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Singapore will likely spend big to soften economic blow from coronavirus outbreak

A thermal scanner deployed at the entrance to Singapore’s Chingay Parade amid the coronavirus outbreak. Chingay is an annual street parade that the country holds as part of its Lunar New Year celebrations.

Suhaimi Abdullah l Getty Images

With the ongoing coronavirus outbreak threatening to stall economic growth, Singapore’s government could roll out one of its biggest budgets yet to soften the hit to its economy.

The country’s finance minister, Heng Swee Keat, is scheduled to deliver his annual budget speech on Tuesday. That’s coming as the country grapples with one of the highest numbers of confirmed coronavirus cases outside China.

The additional challenge that the virus poses followed an economically difficult year for Singapore. The trade-dependent economy had to contend with the U.S.-China trade war and a slump in global demand for semiconductors — one of its main exports — in the past year.

“The recent virus outbreak has added salt to the wound,” said Irvin Seah, senior economist at Singapore bank DBS.

He explained in a note earlier this month that the current outbreak could have a “deeper” impact on Singapore compared to the SARS epidemic in 2003. That’s because the country has since increased its economic links with China, which is now Singapore’s largest export market and biggest source of international tourists.

An expected slowdown in Chinese demand and domestic consumption in Singapore because of the virus spread are among the reasons why Seah lowered his forecast for Singapore’s annual growth this year to 0.9% from 1.4% previously.

In 2019, the Southeast Asian economy grew 0.7% — the slowest annual pace since 2009, according to official estimates.

What will be in the budget

To cushion the economic blows from the virus outbreak, Seah and other economists said the Singapore government will likely register one of its largest fiscal deficits on record this year — with estimates ranging from 7 billion Singapore dollars ($5.04 billion) to 8 billion Singapore dollars.

In theory, the wealthy nation-state can fund a much bigger deficit than that because it has accumulated large surpluses from past years’ budgets. Under Singapore’s constitution, the government’s revenue and expenditure must be balanced over a typical five-year term.

Budget 2020 is the fifth — and most likely the last — before a new electoral cycle. Singapore’s next election is due by April 2021.

Economists estimate that the government has accumulated a budget surplus of more than 17 billion Singapore dollars in the current term. But that doesn’t mean it will spend it all, they said.

“While there is ample fiscal room, it is also customary for the government to transfer some part of the accumulated surplus to reserves,” said Chua Hak Bin, senior economist at brokerage Maybank Kim Eng.

The focus of this year’s budget will be a package of measures to help businesses and workers tide through the virus outbreak, which could cost at least 700 million Singapore dollars, said Chua.

There could also be “election-friendly” items in the budget, such as income tax rebates and cash transfers to help mitigate rising cost of living, Citi economists wrote in a note.

Here’s a list of what economists are looking for in budget 2020:

  • Targeted help for the tourism and transport sectors — the main casualties of the outbreak. That could include property tax rebates for commercial properties and hotels, and relief for aircraft landing fees.
  • Temporary loosening in foreign employment quotas to help the services industry.
  • More details about the planned increase in the goods and services tax from 7% to 9%, which Finance Minister Heng previously said would take place between 2021 and 2025.
  • Measures, such as cash handouts or tax rebates, to help consumers manage the impending GST increase.
  • Continued support for businesses to improve productivity, expand overseas and retrain their workers.