Having decided that this is no time for half measures, Singapore has come up with a surprisingly large stimulus package to take the edge off the coronavirus-induced economic pain.
While it may not stave off a recession, powered mainly by the panic in the global financial markets, Singapore’s response is among the most focused and forceful globally.
The total stimulus of about $55 billion represents roughly 11 per cent of Singapore’s gross domestic product (GDP), making it the largest among advanced economies after Germany and Britain.
By that measure, Singapore’s stimulus is way bigger than some of its closest competitors.
For instance, Hong Kong’s $22.4 billion aid package is about 4 per cent of its GDP. South Korea’s $13.7 billion stimulus is just 0.6 per cent of its GDP.
In the Asean region, only Malaysia has pledged more – a stimulus package of $89 billion, nearly 18 per cent of the country’s GDP.
Singapore’s political leadership has taken a risk in forking out such a large amount from a shrinking economy – a risk made more manageable by salting away large reserves in good times.
Nevertheless, economic thinking that champions free markets considers the state an inefficient conduit of income distribution.
Singapore, however, has a reputation of efficiently targeting policy measures, unlike places like Malaysia and India where fiscal leakages have been a perennial problem.
That may have been a source of confidence in the decision-making process, allowing Singapore to boldly confront the crisis with the full force of the resources available.
Despite the pace at which the economic outlook has deteriorated, prompting a second official downgrade of GDP growth in less than six weeks, the framework of the stimulus package shows no signs of haste or desperation.
Headline numbers may suggest the bulk of the stimulus is targeted at business and industry.
But the way the aid is designed will ultimately benefit the unemployed and those who may get retrenched.
The threat to jobs is real.
DBS Bank estimates total retrenchments this year will top 24,500, up from an annual average of about 14,500 in a normal year.
Referring to the stimulus, OCBC Bank’s head of treasury research and strategy Selena Ling said: “The focus is still squarely on protecting jobs, incomes and the livelihoods of Singaporeans.”
For instance, the wage offsets will help with cost relief for companies and, as a result, may protect jobs. “That’s where the up to 75 per cent wage offset will come in, very quickly and very usefully, over the next few months,” Ms Ling said.
Compare this with the US$2 trillion (S$2.9 trillion) rescue package which includes a US$500 billion fund to help industries, and a comparable amount for direct payments of up to US$3,000 apiece to millions of American families.
Several Republicans insist the Bill does not ensure that laid-off workers would not be paid more in unemployment benefits than they earned on the job.
Some Democrats have called it “a historic corporate giveaway”.
Singapore’s package, on the other hand, is more targeted.
“It is in line with the philosophy of the Singapore Government – to provide targeted help when needed, and to make good use of resources, not frittering away fiscal resources they have accumulated,” Ms Ling said.
The hardships of average Singapore families have not been forgotten.
The Government is tripling the handout each individual gets, as well as parents of young children, and also giving cash top-ups to PAssion cards, aimed at helping individuals.
Yet these particular measures will in turn help the worst-hit segments of the service sector that accounts for about two-thirds of the nation’s GDP and employment.
The payments to citizens will boost consumer confidence and their purchasing power, in turn helping the retail sector and other service providers.
The overall fiscal deficit will rise to $39.2 billion, or 7.8 per cent of GDP, according to DBS Bank’s estimates.
Still, given Singapore’s track record of fiscal prudence, a historically high deficit is unlikely to shake investor confidence in its economic management.
In fact, Singapore’s “whatever it takes” stance is probably what is really required to put a floor under this economic downturn, which has largely been a crisis of confidence.
The supply chain disruptions caused by measures to contain the spread were made worse by panic in the financial markets.
Then desperation by certain central banks virtually froze lending and borrowing.
DBS senior economist Irvin Seah said there could be more downside risks to the global outlook.
“Singapore is heading into uncharted waters, which calls for unprecedented fiscal push to buffer the economy from the incoming storm,” Mr Seah said.
The Monetary Authority of Singapore stands ready to do its part, while the Government has promised more measures if the situation demands it – whatever it takes to overcome an unprecedented crisis.
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