It could be thrice the $800m projection; govt also promises to help SMEs get loans
By CHUANG PECK MING
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(SINGAPORE) The government is likely to end the current fiscal year with a budget deficit of more than three times the $800 million first projected, as it has stepped up spending to shield the economy from the global downturn that has pushed Singapore into recession.
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| Mr Tharman: The government has stepped up spending during the year to allow for a more expansionary budget |
'We now expect expenditures to be significantly higher than budgeted . . . possibly more than three times larger than the initially estimated $800 million,' Finance Minister Tharman Shanmugaratnam said in a written answer to a question raised by Nominated Member of Parliament Gautam Banerjee.
Meanwhile, in Parliament yesterday, Mr Tharman also said that the government would share risks with banks to ensure that SMEs continued to have access to credit.
Touching on the main reasons why the deficit would be higher, Mr Tharman cited the high cost factors in infrastructural projects, additional spending on the new and enhanced Marriage and Parenthood measures and higher payouts from the enhancements in the Growth Dividends and U-Save rebates.
'Further, there may also be some dampening of revenues in view of the lower-than-expected economic growth and more subdued property transactions, especially in the last two quarters of the fiscal year,' he added.
The deficit will be funded from a $6.4 billion surplus accumulated in the 2007 fiscal year to the end of last March.
'We are not seeking to reduce this deficit, either by trimming government expenditures or raising additional revenues,' Mr Tharman said. 'The larger deficit is an appropriate fiscal stance in the context of an economy that has entered a slowdown.'
He said the government has stepped up spending over the course of the year, 'so as to allow for a more expansionary budget in the current economic environment'.
'They recognise that the bigger deficit would be a stimulus for the economy - I think their focus is more on making Singapore an attractive place for financial activity, rather than actual injection of spending,' David Cohen, an economist with consultancy Action Economics, told Reuters news agency.
The government is due to release the final gross domestic product performance for the third quarter, which is expected to confirm preliminary data showing a recession with two straight quarters of economic contraction.
Singapore was the first in Asia to enter a recession, followed by Hong Kong and Japan. The recession here has fed through to companies with job cuts at DBS Bank and steel maker FerroChina failing to pay loans.
Mr Tharman yesterday told Parliament that borrowing costs have started to ease from over 2 per cent in the quarter ended September to about one per cent currently.
'As far as the inter-bank market is concerned, there has been sufficient liquidity in the system,' he said. 'We have not seen the market freeze up, as happened in some other global financial centres in recent months.'
Bank lending to non-bank customers is still rising, but Mr Tharman adds that 'some tightening of bank credit is inevitable in an economic downturn'.
'MAS's assessment is that while there is no large-scale credit crisis in Singapore, some segments of borrowers may face higher borrowing costs.'
He said the government will announce enhanced loans schemes soon to give small and medium enterprises access to credit.
'What government can and will do is to enhance the various government schemes that are in place to help our small and medium-sized enterprises retain access to credit,' Mr Tharman said. 'Most of these schemes involve government risk-sharing with the banks on loans to SMEs.'
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