Singapore Minister Warns Full Pandemic Brunt Not Yet Felt

Singapore’s further reliance on past reserves for funding will depend on how long it takes to get the global coronavirus pandemic under control, with the full extent of the pandemic not yet felt, Deputy Prime Minister Heng Swee Keat said.

After announcing plans to tap the country’s reserves for a second straight year, any decision to actually use them “depends on the trajectory of the pandemic, which will then shape the trajectory of the global recovery,” Heng said Wednesday in an interview with Bloomberg Television’s Haslinda Amin.

“There’s still a cone of uncertainty: It depends on whether the vaccination goes as planned,” he said, adding that Singapore is prepared for the risks of further virus mutations and a slower pace of vaccination globally.

Singapore Minister Warns Full Pandemic Brunt Not Yet Felt

Heng, who’s also finance minister and is tipped to be the next prime minister, spoke a day after delivering a new budget that sought to strike a balance between further pandemic aid to vulnerable sectors and investing for the future with the city-state’s commitment to fiscal prudence.

Singapore Minister Warns Full Pandemic Brunt Not Yet Felt

“If the pandemic is more prolonged or the recovery is weaker than we had hoped, then of course the global situation will be different,” Heng said. “And Singapore is very dependent on the global economy.”

The government has been granted in-principle approval to draw as much as S$11 billion ($8.3 billion) from reserves in the coming year, after tapping an expected S$42.7 billion this year.

While local daily Covid-19 cases have hovered around zero, officials maintain that more aid is needed to keep the economy on track to rebound from last year’s 5.4% contraction, the worst since independence more than a half-century ago.

“The Covid pandemic is not over and therefore we need to continue to provide support in a very targeted way,” Heng said Wednesday.

Singapore aims to trim its budget deficit for the year starting April 1 to 2.2% of gross domestic product, from this year’s record-high 13.9%, or S$64.9 billion.

Heng’s announcement Tuesday included S$11 billion to help households and businesses rebound from the Covid-19 pandemic, including S$700 million for an extension of some wage subsidies and S$4.8 billion for public health and safe re-opening measures.

In addition to drawing on past reserves, the government also plans to issue more long-term bonds and lean on returns from state-backed Temasek Holdings Pte and GIC, as well as the Monetary Authority of Singapore.

Heng has sought to strike a balance between the government’s offer of additional support for the most vulnerable segments of the economy and the need to minimize the risk of over-stimulating. He pointed to global worries around the prospects for asset bubbles and the possibility of a sudden uptick in inflation, as well as interest rates that currently are “ultra-low.”

When he was managing director at MAS, Heng warned as early as April 2007 about the underpricing of risks for securities, including the type of collateralized debt obligations at the heart of the U.S. housing crisis.

Here are other comments Heng made in the interview:

  • Amid the stimulus drive to counter the impacts of Covid, “economists are quite divided as to whether it’s right for us to have this huge stimulus” and whether we’ll end up with inflation
  • “The interest rate cycle has to turn, and when it turns what will be the consequences? Some will say that the jury’s still out”
  • “It’s not just the debt level, per se, but what the debt is used to finance. If it is used to finance the building of long-term infrastructure,” or is used to enhance economic potential, “then I think it will be a positive. But if it is used to build roads to nowhere, then I think we will have to pay for it at some point”

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