The close to $100 billion in relief measures disbursed has prevented Singapore’s economy from a further 5.6% in 2020 and 4.8% in 2021, says the Monetary Authority of Singapore (MAS).
As the Covid-19 health-turned-economic crisis wages on, the city state is set to see some of the measures announced previously to tide it through this uncertain time.
Speaking in a Parliamentary sitting on Oct 5, Deputy Prime Minister Heng Swee Keat said that the government will extend the Enhanced Training Support Package by six months to end June 2021.
The package provides subsidies to course fees of employees from the hardest-hit sectors of Air Transport, Retail, Tourism and Marine and Offshore.
Another six-month extension was made to the Temporary Bridging Loan Programme till September 2021 to ensure businesses have better access to loans.
See: Government support measures will prevent GDP from contracting by a further 5.6% in 2020, and 4.8% in 2021, says DPM Heng
While these measures are expected to relieve businesses, economists expect Singapore’s fiscal balance “to feel the strain”.
“Going into FY21, we foresee the fiscal deficit narrowing slightly, but will continue to be impacted by weak operating revenue amid large spending to help balance the economy,” note economists at RHB’s Singapore Research team.
However, CGS-CIMB economists Michelle Chia and Lim Yee Ping say that the government has “maintained its fiscal deficit target by rationalizing expenditure”.
For one, the Ministry of Finance (MOF) estimates FY2020’s total expenditure to be $102.1 billion - $8.4 billion lower than the disbursements announced in the May 26 Fortitude Budget.
This is due to a $1.6 billion reduction in operating expenses (opex) as well as an $6.8 billion cut in development expenditure (devex), note Chia and Lim.
“Opex cuts were driven by project cancellations or deferments and lower variable compensation for civil servants, while the devex decline was due to delays in major construction projects,” they elaborate.
Meanwhile, special transfers amounting to $54.5 billion, up $3.2 billion from $51.2 billion previously agreed upon were made to account for the extension to the Jobs Support Scheme (JSS) till May 2021.
The scheme which provides a blanket wage subsidy to Singaporean employees, is expected to save about 155,000 jobs between 2020 and 2021. Maybank Kim Eng (MKE) economists Chua Hak Bin and Lee Ju Ye estimate that the JSS costs $26 billion in total.
Looking ahead, economists estimate that these fiscal measures is what will pave Singapore’s recovery.
Says Chua and Lee, “monetary policy is a less effective tool to deal with the pandemic recession, and fiscal policy will play the leading role in supporting firms and households”.
The duo expect MAS to maintain its current neutral bias or zero appreciation slope of the S$NEER (Singapore Dollar Nominal Effective Exchange Rate) in the mid-October meeting.
“MAS had already made a “double” easing move earlier in March by easing the slope of the S$NEER and re-centering the band. We are not expecting a change in the level, slope or width of the S$NEER band,” they say.
Looking ahead, the economists from RHB and MKE say that Singapore’s economic recovery is “very much dependent on how well the global economy deals with the ongoing pandemic”.
“Construction activity remains well below normal levels in 3Q2020 as majority of foreign workers were only allowed to return to work from end August. [However,] services is expected to improve from the previous quarter as most sectors resumed operations under Phase 2 on June 19,” note Chua and Lee.
They note bright spots in manufacturing due to the strong global demand for semiconductors and pharmaceuticals.
Still, they are looking at an even worse performance of -6.3% due to the heft of the drag in performance of the services and construction sectors.
RHB’s economists meanwhile anticipate Singapore’s economy to contract by 5.3% this year while CGS-CIMB’s Chia and Lim are looking at a 5.7% plunge.
