SINGAPORE —  Singapore is on track to run up a S$39.2 billion deficit for the 2020 financial year, the largest budget deficit on record, if the S$48 billion Resilience Budget is passed, Deputy Prime Minister Heng Swee Keat said on Thursday (March 26).

Mr Heng, who is also Finance Minister, said: “We are experiencing a confluence of multiple external shocks — a pandemic that triggers many nations to shut their borders, limit exports and halt economic activities, in order to fight this pandemic.”

Besides Covid-19, a weak global economy, the United States-China trade conflict, and an oil price war in the Middle East is not a “normal business cycle” that Singapore could have anticipated and dealt with using revenue collected by each term of government, he added.

“It is a ‘black swan’ event that comes only once every few decades,” said Mr Heng, giving his ministerial statement on the supplementary budget. The term “black swan event” is often used in markets to refer to an unexpected event with extreme consequences.

This was why, for the Resilience Budget, the Government sought the President’s in-principle support to tap Singapore’s past reserves that are accumulated over many terms of government since the nation’s independence. The exact size of the national reserves has never been revealed publicly.

Under Singapore’s Constitution, the past reserves can be tapped only if the elected President, after consulting the Council of Presidential Advisers, agrees with the Government’s proposal to draw on the reserves.

Up to S$17 billion will be needed from past reserves for fiscal year 2020, making this the largest drawdown from Singapore’s reserves in history, if President Halimah Yaacob assents. 

President Halimah has already given in-principle support. The formal process in which she would be asked to grant approval would take place once the legislation enacting the new spending measures is passed by Parliament.

This will be used to fund the enhanced Jobs Support Scheme (S$13.75 billion), the Self-Employed Person Income Relief Scheme (S$1.2 billion), the Aviation Support Package (S$350 million), and enhanced financing schemes (S$1.7 billion).

Another S$20 billion of the S$48 billion Resilience Package is set aside as loan capital and financing schemes for firms to have access to credit.

“We have saved up for a rainy day. The Covid-19 pandemic is already a mighty storm, and is still growing,” Mr Heng said.

“If, over the years, we had frittered the reserves away, on more immediate but less existential needs, big and small, as some in this House have pressed the Government to do, we would be in a much weaker position today,” he added.

Mr Heng also said that the Government is willing to ask President Halimah for further drawdowns from past reserves to address the unfolding Covid-19 crisis “as and when we need to”.

“Our reserves serve as our bulwark against shocks and crises of an extraordinary nature. 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.”

Singapore has dipped into its reserves only once in history, during the global financial crisis. In 2009, S$4.9 billion was approved to fund a S$20.5 billion Resilience Package. In the end though, S$4 billion was used.

Back then, the Government had sought to use S$150 billion of past reserves as collateral, which was ultimately not triggered. Collateral is money that is not spent, but is used to reassure a lender, for example, of an entity’s creditworthiness.

The Covid-19 pandemic and the multiple threats it poses to Singapore is the sort of event for which the country had accumulated reserves, Mr Heng said.

The Workers’ Party (WP) had, in 2018, had questioned whether there was scope in the reserves to support Singaporeans, instead of raising the Goods and Services Tax. WP chief Pritam Singh had suggested that proceeds from government land sales — which form part of Singapore’s past reserves — should be used to boost government revenue instead.

Mr Heng said that despite the political pressure to dip into the reserves, the Government has “scrupulously” upheld the principle that reserves are to be used only for exceptional situations.

“Our principle is that each term of government must live within its means. Any additional spending that the government of the day proposes must be funded in a sustainable manner — recurrent expenditures should be funded from recurrent revenues,” he said.

Singapore is required under the Constitution to balance its book over each term of government. Any Budget surplus or deficit cannot be carried over to the next term of government.

This means that if the current term's fiscal position runs into a deficit, the Government will need to supplement its Budget with past reserves in times of unusual expenditure needs, provided the President and Parliament approve.

Mr Heng later warned that there is still a high level of uncertainty over the course of the pandemic, which is far more complex than the 2008-2009 global financial crisis and the 1997 Asian financial crisis, which were economic and financial in nature.

ECONOMY TO REMAIN VOLATILE

The Covid-19 crisis has added medical, social and psychological dimensions for Singapore, and the global economy is also more deeply intertwined than in the past, he added. 

“Nobody is quite sure how it will develop,” Mr Heng said. “But because we have prepared ourselves well, Singapore has the resources to meet this crisis with confidence. We will use our resources to get through this together.”

The situation remains fluid and uncertain — Singapore’s gross domestic product (GDP) outlook is weak and its revenues will be affected. On Thursday, the Ministry of Trade and Industry downgraded its 2020 GDP growth forecast to between -4 per cent and -1 per cent, down from -0.5 per cent and 1.5 per cent. GDP broadly refers to total economic output.

Because Singapore has been prudent and has not spent its collected surpluses, it is ready to meet the downsides, Mr Heng said. The present term of government had, as of February, accumulated around S$7.72 billion in surpluses, which will be used to fund the Resilience Budget.

He said that Singapore will adopt a “nimble fiscal posture” so as to quickly channel available resources to the most urgent and important needs, urging everyone to be prudent in the use of resources given the urgency of the Resilience Budget and the broad-based measures within it.

“I hope that those who receive support will use the resources wisely and responsibly, or channel it to those who may need it more. At the same time, we will not hesitate to take action against any abuse.”