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The Business Times

Budget to focus on long-term strategies

Tharman also sees sub-par growth for at least the next 2 years

(SINGAPORE) As Singapore enters a slowdown - with at least two years of sub-par growth ahead of it - this year's Budget must focus on intensifying long-term economic restructuring efforts, Deputy Prime Minister Tharman Shanmugaratnam said yesterday.

Observers say Mr Tharman's comments, coupled with sobering views from the Prime Minister over the New Year weekend, suggest that companies and workers ought to expect less short-term help come February compared with what had been dished up in the last recession Budget of 2009.

Mr Tharman, who is also Minister for Finance and Manpower, told reporters on the sidelines of the launch of a campaign to market the national productivity drive that given the external environment - Europe in recession, slow growth in the United States and slackening growth in China - 'there's no avoiding the fact that globally, demand is going to be growing very slowly'.

Singapore, too, will slow down. Advance GDP estimates for 2011 yesterday pointed to a sharper-than-expected, quarter-on-quarter Q4 contraction of 4.9 per cent, triggering speculation over a possible technical recession, defined as two quarters of sequential contractions.

But whether or not there is a technical recession 'is a numbers game, as numbers go up and down from one quarter to another', Mr Tharman said, adding that more important is the outlook for the year and over the medium term.

Mr Tharman said he believes that Singapore will see 'sub-par growth' for at least the next two years. The current official forecast is for one to 3 per cent growth this year, below the long-term potential growth rate of 3 to 5 per cent.

Hinting at what may be in store in Budget 2012, he said the best way for Singapore to address this slowdown was to 'go for more intensive implementation of schemes to help us upgrade over the long term' rather than 'short-term recessionary measures'.

'I don't think we want to try and offset every decline in demand. That's not the most efficient way of using your fiscal resources. Better to focus on the long term and implement measures that help companies and workers for the long term. It usually helps in the short term as well,' he said.

This slowdown will not be positive for the national productivity push, Mr Tharman said, but the government is focused on 'a comprehensive effort across the economy' to help companies upgrade, raising productivity and, eventually, wages. 'One of the advantages that we have compared to some of the Western economies is that we have resources to be applied to helping companies invest and helping workers get trained. We do have the resources and we intend to use it,' he said.

These resources will certainly be 'very carefully targeted' via measures which 'do not run against the vein of the restructuring objective', says Citi economist Kit Wei Zheng. 'The scale of fiscal stimulus is likely to be modest, as the government may want to conserve fiscal bullets in the first year of its term, or for the contingency that the recession deepens.'

He reads Mr Tharman's, as well as Prime Minister Lee Hsien Loong's recent comments on how Singapore ought to take the economic fluctuations in its stride, as suggesting 'caution rather, but not excessive pessimism'. Mr Lee said on Sunday the global financial crisis of 2008-09, 'a once-in-a-generation, maybe once in two or three generations event', was very different from the present slowdown. Mr Kit agrees, saying that the severity of the current slowdown is 'very mild' compared to the last recession.

Budget 2012 thus will have no Jobs Credit Scheme, a 'blunt, across-the-board measure to save jobs, with little regard to labour productivity', and stress instead help for 'companies to make that transition to a less foreign worker-dependent, more productivity-driven growth model', says Bank of AmericaMerrill Lynch economist Chua Hak Bin.

'It is after all the best time to reinvent and restructure the economy. In good times, people forget about the need to re-skill and upgrade. We've seen that in the recent V-shaped rebound,' says DBS economist Irvin Seah.

Slowdowns are necessary though painful, as they 'help purge the inefficiencies and distortions out of the economy and build a base for the next phase of growth' and 'inappropriate government intervention detracts from such processes', says Manu Bhaskaran, economist at Centennial Asia Advisors.

But there remains a need for 'judicious intervention' to prevent small shocks from being amplified, such as risk-sharing schemes to keep credit flowing to small and medium enterprises, as well as help for weaker segments of society who lack the resources to protect themselves in a downturn, he adds.

Teh Shi Ning