Singapore budget gives fiscal boost in Fillip to central bank
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.