Singapore: Digging further into its Coffers

By all government estimation, the future remains murky. So, Singapore will lift spending from infrastructure to education next year and maintain a similar budget deficit as in 2009. This is a less than enthusiastic sign for it meant that export-dependent Singapore continue to fear an economic rebound will not be possible without strong government support.

The government tapped reserves for the first time this year to fund part of a US$13.7 billion (RM46.23 billion) stimulus in January’s budget that was aimed at helping companies and saving jobs during the country’s worst ever recession. “We are spending a lot more next year and the coming years compared to the past. If we take infrastructure alone, we are spending more,” said a spokesman, adding "Spending is also rising on education and health-care."

He did not say how much spending would be allocated for 2010 ir how much big the fiscal deficit would be. The deficit for the fiscal year ending March 2010 will be Singapore’s largest ever at about 6 per cent of gross domestic product.

Singapore’s economy has undoubtedly rebounded, returning to year-on-year growth in the third quarter after three quarters of annual contractions, However,the government feels that the global financial system is still fragile.

“The underlining problems haven’t been resolved,” he said, pointing to fears about the extent of any economic recovery and of banks’ ability to start lending again.

“So confidence hasn’t returned to normal. We and seasoned observers all over the world do not expect the next year or two to be a very pretty one,” he said.

Singapore’s central bank kept an easy monetary stance and decided against allowing appreciation in the Singapore dollar at a twice-yearly policy review earlier this month, as it said demand in key export markets had not decisively recovered.

Policymakers around the world are debating when to remove growth-supporting policies, with the Australian central bank becoming the first G20 central bank to tighten policy as the financial crisis eases, spurring expectations others may follow.

Corporate tax revenues were expected to have been dampened this year as it was a bad year for many firms, so the government’s revenues would not rise in line with spending.

“The key issue is not merely going to be the size of fiscal year deficit that we are going to run in the next fiscal year, but the type of measures that we are going to put in place. We will be more discriminating,” said the spokesman.

It was not clear if the government would tap into its reserves again. The size of Singapore’s reserves have never been disclosed but include at least $220 billion at its two sovereign wealth funds Temasek and GIC.

“Overall I don’t expect that you will see a major shift from an expansionary fiscal stance that we have this year. It is too early to say what our fiscal position will be...we have some savings as I have indicated in the budget this year and we’ll make sure we’ll live within our means.”

Knowing self-sufficient Singapore,they will do what is expedient and prudent to accelerate growth, even if it meant going back again to take out those money squirreled away in its hidden vaults!