SINGAPORE: The COVID-19 pandemic is the sort of event Singapore has been accumulating its reserves for, Deputy Prime Minister Heng Swee Keat said, as he explained the need to draw up to S$17 billion from the reserves for measures to protect jobs and support the economy.
“We have saved up for a rainy day,” Mr Heng told Parliament on Thursday (Mar 26) in announcing additional economic measures in response to the outbreak. “The COVID-19 pandemic is already a mighty storm and is still growing.”
Mr Heng, who is also Finance Minister, said the S$17 billion will be used to help fund measures like supporting jobs, helping the self-employed and boosting the hard-hit aviation sector.
The minister said the measures will raise the overall Budget deficit for the 2020 financial year to an “unprecedented” S$39.2 billion, or 7.9 per cent of the gross domestic product (GDP), as he did not rule out further draws on the reserves if there was a need to.
“Our reserves serve as our bulwark against shocks and crises of an extraordinary nature,” he said. “For a nation with no oil, no gas, no gold, no diamonds or natural resources of any kind, it is remarkable that we have built this up.
“Our prudence and discipline in saving and growing our reserves give us the wherewithal to respond decisively when our nation faces extraordinary circumstances.”
COVID-19 has posed multiple threats to Singapore, Mr Heng said, as the country weathers external shocks like nations shutting their borders, limiting exports and halting economic activities to fight the pandemic.
Locally, sectors like tourism, transport and food services have also been badly hit, as the country implements stringent safe distancing measures to curb the outbreak.
“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,” Mr Heng added. “It is a ‘black swan’ event that comes only once every few decades.”
Mr Heng cautioned that there remains a lot of uncertainty over how the outbreak might develop, stating that it is far more complex than the global financial crisis in 2009 due to its additional medical, social and psychological dimensions.
The financial crisis was the only other time that Singapore had dipped into its reserves, when the Government drew S$4.9 billion to help workers stay employed and companies get credit.
“The global economy is also more deeply intertwined, with many complex inter-linkages,” Mr Heng continued.
Nevertheless, Mr Heng said Singapore has prepared well and has the resources to meet the crisis “with confidence”.
“We will use our resources to get through this together. The Government will continue to monitor the situation closely, and do more as and when we need to,” he added.
“Should it become necessary, I am prepared to propose to the President further draws on past reserves to deal with the situation.”
READ: Singapore's factory activity plunges 22.3% in February from previous month amid COVID-19 outbreak
Even so, Mr Heng pointed out that the support measures will raise the overall deficit to S$39.2 billion, up from the S$10.9 billion announced during his first Budget speech on Feb 18.
“We are able to support this unprecedented deficit and still remain fiscally sustainable because we have been disciplined in the use of past reserves, tapping on it only in exceptional circumstances like these,” he said.
Mr Heng warned that the fiscal situation remains highly fluid and uncertain with significant risks, stating that it will be affected by both revenue and expenditure.
For instance, he said the weak GDP outlook will affect revenues, as sentiment-driven revenues might “come down sharply”. While revenues drop, Mr Heng said expenditure will increase to deal effectively with the outbreak.
According to advance estimates released by the Ministry of Trade and Industry on Thursday, Singapore’s GDP shrank by 10.6 per cent quarter-on-quarter, a sharp pullback from the 0.6 per cent growth in the previous quarter.
“In the past few years, we benefitted from unexpected revenue upsides, such as exceptional statutory board contributions from the Monetary Authority of Singapore and increased stamp duty collections,” Mr Heng said. “We cannot hope to rely on a repeat of this.
“Instead, we must be prepared to bear the downsides when they happen. Because we have been prudent and did not decide to spend all of the surplus that we collected, we are ready to meet such downsides.”
Mr Heng said he expects significant volatility in the economy and financial markets in the near future, adding that the Government will continue to review expenditure plans very carefully and adapt its responses as new developments occur.
“We will adopt a nimble fiscal posture so that we can quickly channel the resources at hand to the most urgent and important needs of our people,” he added.
READ: Singapore's economy contracts by 2.2% in Q1 as COVID-19 outbreak hits construction, services sectors
READ: Budget 2020: ‘More expansionary’ budget to result in biggest estimated overall deficit since 2009
DON’T ABUSE IT
Mr Heng said the Government will not hesitate to take action against any abuse of the support measures, stressing that everyone must remain prudent in the use of resources.
“Because of the urgency of the situation, we are providing significant help to many groups in the Budget, in a broad-based manner so that we can reach as many of those who need help as possible and as quickly as possible,” he said.
“I hope that those who receive support will use the resources wisely and responsibly, or channel it to those who may need it more.”