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Nopporn Wong-Anan & Neil Chatterjee
Singapore will lift spending from infrastructure to education next year and maintain a similar budget deficit, a sign the export-dependent country fears an economic rebound may not hold without government support.
The government tapped reserves for the first time this year to fund part of a $13.7 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,” he said, adding spending was also rising on education and healthcare.
Tharman did not say how much spending would amount to next year or exactly how big the fiscal deficit would be. The deficit for the fiscal year ending March 2010 will be Singapore’s largest ever at about 6 percent of gross domestic product.
Singapore’s economy has rebounded, returning to year-on-year growth in the third quarter after three quarters of annual contractions, but Tharman said the global financial system was 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.
Tharman said 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,” Tharman said.
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.
“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 indicated in the budget this year and we’ll make sure we’ll live within our means.” ($1=1.391 Singapore Dollar)