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What to expect from a ‘prudent’ Budget 2016

Finance Minister Heng Swee Keat has said the Government will be “particularly prudent” with this year’s Budget. 

SINGAPORE: Singapore’s Finance Minister Heng Swee Keat will deliver the annual Budget statement on March 24 and, as usual, expectations have been building in terms of how the Government will be charting the path for the year ahead.

For now, Mr Heng has revealed that the upcoming Budget will have a strong focus on the economy, while adding that the government is likely to be "particularly prudent".

Given that this year’s Budget is the first in the new government’s term in office, which means that surpluses generated from the previous term of government will be locked up as reserves, analysts are not surprised by the remarks on fiscal prudence.

“Moving into a new term, one would have to note that the government is starting with nothing, so any expectations of excessive expenditure, such as the social transfers and spending we’ve seen in the SG50 Budget, will need to be reined in,” said Mizuho Bank’s Singapore-based economist Vishnu Varathan, referring to the roll-out of the SkillsFuture programme last year and the generous Pioneer Generation Package from 2014.

Meanwhile, a darkening global economic outlook, fuelled by a slower-growing China, turmoil in financial markets and plunging commodity prices, is also threatening Singapore's trade-reliant economy. The government is predicting a modest 1.0 to 3.0 per cent growth for the economy this year.

“The upcoming Budget will be cautious, with the focus likely to be on building fiscal reserves to provide some fiscal buffer in case of external economic shocks over the medium-term outlook,” noted Rajiv Biswas, IHS Global Insight’s chief economist for Asia-Pacific.


As such, analysts are expecting a “grounded” Budget aimed at addressing the growth slowdown and helping businesses to cope with a deteriorating operating environment.

Meanwhile, if the economic headwinds intensify and hit growth, tax revenue will likely be reduced. Given that possibility, this year’s Budget is expected to be “focused and targeted”, said Liang Eng Hwa, chair of the Government Parliamentary Committee (GPC) for Finance and Trade and Industry.

“This is the first budget of the new government, and the Minister will want to save some resources should (the global economy) turn for the worse. Noting that there are lesser resources to be allocated, the Minister will have to see which groups need to be taken care of,” Mr Liang noted.

In particular, small and medium-sized enterprises (SMEs), which face increasing pressure from debt servicing, high rents and manpower costs amid a slowing economy, are likely to be singled out for targeted support.

“There will likely be a clear (differentiation) between SMEs and multinational companies (MNCs) so if any help is rendered, it will be towards the SMEs because they face the most difficulties during these times,” according to ANZ economist Ng Weiwen.

Mr Liang noted there are existing measures such as the Productivity and Innovation Credit (PIC) scheme that provide help to SMEs, so new measures in this year’s Budget may be unlikely. Instead, the government may opt to tweak and improve existing schemes so as to “reach out to more SMEs”.

On this, tax and accountancy firm PricewaterhouseCoopers (PwC) recommended earlier this month that enhancements should be made to the PIC scheme to reward productivity gains, as well as encouraging the private sector to explore foreign markets by simplifying the procedures for companies to claim reliefs when their employees move overseas.

(File photo: AFP/Roslan Rahman)

Within the business community, some individual sectors may receive more assistance, analysts told Channel NewsAsia. Top of the list are externally-oriented sectors, the battered oil and gas industry and high-potential segments such as high-end semiconductors.

“Bearing in mind there’s a resource constraint, there will be cherry-picking and some industries will complain being left out. But providing help for industries such as electronics where there won’t be a turnaround will be throwing good money after the bad,” Mizuho’s Mr Varathan said. “By contrast, the higher-end semiconductors are still on ‘ok’ footing but given the pressure on trade demand, there could be a need for pre-emptive moves.”

Meanwhile, UOB analysts think more aid should be given to externally-oriented sectors, such as finance and insurance, wholesale and retail trade, given that these sectors have suffered a much bigger impact from faltering demand worldwide.

"Budget 2016 should take this into consideration and help to reduce some costs of doing business for these sectors, thus freeing up some cash-flow for companies during these difficult times," the report dated Mar 9 noted.

Some experts have also called attention to the significant lending exposure that Singapore banks have to China.

While the credit risk from this is likely to be limited, it remains a concern given Singapore’s already-considerable exposure to a slowing Chinese economy, according to ANZ’s Mr Ng.

“A ball park estimate puts the loans that DBS, UOB and OCBC have extended to China at about 10 per cent of total loans, which is still quite modest. Credit risks from these loans will be mitigated given that the China exposure is predominantly in trade and finance sectors. These self-liquidating trade loans are usually backed by letters of credit from Chinese banks. Meanwhile, Singapore banks also face tougher regulatory requirements,” Mr Ng said.

“But given that our exposure to China has grown beyond trade, this could be something to look at.”


However, amid the uncertainty, analysts told Channel NewsAsia that it is important to keep expectations in check given that Singapore’s economy is facing a slowdown, not a recession.

According to Mr Biswas from IHS Global Insight, Singapore is expected to see the continuation of “moderate positive gross domestic product (GDP) growth” in 2016 hence there is no need for “exceptional measures” to be introduced in this year’s Budget.

“Although Singapore’s manufacturing sector has been in protracted recession throughout 2015, the overall economy is still showing moderate positive growth, helped by continued expansion of the services economy. Singapore’s role as a leading global financial centre, logistics, shipping and aviation hub as well as a regional headquartering hub for MNCs continues to underpin the economy.”