expecting full-year operating revenue to come in at $83 billion.
As for spending, Barclays’ Tan notes that government expenditure came in at $40 billion in the first half of FY2021, less than half of the $101.1 billion that was estimated. He, along with Chua and Lee, expect overall government expenditure to fall below budget projections due to “lower operating and development expenditure”. This is due in part to the under-utilisation arising from the pandemic, they explain.
Going forward, the economists have mixed views on how the government’s fiscal position will pan out in the upcoming FY2022, which will kick off on April 1. Seah, for one, expects the fiscal stance to turn “modestly contractionary” in Budget 2022, implying a small surplus. This comes amid expectations of improving economic conditions and a resultant inclination for policymakers to build up the fiscal coffer.
Maybank’s Chua and Lee are also expecting a balanced budget or small surplus in the upcoming FY2022. “With the strong growth recovery, we expect the government to restore its finances and balance the books, unwind its job support programmes and raise [taxes] to shore up its revenue base.”
Over the past few months, a few ways to increase tax collections have been flagged or mooted. The first and foremost concern for businesses and consumers alike is the higher GST rate of 9%, up from 7% now. While the raise is scheduled before 2025, there have already been several calls for the government to consider delaying this move given high inflation levels and that several sectors are still reeling from the pandemic-induced restrictions. Even as government officials have signalled the introduction of the move in the upcoming Budget, when it will take effect is a little hazy.
Aside from this, market watchers are expecting wealth taxes such as capital gains taxes, property tax surcharges, as well as taxes on high-value items such as private jets, yachts and sports cars.
Conversely, UOB’s Gan is expecting a deficit of $2.75 billion in FY2022, on the basis of a further injection of funding to fuel economic growth. However, he agrees with his economist counterparts that “the spirit of the upcoming Budget is likely going to be one of fiscal consolidation, and the focus will likely be on medium- to long-term goals rather than immediate Covid-19 measures”.
Even as 2022 is believed to be a step closer to pre-pandemic days, there is still uncertainty over how the year could turn out. Rising inflation levels, bigger-than-expected interest rate hikes and the discovery of new Covid-19 variants are but some things that could cause unpredictable disruptions this year. So while we look forward to some sense of normalcy, it is still hard to say what the Year of the Tiger has in store.
Cover image: Samuel Issac Chua/The Edge Singapore
