Concerns raised over fiscal prudence and constraints

The Government is looking at drawing up to $52 billion from past reserves.
The Government is looking at drawing up to $52 billion from past reserves.ST PHOTO: KELVIN CHNG

As Singapore prepares to dig deeper than ever into its national reserves to fund the fight against Covid-19, several MPs highlighted the need for fiscal prudence in Parliament yesterday.

Among the questions raised were whether Singapore is leaving enough money for future generations, given that the pandemic is expected to impact the world for many months to come, with one MP suggesting easing fiscal constraints that the Government may face in the coming months.

The $33 billion Fortitude Budget, announced by Deputy Prime Minister Heng Swee Keat last month, is Singapore's fourth Budget in less than four months.

Together with the earlier Unity, Resilience and Solidarity Budgets, it means that close to $100 billion - or nearly 20 per cent of the country's gross domestic product - has been set aside to save jobs and help keep businesses afloat during the crisis.

To fund this, the Government is looking at drawing up to $52 billion from past reserves.

In yesterday's debate on the Fortitude Budget, Ms Tin Pei Ling (MacPherson) noted that Singapore is one of the few countries in the world that is able to pump in such hefty financial resources to combat the pandemic. But the pandemic is likely to last many more months, and the world economy remains uncertain, she added.

"I wonder how many more packages we will need and how much more might we have to dip into our reserves for," Ms Tin said. "Let me state that I believe it is necessary for us to draw on our reserves to help Singapore and Singaporeans get through this storm. But I am concerned if we have enough to leave behind for our future generations."

As Singapore's deep reserves were accumulated over decades, the Government has a duty to spend the money wisely and put back what it used, when it is able to do so, she added. "Will the Government assure us that it will do so? How does it plan to do so?"

Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) also noted that the fiscal deficit for this financial year is expected to hit $74.3 billion. This is more than seven times the size of the deficit first estimated in the original Unity Budget in February.


If the crisis or its aftermath drags on into the next year, or there are other shocks, Singapore may be under tight fiscal constraints, he said. "Elections will likely take place soon and the new government will have less fiscal room in the new term under current fiscal rules," he said.

"The government can keep on tapping and running down its fiscal reserves... but runs the risk of depleting its war chest," he said.

Mr Saktiandi, who is foreign exchange research head at Maybank, made two suggestions.

In a national crisis like this, a case could be made to allow the Government to borrow and tap the bond market to fund fiscal spending, he said. "This may be a more optimal fiscal option than further running down fiscal reserves and liquidating assets when markets are down. The financing costs of debt are exceptionally low, while the longer-term return on reserve assets will likely be much higher," he added.

He also suggested that the Government consider relaxing the constitutional requirement of a balanced Budget over the term of government.

"I believe temporarily relaxing the requirement is favourable (compared) to depleting the reserves war chest," Mr Saktiandi said. "Especially when there will be concerns that our current spending now to save jobs and businesses and use of reserves could lead to some level of tighter fiscal spending or 'consolidation' in the next few years or so."

A version of this article appeared in the print edition of The Straits Times on June 05, 2020, with the headline 'Concerns raised over fiscal prudence and constraints'. Print Edition | Subscribe