Sin­ga­pore bud­get gives fis­cal boost in Fil­lip to cen­tral bank

The Pak Banker - - COMPANIES/BOSS -

Sin­ga­pore un­veiled an ex­pan­sion­ary fis­cal bud­get to boost growth, pro­vid­ing breath­ing room to the cen­tral bank as it con­sid­ers the need to pro­vide more sup­port for the econ­omy weeks be­fore its next pol­icy de­ci­sion.

Finance Min­is­ter Heng Swee Keat, in his first bud­get to Par­lia­ment, pledged sup­port for com­pa­nies fac­ing la­bor con­straints and a fal­ter­ing global outlook, promised higher wages for low-in­come earn­ers and more as­sis­tance for elderly and needy house­holds. The gov­ern­ment will raise ex­pen­di­ture by S$5 bil­lion ($3.7 bil­lion), or 7.3 per­cent, from a year ear­lier, and still ex­pects a sur­plus equiv­a­lent to 0.8 per­cent of gross do­mes­tic prod­uct, he said. "Sin­ga­pore leans in on fis­cal levers with an ex­pan­sion­ary fis­cal stance," said Wei­wen Ng, an econ­o­mist at Aus­tralia & New Zealand Bank­ing Group Ltd. in Sin­ga­pore. "This ef­fec­tively re­moves the near-term cat­a­lyst for eas­ing by the cen­tral bank" in April, he said.

Gov­ern­ments around the world are un­der pres­sure to ramp up fis­cal sup­port as some cen­tral banks re­sort to neg­a­tive in­ter­est rates, and Sin­ga­pore is among the most vul­ner­a­ble in Asia to swings in global de­mand. Ruc­tions in the world econ­omy are com­ing at a time when cracks are show­ing in the is­land's tra­di­tional pil­lars of growth such as man­u­fac­tur­ing and elec­tron­ics, and as it faces an ag­ing pop­u­la­tion. "The longer term pic­ture will grow more chal­leng­ing as we ex­pect ex­pen­di­ture needs to grow faster than rev­enues," Heng said. "Even as we plan for ris­ing ex­pen­di­tures, we must spend only when it is needed and where it best achieves our so­cial and eco­nomic ob­jec­tives. We will re­view the ma­jor ex­pen­di­ture items we ex­pect ahead, to en­sure ef­fi­ciency and ef­fec­tive­ness."

Higher ex­pen­di­ture and mea­sures in the bud­get will re­sult in a "pos­i­tive fis­cal im­pulse" of about 1 per­cent of GDP, Heng said. The econ­omy is forecast to grow 1 per­cent to 3 per­cent this year, af­ter ex­pand­ing at the slow­est pace in six years in 2015. The Mone­tary Au­thor­ity of Sin­ga­pore or MAS releases sched­uled mone­tary pol­icy state­ments twice a year, usu­ally in April and Oc­to­ber. The cen­tral bank, which uses the cur­rency rather than in­ter­est rates to guide the econ­omy, eased mone­tary pol­icy on Oct. 14 for the sec­ond time in 2015.

"A con­trac­tionary fis­cal pol­icy stance, while not our base case, would have raised the prob­a­bil­ity of an ex­change rate pol­icy eas­ing move by the MAS in April," said Michael Wan, an econ­o­mist at Credit Suisse Group AG in Sin­ga­pore. "These risks did not ma­te­ri­al­ize."

The plan to main­tain a bud­get sur­plus "seeks to strike a bal­ance be­tween be­ing pru­dent given the con­tin­ued rise in ex­pen­di­tures we ex­pect in the years ahead, and be­ing ac­com­mo­dat­ing to sup­port en­ter­prises in the cur­rent eco­nomic cli­mate even as we con­tinue our re­struc­tur­ing ef­forts," Heng said. "Should eco­nomic con­di­tions turn, we stand ready to ad­just and re­spond." The year's bud­get was sup­ported by higher op­er­at­ing rev­enue, and as it takes into ac­count more con­tri­bu­tions from the re­turns of Te­masek Hold­ings Pte, Sin­ga­pore's state-owned in­vest­ment com­pany. The bud­get is "un­equiv­o­cally counter-cycli­cal," said Vishnu Varathan, an econ­o­mist at Mizuho Bank Ltd.

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