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The Big Read: Pummelled by COVID-19, Singapore's economy to begin K-shaped recovery with Budget 2021

Support measures in Budget 2021 will largely be very targeted, said economists and observers interviewed.

The Big Read: Pummelled by COVID-19, Singapore's economy to begin K-shaped recovery with Budget 2021

More than a year after COVID-19 surfaced, there is a general consensus among economists that Singapore has moved past its worst days. (Photo: Ili Nadhirah Mansor/TODAY)

SINGAPORE: After working as a tour guide for 10 years, Ms Jessie Seah’s professional life took a drastic turn when the COVID-19 pandemic hit Singapore’s shores last year.

Unable to serve tourists anymore due to global travel restrictions that have halted most forms of tourism, Ms Seah, 48, has been working as a safe distancing ambassador in the past year.  

"At first, of course it hit me. I thought, ‘Wow I am not going to be in tourism for the next few years?’ It saddens me emotionally, mentally," she said.

Apart from the psychological impact, Ms Seah’s income has also been reduced by 30 per cent.

Fortunately, the impact of COVID-19 on livelihoods has been less devastating on some other Singaporeans, such as Mr Johnston Seah (no relation to Ms Seah). As far as Mr Seah is concerned, his job security is not under threat, and apart from the nationwide rules to curb the spread of the pandemic, it has been more or less business as usual for him.

Mr Seah, 32, works in the finance department in a food and beverage (F&B) manufacturing plant. While his company’s sales have been affected, it was still able to provide financial help to its staff.

The crisis also accelerated his company’s plans to digitise its work processes, which enabled him to work from home.

"At the start of COVID, my wife was in the second half of her pregnancy. Being able to work from home was favourable for my family’s situation. Work-wise, I didn’t feel that things have changed a lot," he said.

READ: Singapore economy expected to bounce back this year, bulk of it 'should be able to recover', says PM Lee

The dissimilar experiences of Mr Seah and Ms Seah reflect how the coronavirus has had an uneven impact on Singapore’s economy and its people, even though they have been living through the same pandemic in the same country with the same set of restrictions.

Measures to curb the spread of the disease - which included a two-month "circuit breaker" that halted almost all economic activities and the subsequent gradual relaxation of safe distancing requirements - have impacted various sectors quite differently.  

And this uneven spread of COVID-19-induced misery would have been very much on the minds of policymakers as they crafted Budget 2021, which will be delivered by Deputy Prime Minister and Finance Minister Heng Swee Keat on Tuesday (Feb 16) in Parliament.

READ: Helping workers and businesses adapt, innovate and grow a key priority for Budget 2021, says Heng Swee Keat

READ: Support measures set to taper, but Budget 2021 to remain expansionary, say analysts

It is also this unevenness which has led some observers to believe that this year’s Budget will be different from previous ones, given how the recovery path from this unprecedented crisis - which some have termed as a “K-shaped recovery” - will be different from past crises.

"It is like you are trying to drive a car with one or two of your wheels still punctured. This makes this year’s Budget a little bit interesting. Although you can say it is a recovery year, it is not a typical recovery year," said Ms Selena Ling, head of treasury research and strategy at OCBC Bank.

With sectors such as manufacturing, finance as well as information and communications technology (ICT) chugging along steadily - even as sectors such as aviation and tourism have yet to detect any light at the end of the tunnel - support measures in Budget 2021 will largely be very targeted, said economists and observers interviewed.

READ: Commentary: What the Singapore tourism vouchers are really about

This means that some of the support measures rendered by the Government last year would likely expire or taper off.

"In 2020, we have utilised so much fiscal resources. It is not sustainable ... Instead, (the Budget should) channel fiscal resources to only those sectors that require help and the segments of society that have been worst affected," said Mr Irvin Seah, senior economist at DBS Bank.

Some observers believe that this year’s Budget will be different from previous ones, given how the recovery path from this unprecedented crisis - which some have termed as a “K-shaped recovery” - will be different from past crises. (Photo: Ili Nadhirah Mansor/TODAY)

But while Budget 2021 will largely focus on rebuilding Singapore’s battered economy, Associate Professor Eugene Tan, a political analyst who teaches law at the Singapore Management University (SMU), said that social concerns and imperatives would also have to be taken into account.

Most economists project Budget 2021 to be a fiscal deficit of between 2.1 and 4.5 per cent of Singapore’s gross domestic product. This translates to about S$10 billion to S$16 billion of deficit.

Even so, Assoc Prof Tan noted that policymakers would strive to keep the deficit as small as possible, given that the new term of Government - which was formed following the General Election (GE) held in July last year - would start its first fiscal year on a deficit.

In an interview with Bloomberg in November last year, Prime Minister Lee Hsien Loong said Singapore may take a while to get back to prudence and balanced budgets.

As for Budget 2021, Mr Lee noted that even a balanced budget would be very hard to achieve as there was money that needed to be spent amid COVID-19 even while the economy was still down.

While the Constitution requires each term of Government to run a balanced budget by the end of its term, Assoc Prof Tan reiterated that Singapore is in uncharted waters.

"It would be a near-miracle if the Government is able to have a balanced budget when the next GE is called, latest in November 2025," he said. 


More than a year after COVID-19 surfaced, there is a general consensus among economists that Singapore has moved past its worst days.

The economy suffered its biggest contraction during the second quarter of last year, during which the authorities imposed the April to June circuit breaker that brought the nation to a near-standstill.

Singapore’s economy shrank 13.4 per cent in that quarter, compared to the same period a year ago. But with the lifting of the circuit breaker and the gradual resumption of some normalcy, the numbers in subsequent quarters had been on the uptrend.

For the whole of 2020, the economy contracted 5.8 per cent based on preliminary estimates from the Ministry of Trade and Industry - the nation’s worst recession since independence.

READ: Singapore economy could have contracted 12.4% if not for COVID-19 Budget measures, according to MAS estimates

READ: Household incomes fall in 2020 due to COVID-19 impact, but rose in past 5 years

While Singapore is gradually moving out of the woods and entering a recovery phase, observers remained cautious about the pace and form of recovery this year.

Some sectors, such as construction, are poised for recovery given that restrictions on the movement of foreign workers living in dormitories are gradually easing and projects have largely resumed, though at lower capacities.

Other sectors, including finance, ICT and manufacturing, even recorded growth in Singapore’s worst-performing year.

Then, there are the travel-related sectors – including aviation and tourism – which would likely remain in a “coma state”, said Ms Ling, since international borders remain closed as the coronavirus continues to spread unabated in many parts of the world.

“It’s going to be a fairly long process for some of these sectors. That’s why although we are expecting growth this year, the growth is lopsided,” she added.

The implications arising from a K-shaped recovery - whereby one part of the economy recovers while another segment suffers - are what Budget 2021 will seek to address, said some observers.

READ: Commentary: Singapore economy set for V-shaped recovery this year but jobs market may take longer to rebound


This year’s Budget will not see the same “big fiscal bazooka” that the authorities unveiled in 2020, said those interviewed.

A total of S$92.9 billion was doled out last year across four Budget speeches and two ministerial statements delivered in Parliament by Mr Heng. Out of this, S$52 billion was drawn from Singapore’s past reserves.

Out of the many programmes rolled out last year, the most costly one is likely the Jobs Support Scheme (JSS), where the Government provides subsidies of between 25 and 75 per cent of a company’s labour costs, depending on its sector and the month where the wages are paid.

Observers agreed that these various schemes would taper off or even expire for industries that are recovering or doing well amid the pandemic.

READ: Commentary: Extending Jobs Support may only delay the inevitable - retrenchments

However, they noted the need for continued support for the hard-hit aviation and tourism sectors.

"(Otherwise), when finally the recovery comes, you are not going to be able to put back whatever you lost in terms of all the necessary capital expenditure investments you still need to make," said Ms Ling.

DBS’ Mr Seah said those that manage to survive this crisis will emerge stronger and have a bigger market share. Hence, the authorities need to ensure the survival of key strategic players and render them sufficient support.

Companies from the aviation and tourism sectors said they hope to see existing support measures continue in 2021, beyond the current expiry date of Mar 31.

These include the JSS, property tax rebates, rental rebates, waivers on foreign worker levies, subsidies and salary support for re-skilling programmes as well as rebates on landing and parking charges for aircraft.

READ: 540,000 people, 14,000 businesses benefited from SkillsFuture initiatives last year

READ: 400,000 households to receive second round of S$50 CDC vouchers

Companies from the aviation and tourism sectors told TODAY that they hope to see existing support measures continue in 2021, beyond the current expiry date of Mar 31. (Photo: Ili Nadhirah Mansor/TODAY)

Dr Kevin Cheong, executive director of 4D Adventureland, said that his Sentosa attraction is not able to make ends meet despite efforts to boost domestic tourism with the SingapoRediscover vouchers.

"Things are horrible right now. Now with the post-December holidays, things are tremendously bad to the point that there are more staff on the island than visitors on weekdays … The horizon of recovery and bounceback is very uncertain and very ambiguous," he said.

Mr Musdalifah Abdullah, chief financial officer at airport services provider dnata, said that he is concerned about the potential impact on the aviation sector if the Government’s assistance stops after March.

"We can see the recovery is not happening. While more Singaporeans are going to be vaccinated by the third quarter of this year or by the end of the year, we are very much dependent on the region because we don’t have a domestic market," he said.

Besides the support schemes, he is also concerned about where the aviation staff who have been redeployed to government agencies will go when their stint ends on Mar 31.​​​​​​​

There has been talk that they can be moved to help out at the 40-plus vaccination centres that the Ministry of Health is setting up, he added.

"Without having a government-to-government agreement and having travel bubbles that work, I think we may be a forgotten sector. The ministers are telling good news, saying there is job recovery, the market is increasing, there are investments and all that. But to be honest, the aviation sector is excluded from all of that," said Mr Musdalifah.

The initial excitement of having a travel bubble between Singapore and Hong Kong has all but faded away, with the arrangement being suspended indefinitely with the rise in COVID-19 cases in Hong Kong.

While the initiative was well-intended, DBS’ Mr Seah felt that the risk was too high at the time the agreement was first inked last October.

He said a more appropriate window to set up travel bubbles would be when countries in the region have achieved a certain threshold in their vaccination programme.

READ: Commentary: This 71-year-old wants you to get a COVID-19 vaccine once you can. Here’s why

Beyond the short- and medium-term, industry insiders worry how this crisis might bring about more long-term challenges - such as the structural decline in the aviation and tourism sectors as the pipeline supply of talent shrinks over the next few years.

Some have warned that hospitality courses offered by polytechnics and the Institute of Technical Education may see smaller intakes, as prospects for the industry remain gloomy.

Dr Cheong said that there has been a lot of talent leakage from tourism to other sectors, particularly to F&B establishments.

With Singapore Airlines going through its worst crisis in its 48-year history, the Government has also repeatedly pledged to do all it can to help the national carrier, given the key role it has played in developing Changi Airport as an aviation hub. (Photo: Ili Nadhirah Mansor/TODAY)

"In two to three years, when we envisage tourism to bounce back, we would have a serious problem where we have demand but no trained talented staff," he said.

In July last year, the Government launched the S$45 million SingapoRediscovers campaign to encourage locals to support tourism businesses here.

With Singapore Airlines going through its worst crisis in its 48-year history, the Government has also repeatedly pledged to do all it can to help the national carrier, given the key role it has played in developing Changi Airport as an aviation hub.

READ: Singapore Airlines posts S$142 million loss in Q3 2020 as passenger numbers plunge 97.6%

READ: Singapore Airlines defers more than S$4 billion of spending on Airbus, Boeing planes

Independent aviation analyst Priveen Raj Naidu said that policymakers need to instil public confidence in the aviation sector.

Fiscal resources should be allocated to getting Singaporeans comfortable with travelling again, through educational campaigns on how the coronavirus behaves in an aircraft environment, for example, he suggested.

Mr Gary Ho, 46, was in the midst of his doctoral programme on aviation when COVID-19 hit last year. The Temasek Polytechnic senior lecturer on aviation management said that Budget 2021 should provide training subsidies for aviation professionals to upgrade their skills so that the industry would be more than ready when the recovery comes.

He added that the way travellers are going to interact at airports and in the aircraft will be very different once borders reopen and travel resumes - hence the need for a different set of skills to deal with a new normal.

"That way you are investing in people, investing in Singaporeans,"  he said.

But how much help should these hard-hit sectors get? Mr Ho believes that at some point, the public could question why the Government is continually channelling resources into the aviation sector instead of using them for other purposes, such as helping poorer Singaporeans, for example. 

Hence, it could be better to invest resources in building Singaporeans’ capabilities in the aviation sector, he said.

DBS’ Mr Seah said that policymakers are treading on a tightrope, as they do not want "zombie companies" - mostly businesses that are unable to earn enough profits to cover their debt-servicing costs - to perpetuate, but they also would not want an entire sector to collapse.

​​​​​​​Listen to aviation observers dissect the future facing national flag carriers after the pandemic and the role of Singapore Airlines on CNA's Heart of the Matter published in September 2020:


The uneven impact of the pandemic is not only felt across different economic sectors. It is also the same story for different income groups.

Research has shown that lower-income earners have been more severely affected by the COVID-19 disruptions, compared to their middle- and higher-income counterparts.

A recent report on household income by the Department of Statistics showed that the bottom 10 per cent of households in Singapore saw their average monthly income per member shrink by S$37 last year, or 6.1 per cent of their total earnings from work, making them the hardest-hit group in the pandemic.

At the other end of the spectrum, those in the top 10 per cent income group earned S$337 less each month last year, or 2.3 per cent of their earnings from work.

DBS’ Mr Seah believes that Budget 2021 could provide incentives for companies to hire low-wage workers.

For example, the current Jobs Growth Initiative, which provides higher salary subsidies for companies which hire older Singaporeans, could be extended to cover low-wage workers as well.

Companies that relied on low-wage foreign workers to perform essential services could be encouraged to offer higher wages and hire locals instead.

READ: Commentary: Even in a recession, lowballing job seekers is not only poor form but also poor strategy

As for those working in the hammered aviation sector, Mr Musdalifah said that the Government could subject employers to certain conditions if they want to receive these support measures that could help individual workers.

For example, he suggested that salary support through the JSS could come with a clause that the company receiving the subsidy cannot retrench its Singaporean staff for a period of time even after the help expires.

Economists have also suggested that this year’s Budget could look into re-skilling workers in the aviation and tourism sectors and help them transit to other industries. However, this could also contribute to the structural demise of the sector which industry insiders have warned about.

A recent report on household income by the Department of Statistics showed that the bottom 10 per cent of households in Singapore saw their average monthly income per member shrink by S$37 last year, or 6.1 per cent of their total earnings from work, making them the hardest-hit group in the pandemic. (Infographic: Samuel Woo/TODAY)


Apart from the Government’s plans to steer Singapore on the road to recovery, all eyes will also be on any announcement on the timing of the Goods and Services Tax (GST) hike.

At Budget 2020 delivered in February last year, Mr Heng assured that the impending GST hike would not take place in 2021 but stressed that it could not be postponed indefinitely.

He first announced the intended GST hike from 7 to 9 per cent in Budget 2018, and said then that the increase would take place sometime between 2021 and 2025.

Observers believe that the economic momentum is expected to be more stable next year, which gives the Government a possible opportunity to implement the GST hike.

However, Associate Professor Tan Ern Ser, who teaches sociology at the National University of Singapore, said that the window may be revised to between 2027 and 2030.

DBS’ Mr Seah added: "The policy preference would be to introduce it as soon as possible, but not in a situation when the economy is still weak and where people are still out of jobs."

Commentary: GST hike unavoidable, will probably take place in 2023

READ: Consumption taxes such as GST necessary to reduce burden on workers in ageing population, says Indranee Rajah

The analysts agreed that the timing of the hike would largely depend on the pace of recovery and the national vaccination programme, which started recently.

SMU’s Assoc Prof Tan said the right time for a GST hike will be when it is the least detrimental economically and politically.

With the pandemic taking up so much of the Government’s fiscal resources, he added that there may be pressure to implement the hike sooner rather than later as social spending would increase significantly to deal with COVID-19-related challenges.

"Relevant considerations include whether the GST hike will do more harm than good as the economy seeks to get out of the post-pandemic doldrums, whether the GST offsets will adequately cushion the impact of the tax hike and whether the public can be persuaded that biting the bullet sooner rather than later is the best way forward," he added.

Ms Ling and DBS’ Mr Seah also noted that the longer-term economic outlook beyond the pandemic is still unclear. Thus, it may be premature for Mr Heng to talk of any timeline for the hike in this year’s Budget.

The Government has long maintained that the GST hike is necessary to support future needs, such as pre-school education and healthcare.

Several Members of Parliament (MPs) had asked, during last year’s Budget debate, whether there was still a need to raise the GST, given the surplus that had been accrued in the Government's previous term.

Mr Heng pointed out then that the COVID-19 outbreak served as a reminder of the need to plan ahead to raise revenue.

He said that the authorities could not bank on the chance of always having a surplus, such as in the Government’s previous term, which came about from an unexpected rally in global financial markets, and the unexpected buoyancy in the property market.

Amid the ongoing crisis, Mr Heng delivered several Budgets last year as the Government injected considerable resources into the economy to mitigate the adverse impact of COVID-19.

In several of his Budget speeches last year, Mr Heng also often highlighted how the fiscal prudence of Singapore’s earlier policymakers had afforded the current Government a lot of firepower from its past reserves.

When Non-Constituency MP Leong Mun Wai (PSP) suggested in October last year that the GST hike be shelved, Mr Heng responded that it would mean losing additional revenues that could be used to improve the lives of Singaporeans.

Observers believe that the economic momentum is expected to be more stable next year, which gives the Government a possible opportunity to implement the GST hike. (Photo: Ili Nadhirah Mansor/TODAY)


Even as the COVID-19 pandemic has severely disrupted Singapore’s economy, new opportunities have sprung up for companies in sectors such as healthcare, e-commerce and logistics.

And the Government has constantly reiterated the importance of seizing these opportunities to digitise and transform so that these companies are better placed for future growth.

Mr Ray Chou, country head of logistics company Ninja Van Singapore, said that the pandemic "has made digital transformation imperative, for small businesses to operate and survive in this new reality".

"While small businesses understand the benefits of these technologies, questions remain as to how they will pay for it and who will help implement the improvements," he said. "Small and medium enterprises will definitely need assistance with the adoption and assimilation of new technologies and digital solutions.

"The impetus to continue business transformation would still feature strongly in Budget 2021," said Mr Seah, the DBS economist.

The crisis, in fact, has provided the Government with an opportunity to achieve its medium-term policy objective of getting companies to digitise their operations and hire more locals across the skills ladder through job redesign, with the number of foreign workers significantly down.

"The recovery phase provides a window to prompt a more lasting mindset shift in employers. The last thing you want is that when the economy recovers, all the companies and employers switch back to their old ways of doing things," he said.

The push for Singapore companies to regionalise and internationalise will remain intact in this year’s Budget as well, said Ms Ling.

The Grow Digital initiative and the Market Readiness Assistance grant are some examples that could be expanded or enhanced to build upon the momentum.

Another area that Singapore can capitalise on is to ensure that its economic recovery is taking place in a sustainable manner, or what some people call a "green recovery".

While initiatives to get companies and individuals to go green had been introduced in every Budget in the last few years, Budget 2020 marked the first time that climate change was featured prominently in the Government’s fiscal plans.

Earlier this month, Sustainability and the Environment Minister Grace Fu announced that a whole-of-nation movement - called the Singapore Green Plan 2030 - will be launched to advance the sustainability agenda, and its details will be unveiled in the coming weeks.

Ms Fu added that Mr Heng will speak more on the issue during the Budget debates.

READ: Green Plan seeks to create new jobs, make use of sustainability as 'competitive advantage' for Singapore

READ: Here’s what life could look like when the new Green Plan is realised in 2030

And with empirical evidence showing that a slowdown in economic activities forced upon by the pandemic had produced better ecological outcomes, observers said that there is a heightened sense of urgency within the Government to ensure that sustainability and decarbonisation efforts not only continue but are carried out more forcefully.

So how would a green recovery look like?

"The goal is to turn a crisis into an opportunity by allocating government resources to areas that will stimulate growth, while also reducing environmental impact or at least stimulating investment and behaviour that will lead to a lower environmental footprint in the near future," said Assistant Professor Simon Schillebeeckx, who teaches strategic management at SMU.

He suggested, for example, reducing or eliminating investments in non-profitable sectors that are not sustainable, removing subsidies from sectors that would no longer be around in 20 years and equipping people and companies to digitise.

The crisis gives the Government a legitimate reason to slowly start the process of fading out industries with limited lifespan, he added.

Instead of investing money in emissions-based production such as the building of more roads or buildings, Mr Marc Allen, technical director at energy and climate change consultancy Engeco, suggested that investing in infrastructure for electric vehicles, or in renewable energy in neighbouring countries before importing it into Singapore, could be some options the Government could consider.

Another way is for the Government to decrease the costs and hurdles to get sustainable financing that are already provided by the banks, said Mr Allen.

Commentary: Singapore's oil and gas sector should embrace transition to a green future with confidence

READ: In pushing for climate policy, Louis Ng recognises need for trade-offs and to cushion impact on businesses

In response to queries, DBS Bank said that it had concluded 50 sustainability financing deals amounting to about S$9.6 billion in 2020 - an 81 per cent increase of S$5.3 billion from the year before.

While demand for such loans has been growing steadily for the past couple of years, Ms Yulanda Chung, head of sustainability financing at DBS Bank, said that they saw unprecedented interest from borrowers in sustainable financing last year.

The borrowers not only come from conventional sectors such as real estate, which forms the majority of green loan issuances. Other sectors, such as food and agribusiness, conglomerates, energy, government-linked corporations and the automobile sector, have also taken up these loans, she added.

While OCBC Bank was unable to share figures, its head of structured finance and sustainable finance Mike Ng said that the momentum behind sustainable finance continued in 2020, with many deals coming from repeated customers.

The bank surpassed its previous target of achieving S$10 billion in sustainable financing in the first quarter of 2020, two years ahead of its original 2022 timeline. It has set a new target of hitting S$25 billion by 2025.

A spokesperson from United Overseas Bank said that the total value of sustainable financing the bank provided in 2020 was about four times that of the previous year.

All in all, with Singapore heading towards a recovery fraught with uncertainties, Budget 2021 is certainly one to watch, said the experts and observers.

It is likely to offer some pointers towards achieving longer-term objectives relating to economic transformation and sustainability, in a world irrevocably altered by the crisis of a generation.

"This is the litmus test for Budget 2021, if we are to not just build back but build back better and stronger. Sustainability in public spending will be very much on display and interrogated in Budget 2021.

"It will test the Government’s resourcefulness, ingenuity, and determination to have a Budget that will be fit for purpose and yet demonstrate fiscal prudence and sustainability,” said SMU’s Assoc Prof Tan.

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