SINGAPORE - Inflation is not the only challenge Singapore is facing, and the country must press on with economic reform because of structural changes in the wider world, said Deputy Prime Minister and Finance Minister Lawrence Wong on Tuesday (June 21).
These include climate change, increased geopolitical tensions and a global system that is becoming more bifurcated as strategic rivalry between the United States and China grows.
Domestically, Singapore will also have to grapple with challenges such as a rapidly ageing population, which is driving a sharp increase in government spending.
“We have to fundamentally restructure and transform ourselves for this new world - a world which is likely to be more uncertain, volatile, and even more dangerous than before,” said Mr Wong at a press conference to announce a $1.5 billion support package.
This is why Singapore has to accelerate economic reforms, rather than slow down on this front, he added.
“I know many Singaporeans are concerned about the immediate issues of rising prices and the cost of living,” the minister said.
“But please understand that the challenges before us are not just about inflation. They are also about adapting to major structural changes in our operating environment.”
The new support package aims to provide targeted help to Singaporeans, especially lower-income groups and vulnerable workers who are disproportionately affected by inflation.
Measures include utilities rebates, as well as relief for self-employed persons who rely on their vehicles for their livelihoods and those impacted by Malaysia’s export ban on live chickens.
The country will not need to further draw on its reserves to fund this.
Mr Wong stressed that Singapore should move forward in a fiscally responsible, sustainable manner.
“This will ensure that we are in a strong economic and fiscal position to deal with any future challenges ahead, and also to seize the opportunities in this new environment,” he said.
Could a Covid-19 resurgence affect the country’s plans?
Mr Wong replied that the virus remains a risk to Singapore and the global economy, as it is unclear if more dangerous mutations will emerge in the coming months.
If the virus situation takes a turn for the worse, existing issues linked to ongoing supply chain disruptions and the war in Ukraine will be compounded, he said.
The minister painted two contrasting scenarios Singapore could face in the coming months.
If the global economy is able to grow despite some slowing down, Singapore’s economy might follow suit. In this scenario, the labour market would remain tight and unemployment rates low.
On the other hand, a severe recession could spell negative growth and higher unemployment rates, Mr Wong said, adding that the Government takes a long-term perspective when dealing with such situations.
“If there is an immediate emergency scenario, we will have fiscal resources available – including through our reserves – to help tide through such a national emergency scenario,” he said.
He added that whenever Singapore takes such measures, it will have to bear in mind the importance of doing things in a responsible and sustainable manner for the medium to longer term.
On inflation, Mr Wong noted that prices are likely to remain elevated for some time. But unlike central banks in many developed countries, which have been behind the curve in tackling inflation, the Monetary Authority of Singapore (MAS) has been vigilant and acted in a timely manner, he said.
“MAS, on inflation, will continue to stay vigilant to price increases globally and within Singapore, and they will stand ready to respond to ensure price stability over the medium term.”
Mr Irvin Seah, a senior economist at DBS Bank, noted that Singapore will require more fiscal resources to future-proof its economy. This means its tax regimes must be aligned to the country’s future needs.
“While those tax adjustments are essential for the future, they will also be painful, and inflation simply adds more salt to the wound,” he said.
“Therefore, while the Government wants to help Singaporeans and companies with this $1.5 billion package, DPM Wong has also taken the opportunity to remind Singaporeans that the going may get tougher, and hence we need to persevere with the strategy in mind.”