SINGAPORE will lay out plans for a post-pandemic future in its budget Friday, which is expected to focus on rebuilding finances to face long-term challenges such as rising health-care costs amid an aging local workforce.
In detailing spending priorities for the year starting April 1, Finance Minister Lawrence Wong also will likely address more immediate issues like the city-state’s uneven economic recovery, rising inflation and its worst labor shortage in decades.
Singapore’s closely watched annual budget typically showcases how it balances an open and prosperous economy – which relies heavily on free trade and overseas labor – with satisfying a local population whose approval has kept the ruling People’s Action Party in power since independence in 1965.
Wong, presenting his first budget, is widely expected to announce the first increase in the Goods and Services Tax in 15 years, a move the government has spent recent weeks selling to the public as key to the long-term financial health of the country.
Along with other measures, the 2022 budget will seek to reverse two years of deficits after Singapore committed close to S$100 billion ($74.4 billion) toward Covid-related spending. Economists surveyed by Bloomberg expect a surplus of 0.6% of gross domestic product to be announced.
“The challenge is to normalize the budget while at the same time ensure the recovery is on track, as well as keeping a lid on inflationary pressures,” said Trinh Nguyen, a Hong Kong-based senior economist at Natixis SA. The government will need to find a way to return to surplus by withdrawing some support, but without tightening spending so much that it hurts consumption, she added.
With the Covid-19 situation in the city stabilized, Singapore announced plans earlier this week to further reopen its economy and woo back travelers and foreign labor, as well as ease social distancing measures that kept cases and deaths relatively low throughout the pandemic.
The nation’s benchmark Straits Times Index has been one of the world’s best performing stock indices this year, having gained more than 10%.
The trade ministry on Thursday reaffirmed expectations for gross domestic product to grow 3%-5% this year. While export-oriented sectors like manufacturing and trade will remain strong, the ministry flagged risks from a possible slowdown in global demand and the impact on aviation and tourism-related sectors from Covid-19 outbreaks.
Inflation also has surged in recent months. That has driven the central bank to tighten monetary policy twice in the last four months, including an off-cycle move in January after the highest headline inflation reading in eight years.