BY TAN KHEE GIAP

THE size of the 2009 Budget deficit - about $15 billion or 6 per cent of GDP - is unprecedented.

Both small enterprises and big corporations will benefit from the provisions for credit and special risk sharing; households will benefit from rebates, allowances and income supplements.

All these measures reflect the Government's determination to ease the pain of rising unemployment, which is likely to deteriorate after Chinese New Year. It is nevertheless urgent that we be realistic as to what this unprecedented fiscal deficit can and cannot deliver.

To begin with, Singapore, being the first East Asian economy to suffer a recession in this global downturn, will probably also be among the last to come out of it, notwithstanding this unprecedented fiscal stimulus.

According to estimates by the Asia Research Centre at Nanyang Technological University, Singapore's economy will contract by 4.5 per cent this year, within the lower range of the latest official forecast of -5 per cent to -2 per cent. The economy will recover weakly to 2.6 per cent in 2010 and return to its potential growth rate of 5 per cent only in 2011.

The Government has done a good job diversifying the economy over the past two decades. The 1986 Economic Review Committee addressed the loss of cost competitiveness and was successful in diversifying the electronics-based manufacturing sector with new sources of growth such as petrochemicals, pharmaceuticals, precision engineering and life sciences.

The 2002 Economic Review Committee correctly identified the services sector, including the integrated resort-driven tourism sector, for expansion. This led to the construction and higher-end property market boom since 2006. Yet the global financial tsunami has demonstrated that our efforts to diversify our economy may not be enough.

As a highly open economy, with total trade amounting to about 2.5 times its gross domestic product, Singapore's 85 per cent external-demand-driven economy is still in the midst of diversifying into the Chinese and Indian markets. Until our major export markets - the United States, Japan and Europe - recover, no amount of fiscal deficits will be able to turn the economy around swiftly.

This situation is compounded by the worse-than-expected slowdown of regional economies, including China's. The deepest economic recession Singapore will have encountered in its history since the 1930s, caused by factors not within its control, demonstrate how vulnerable it is. We must continue to be prudent in future budgets in order to cope with rainy days and possible future global tsunamis.

The Government's ability to cushion short-term pain with its ample financial resources cannot be taken for granted.