SINGAPORE – If the Covid-19 pandemic situation worsens, the Singapore Government may need to seek President Halimah Yacob’s consideration for a further draw on past reserves to continue funding investments that would enable Singapore to emerge stronger in the midst of an unprecedented health and economic crisis.
In such a situation, Singapore should then think hard about how to ensure it can, over time, build back its reserves, said Deputy Prime Minister and Finance Minister Heng Swee Keat on Wednesday (Feb 24).
Singapore expects to draw $42.7 billion of past reserves for the last financial year. With the Government obtaining Madam Halimah’s in-principle support to utilise up to $11 billion in FY2021, it is expected to draw up to $53.7 billion from the reserves since the onset of the coronavirus pandemic.
In a Facebook post published as MPs began debate on Budget 2021 in Parliament, Mr Heng acknowledged that drawing on past reserves for the second year in a row was a “difficult” decision.
“The discipline of balancing budgets is the cornerstone of our financial resilience,” he wrote.
“In my Budget statement, I explained that if economic recovery progresses on track, we expect to fund the expenditures for the remainder of this term of Government without having to further draw on reserves.
“But the global outlook is highly uncertain, and we must be prepared for a scenario where recovery is bumpier and takes much longer.”
Mr Heng added: “If the economic and fiscal situation turn out to be worse than expected, we should still stay the course to invest for the longer term to emerge stronger. In such a scenario, how then do we continue to ensure good fiscal discipline?”
The issue is not unique to Singapore, he added, pointing to how some countries have legislatively binding debt ceilings, with Germany hotly debating further suspension of a “debt brake” that typically restricts federal borrowing to 0.35 per cent of economic output.
Due to the pandemic, this law was suspended for 2020 and 2021, with the German government reportedly planning to propose extending this for a third straight year. Their finance minister has pledged to spend freely to tackle the economic fallout from the coronavirus.
Said Mr Heng: “We have benefited during this crisis from the prudence and long-term orientation of previous generations. We owe it to future generations to exercise this prudence and ensure they can deal with future crises.”
Noting that he would give more details at his Budget round-up speech on Friday, he said: “If we rally together and make the best choices to position us well for the longer term, I am confident that we can emerge stronger and build a better future for our children.”