Singapore launches a fiscal bazooka

MARCH 29 — Extraordinary times call for extraordinary measures. Covid-19 and the costs associated with the shutdowns being used to contain it are wreaking havoc on the world economy.

Singapore is no exception.

In fact as one of the world’s most trade-dependent economies, Singapore is particularly vulnerable to global economic disruption.

Even though Singapore hasn’t imposed a full shutdown or lockdown — as many other nations and cities have done — economic data released last week showed that the city state’s GDP contracted by 10 per cent in the first quarter.

This is one of the steepest contractions in our history and coming at the end of the first quarter, which is possibly before the full impact of the various global shutdowns have been felt, does not bode well for the rest of the year.

In fact, the government is predicting the economy might shrink by four per cent this year — making it the worst year in Singapore’s economic history.

Clearly extraordinary times but the government’s response has been rapid and also extraordinary. Barely a month after the official Budget, the government announced a supplementary Budget specifically to combat the slowdown caused by Covid-19.

Announcing the supplementary Budget, Deputy Prime Minister Heng Swee Keat pledged an additional S$48 billion (RM145 billion) in government spending to help support families and businesses through the economic downturn.

The enormous figure is above the amount already pledged to combat the downturn in the February Budget. In total, Singapore has now announced S$54 billion of special spending to support the economy. This will pay for a wide range of schemes, grants and benefits.

To start with, every Singapore citizen will receive a cash payment — S$100/200/300 — depending on their income level.

Companies will have up to 25 per cent of the cost of their staff underwritten by the government so 25 per cent of a private company’s wage bill will be borne or supported by the state.

In sectors severely affected by the downturn in tourism, aviation the government will pay up to 75 per cent of workers’ salaries.

The self-employed will receive up to S$1,000 a month for nine months while those laid off as a result of the downturn will receive S$800 per month. Credit lines to small businesses and SMEs will be extended and tax relief will be offered to individuals and businesses.

The full list of grants and benefits is too long to enumerate here but it’s extensive and like nothing Singapore has seen before.

In order to finance this package, the government will draw down S$17 billion of its reserves. Only once before has the government used its reserves; in 2009 during the global financial crisis when it withdrew S$4 billion.

The Singapore government does not make public the full extent of its financial reserves but they are estimated to stand at several hundred billion.

This huge cash pile has been acquired through years of careful government spending and allows the government to spend very large amounts in emergencies rapidly, without incurring overseas debt.

Singapore is one of the few nations with this sort of financial capability.

In this case, the government seems quite clearly to be making the right move.

Some have called the spending a fiscal bazooka. The government really is throwing the big, big guns at the problem but the scale of the virus’ fallout is such that even this might not be enough.

The government has left the door open for further spending and a bazooka isn’t necessarily the most precise tool. Some refinements to the package may well be needed. But the big question is, what’s the exit strategy?

With the government so deeply engaged in the private sector, paying up to 75 per cent of wages in some cases when and how will it stop? When the economy recovers? But that won’t happen until the rest of the world recovers and the problem is other nations don’t necessarily have fiscal bazookas.

Nonetheless, the fallout from Covid-19 will be severe and it’s comforting to know that this level of support is available.

*This is the personal opinion of the columnist.