Singapore will lift spending from infrastructure to education next year and sees no major change from this year's record budget deficit, a sign the export-dependent country fears an economic rebound may not hold without government support.
-- Overall spending to go up on infrastructure, education
-- Sees no major change to fiscal deficit next year
-- Says global financial system fragile, confidence not back
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," said Finance Minister Tharman Shanmugaratnam in Parliament, 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.
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.
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. "As far as future policy measures are concerned, we wouldn't be surprised if the February 2010 budget were to withdraw some, although not all, of the fiscal stimulative measures introduced at the height of the crisis in January this year," said Robert Prior-Wandesforde, senior Asian economist at HSBC, in a recent report on Singapore.
"Meanwhile, we continue to look for a return to a "modest and gradual" appreciation of the exchange rate come the next Monetary Authority of Singapore meeting in April." 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.
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