Will Singapore use its reserves to counter the coronavirus?

PHOTO: Reuters

Singapore is considering tapping its past reserves as it puts together a second relief package amid the deadly coronavirus outbreak. If it makes the move, it will be the second time the government has drawn on the reserves, with the first instance occurring in 2009, when it used them to cushion the effects of the global financial crisis.

Finance Minister Heng Swee Keat said Wednesday that the enhanced package would provide support for small and medium-sized enterprises as well as target self-employed workers.

The announcement came just weeks after Heng, who is also Singapore's deputy prime minister, announced an initial $6.4 billion financial package to help Singapore weather the coronavirus storm.

That package comprised $800 million for health care, $4 billion for businesses and workers, and another $1.6 billion going to households to tide them over.

The second economic stimulus would come just as a general election is imminent, following the release of freshly drawn electoral zones on Friday.

With virus infections surging across the United States and Europe, global markets have slumped as investors assess whether emergency fiscal and monetary tools by policymakers can keep a recession at bay.

Singapore's Finance Minister Heng Swee Keat.
​​​​​​PHOTO: Reuters

In light of this, Singapore, with 187 infections so far, has downgraded its growth forecast for 2020 to a range of -0.5 to 1.5 per cent, from 0.5 to 2.5 per cent previously, citing the fallout from the coronavirus outbreak on China's economy that would have a knock-on effect in the region.

President Halimah Yacob has hinted publicly that Singapore is prepared to draw on the past reserves.

"Many of our companies, particularly those related to the tourism industry, but more broadly other sectors as well, are bleeding because of disrupted supply chains, rapidly falling demand and tightening cash flows," Halimah said in a Facebook post on Wednesday.

"In such a situation, we must do our utmost to support our people and our businesses, including considering using the Past Reserves if necessary."


Jeff Ng, a senior treasury strategist at Hong Leong Bank, suggested the government was considering drawing on its reserves as the first round of measures introduced by Heng on February 18 was "already quite sizeable".

He estimated that the city state's accumulated surplus currently stood at around $7 billion, and that if the government's second stimulus is above that amount, it would likely need to tap its reserves.

"There is also increasing concern now that this outbreak's impact could last longer than expected," said Lee Ju Ye, an economist at Maybank Kim Eng.

Lee said that the government has come to realise that this not a "short-term, one-quarter outbreak", and that the impact could be much steeper and longer than what officials had expected when they were drafting the first round of measures.

There were also concerns that the previously announced benefits were not trickling down to certain sectors, including gig workers and freelancers, added Lee.

People in Singapore wear face masks amid the coronavirus outbreak.

"My sense is that the government is still uncertain about how long this outbreak will last," she said. "Given that it is spreading quite quickly outside of Asia now, the government is trying to air on the cautious side … in case they really need to tap on the reserves."

Ng felt that it was not too significant a deal, as it was a consistent message he government has sent over the years. "They would use the reserves if they need it but they would not want to [be seen to] use the reserves for any other reason," said Ng.


In order to draw on its past reserves, the Singapore government has to obtain the president's approval. The last time this happened was in January 2009, when then-president S.R. Nathan approved the drawing of $4.9 billion for the first time to fund special schemes amid Singapore's worst recession.

At that point, Singapore had already witnessed two consecutive quarters of contraction, said Lee, the economist.

Singapore adopted two measures then, namely the Jobs Credit Scheme, which subsidised employers' wage bills, and the Special Risk-Sharing Initiative, which helped viable companies gain access to credit, according to the finance ministry.

"In February 2011, the government decided to put back the $4 billion that it had drawn down from the past reserves. This is because the economy had recovered well from the recession, putting our fiscal position on a stronger footing," added the finance ministry.


Ng of Hong Leong Bank said that he expected the second stimulus to be similar in size to the earlier one - at $6.4 billion - but added that it would likely be more "broad-based" compared with the first round of measures, which primarily targeted retail and tourism-related industries.

He said he expected the government would come up with measures to help domestic-oriented services that have been more badly affected by the coronavirus, including education services, citing how some childcare centres have ceased operations because of the outbreak.

Lee echoed the sentiment, saying she hoped the second stimulus could cater to more sectors. "It's not just the tourism sector that is being hit, but also those in manufacturing [and] construction," she said.


Even though Ng said that the current situation is still fluid and that the government is still assessing whether past reserves could be used, it has been sending signals that it would likely draw on them.

"There is some sort of proactiveness in terms of helping businesses and there are anecdotes about how some companies are giving employees pay cuts or unpaid leave," he said, adding that the government would want to tackle such issues.

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Lee, on the other hand, felt that dipping into Singapore's past reserves was looking "more possible" now.

She said that Singaporeans were expecting the government to act in dire times, and that the current situation would warrant a stronger government response.

"There is always pressure on the government, [with people] asking why the government would keep the reserves and not use [them]" she said. "Why save for a rainy day, when this is the rainy day?"

Heng on Wednesday had raised this very point, saying that Singapore's reserves have been set aside to "meet the needs of a rainy day, and it looks like this rain is not a light one".

Lee added that it is likely that the second stimulus package will be tabled in April, when the flash estimates for Singapore's first-quarter growth are slated to be announced.

Economists previously projected that Singapore would see a contraction in the first quarter, given that the city state's supply chains have been upended and tourism has dipped.

"The government said that it would draw on past reserves for very exceptional situations," Lee said. "And at that point, it would provide a very valid reason."

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This article was first published in South China Morning Post.