SINGAPORE – If there were doubts as to why the Singapore Government obsessively squirrels away past reserves and does not tap them during good times, they were laid to rest on Thursday (March 26).
Amid the economic and social turmoil of the Covid-19 pandemic, the Government pulled out all the stops in a second support package – just one month after announcing support measures to the tune of $6.4 billion in the Budget that had a record projected deficit of $10.95 billion.
The size of the overall support is a historic $55 billion or 11 per cent of Singapore’s gross domestic product (GDP), and President Halimah Yacob has given in-principle support for up to $17 billion to be drawn from past reserves.
This will be the second time the Government has drawn on past reserves and the largest amount to date, eclipsing the $4.9 billion then President SR Nathan approved during the 2009-2009 global financial crisis.
The new measures will raise the overall Budget deficit for this financial year to $39.2 billion, or 7.9 per cent of GDP.
Explaining her reasons for approving the drawdown, Madam Halimah wrote in a statement delivered by Speaker Tan Chuan-Jin in Parliamen, that there have been successive waves of bad news since the Budget announcement in February.
Just when the Covid-19 situation in China seemed to be stabilising, a new wave of cases started in the rest of the world, she said. “This downturn is likely to be deeper and last longer than Sars and the 2009 global financial crisis… We need to do our utmost to help our businesses and people quickly. It is a matter of survival.
“Our reserves were built up over the years through prudent spending, and were set aside precisely to cater for rainy days. The situation we are heading into looks more like a thunderstorm, and not just a drizzle.”
Announcing the package – named the Resilience Budget – yesterday, Deputy Prime Minister Heng Swee Keat said the world is experiencing a confluence of multiple external shocks. “So this is not a normal business cycle that we would have anticipated and dealt with using the revenues collected by each term of government. It is a ‘black swan’ event that comes only once every few decades,” he said.
He said that despite political pressure, the Government has upheld the principle that past reserves are to be used only for exceptional circumstances.
And what an exceptional situation this is. With border closures and activities suspended worldwide, businesses are facing imminent collapse. As tourists stay away, airlines are running on fumes. Self-employed workers are a paycheck away from hunger.
As CIMB Private Banking economist Song Seng Wun told The Straits Times: “We are far more integrated into the global economy now. So we benefit greatly when the world is on an upswing. On the flip side, we get hit big time. Tiny Singapore is the canary in the coal mine.”
The Ministry of Trade and Industry has downgraded the Republic’s growth forecast to a range of minus 4.0 to minus 1.0 per cent this year. Even the midpoint of this range would make this its worst recession since Independence.
The last time Singapore registered a full-year contraction of its economy was in 2001 during the dotcom bust, when growth fell by 1 per cent.
The Resilience Budget is significant not only for its size and the amount of past reserves drawn upon, but also the range of measures the reserves aim to support.
In 2009, the draw of $4.9 billion was used to fund two initiatives. The first was the Jobs Credit Scheme – cash grants to employers based on the Central Provident Fund (CPF) contributions made for their existing employees; the second, a special risk-sharing initiative made up of bridging loans and trade financing.
Fast forward to 2020, the funds are now spread over four measures – the enhanced Jobs Support Scheme, including additional tiers of support for hardest-hit sectors; Self-Employed Person (SEP) Income Relief Scheme (SIRS), Aviation Support Package and enhanced financing schemes to ensure firms continue to have access to credit.
Employers will get more cash grants up to a higher monthly wage cap, over nine months instead of the previously announced three.
Those who lost their jobs due to the coronavirus outbreak can receive a month cash grant of $800 for three months.
SEPs will be granted a three-month deferment of their personal income tax payments due in May, June and July. Those eligible will get $1,000 a month for nine months.
All companies can now tap a temporary bridging loan programme, increased subsidies for loan insurance premiums and income tax payment deferments, among a slew of other initiatives.
Supplementary budgets are not new.
During the Sars outbreak in 2003, the Government provided fiscal stimulus through higher development expenditure and two supplementary budgets.
In the 1998 Asian financial crisis, a supplementary budget was announced in June, when the situation took a turn for the worse.
But never before has a second package been announced so soon after the first – just five weeks on – underscoring the severity of the impact of Covid-19.
Also, it is not just the travel and food and beverage sectors that are distressed today, but entire swathes of the economy.
The issue is no longer just one of stimulating demand, but injecting broad-based liquidity into the system to keep businesses and families afloat and save jobs.
Hence, in addition to sector-specific support, Thursday’s package emphasises direct cash transfers, lump sum payments and rebates that can be easily administered and reach large numbers of people quickly.
If the Covid-19 crisis deepens, the Government may need to step in again later this year.
It can only do so because it has a rainy day fund – one routinely prodded, debated and even derided over the years but whose usefulness is now crystal clear as the world teeters on a medical, social and economic cliff edge.
As Mr Heng told members of the House: “If over the years we had frittered the reserves away on more immediate but less existential needs, big and small, as some in this House have pressed the Government to do, we would be in a much weaker position today.
“But because we have prepared ourselves well, Singapore has the resources to meet this crisis with confidence. We will use our resources to get through this together.”
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