OCBC TREASURY RESEARCH - Singapore 5 February 2021 - OCBC Bank
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OCBC TREASURY RESEARCH
Singapore
5 February 2021
SG 2021 Budget Preview:
Rebuilding, Repositioning and Resilience
Selena Ling DPM Heng will announce the 2021 Budget on 16 February. Below are our
Chief Economist thoughts on what to expect:
+65 6530 4887
lingssselena@ocbc.com 1. Taking stock of 2020 which was the worst recession for
Singapore since independence. 2020 marked one of the worst global
recession and the Singapore was not immune. Singapore saw a 5.8% yoy
contraction due to the Covid-19 pandemic that necessitated a Circuit
Breaker period in 2Q20, but this was milder than the initial floor of -7%
yoy for the official growth forecast. In addition, the domestic
manufacturing sector, especially electronics, notably semiconductors,
but also pharmaceuticals, still registered 7.1% yoy growth last year, but
was unable to offset the more significant declines seen in the
construction and services sectors. Firms and workers also accelerated
their digital transformation with adoption of e-commerce platforms and
work-from-home arrangements. Government policy support was also
unprecedented with $100b spent and $52b tap on past reserves.
Consequently, the labour market took a hit, but the overall and resident
unemployment rates have stabilized towards the end of 2020.
2. Economic healing is underway, but a full recovery may take
longer. While the gradual phased re-opening of the S’pore economy saw
economic activities pick up in the second half of 2020, the 2021
economic landscape currently revolves around vaccine roll-outs to
combat the resurgent virus waves and more virulent strains. In fact,
Bloomberg estimates that more than 119 million doses of vaccines have
been administered worldwide, but at the current vaccination pace, it
would take seven years to achieve the 70-85% vaccination coverage to
get to herd immunity and have things return to normalcy. Nonetheless,
the IMF has upgraded the 2021 global growth forecast to 5.5% from 5.2%
previously. Similarly, we are expecting Singapore’s GDP growth will also
rebound to around 5% yoy this year, albeit from a low base in 2020.
Singapore is also hoping to vaccinate its entire population by 3Q21. What
this implies is that 2021 will mark a transition year from a health
pandemic and recession to a vaccine-aided albeit uneven recovery
trajectory. As such, the budget priorities and fiscal focus will also migrate
from emergency economic firefighting measures to a more normalised
budget focusing on more medium term and sustainable fiscal priorities
even if some current support measures are extended for a bit longer.
While the GDP growth trajectory looks V-shaped, the healing in the
labour market is potentially U-shaped given the ongoing digital
disruptions, displacement of jobs and global supply chain disruptions.
The output gap will also take time to close.
Treasury Research & Strategy 1OCBC TREASURY RESEARCH
Singapore
5 February 2021
3. Assessment of the Budget 2020 is generally one of money that
needed to be spent. The key highlights of Budget 2020 were the Jobs
Support Scheme, the Solidarity Payment, Temporary Bridging Loan,
rental rebates and foreign worker levy rebates etc. The economic payoffs
from spending nearly $100 billion, equivalent to 20% of GDP, should be
seen in terms of the number of jobs saved, avoiding a spike in personal
bankruptcies and business cessations, and generally averting a deeper
recession. Some of these support measures are gradually reaching their
end of shelf life, but a premature full-scale withdrawal is also unlikely in
order to forestall a “cliff effect”. In fact, some developed economies are
contemplating the need for additional fiscal stimulus such as in the US
with President Biden’s $1.9 trillion package.
4. Key in a K-shaped recovery is to avoid a cliff effect in Budget
2021. Global policymakers are very cognizant that premature withdrawal
of policy support could be potentially destabilizing. Singapore is not
immune and it is clear that certain sectors that are still struggling with
weak demand, high operating costs and manpower constraints and may
require continued policy assistance. For instance, MAS and ABS had
extended support measures for corporates and individuals, including the
reduced instalment plans, loan tenure extension, and extended
assistance with loan commitments and debt consolidation/restructuring
to different periods in 2021 to avoid a fiscal cliff effect. However, Budget
2021 is likely to be more restrained both in terms of absolute size and
also in terms of the lower expected tax revenue receipts due to the sharp
recession in 2020. As such, another draw on past reserves for Budget
2021 looks less plausible as the economic circumstances have changed
since the trough of the pandemic in 2Q20.
5. The modus operandi is likely to focus on positioning the
Singapore economy to be more economically resilient. This will likely be
multi-prong:
a. First, for the sectors that are still struggling, namely the aviation
and hospitality-related sectors, more assistance may be required since
international borders remain largely closed, the MICE industry mostly
stalled, and social restrictions largely still intact even under Phase 3. The
retail and F&B sector, while gaining some traction towards the end of
2020, remains hopeful that there will be continued policy support this
year in order to keep the players afloat for longer as they grapple with
higher rental and labour costs whilst consumers have kept a lid on their
spending due to the soft labour market. Assistance with credit and
cashflow will be likely to wound down with time to avoid sustaining
unviable “zombie” companies, but the corporate wishlists are for
enhancements to the Group Relief scheme to offset tax losses from
previous years against future profits, easing loss carry-back rules, and
also corporate income tax rebates. There may also be scope to extend
the temporary bridging loan program.
Treasury Research & Strategy 2OCBC TREASURY RESEARCH
Singapore
5 February 2021
b. Second, repositioning and reinforcing our competitive
advantages in the logistics, business, finance, ICT and other hub status
for Singapore means that ongoing CAPEX needs to spent even though
demand conditions may be soft as of now. For example, the 5G rollout
and the Smart Nation initiative mean infrastructure upgrades and
investments need to continue. In particular, with increasing digitalization,
automation and innovation, grants to fund qualifying projects, especially
by SMEs, should continue to reap economic benefits in their
transformation journey. As part of the digital transformation journey,
SMEs could find a digital coach useful in navigating the process of
technology adoption. There is also a need to guard against cybersecurity
risks when more local firms are adopting e-commerce models in an
increasingly borderless business world.
c. Last, but not least, a green and sustainable recovery will help to
reposition Singapore in a post-Covid environment. Sustainability and
climate change are mega-challenges facing the global economy.
Singapore as a small island and city-state is under direct threat from
rising sea levels, and the Covid pandemic has been a timely reminder
that our lifestyles and business operations can impact the environment.
Essential to ensuring a sustainable recovery is to ingrain green practices
into our daily lives, ranging from reducing unnecessary consumption,
food and other waste management, cutting carbon emissions, paper and
plastic usage, as well encouraging the adoption and use of efficient
technologies, embracing renewable energy sources, reusable bags and
recycling as much as possible. The push to electric vehicles is already
underway. Engaging all stakeholders through and promoting greater
public-private partnership and collaboration will likely continue, but
there may be more incentives to achieve Singapore’s ambition as a smart
sustainable city. Singapore’s carbon tax which was set at $5 per tonne of
GHG emissions from 2019-2023, it may be timely to review ahead of the
2023 deadline given earlier plans to raise it to $10-15 per tonne by 2030.
On the funding side, green financing incentives could be further
enhanced as investments mandates are increasingly incorporating ESG as
a criteria, and there has been a surge in green-related financing deals
coming to the market recently.
6. Building the Singaporean core means the foreign manpower
policy is unlikely to be loosened. Note the recent increase in the
qualifying salaries for Employment Pass and S Pass holders, coupled with
the shrinking pool of foreign manpower including those from Malaysia.
There is unlikely to be a U-turn on the tight foreign manpower policy, so
training and reskilling/upskilling of the local workforce remains the
mainstay. The Jobs Support Scheme may be further tweaked, with
greater focus on the Jobs Growth Initiative, particularly for older workers
aged 40 and above. While there is a possibility that the JSS, JGI and
traineeship scheme may be extended for selected beleaguered industries,
Treasury Research & Strategy 3OCBC TREASURY RESEARCH
Singapore
5 February 2021
it is unlikely that they will be as broad-based as before. Moreover, the
corporate wishlist to extend the monthly foreign worker levy further to
other sectors beyond the construction, marine shipyard and process
sectors looks a bit of a stretch.
7. A GST hike for 2021 looks highly unlikely, but longer-term fiscal
direction is still one of fiscal prudence. It is clearly premature to even
think about implementing the 2 percentage point GST hike at this
juncture, but it does not mean that it cannot be a 2023 or 2024 story.
The general principle that healthcare, infrastructure and security
expenditure will continue to increase further in coming years remains
valid and the 2 percentage point GST hike is expected to contribute up to
0.7% of GDP per year. For 2021, NIRC, followed by personal and
corporate income tax receipts remain the top three contributors to the
revenue base, with GST revenue remaining in fourth place.
8. Rethinking fiscal discipline: Policymakers are still likely to want
to balance the budget or even a surplus over the full term of government,
and maybe even return part if not whole of the $52 billion tap on past
reserves in the principle of fiscal prudence. However, the latter will
depend on the pace of economic recovery and its impact on the fiscal
health in coming years, and if there are still large fiscal expenditure items
needed to sustain the longer-term trends for the Singapore economy.
2020 2020 2021
S$mn 2016 2017 2018 2019 Official OCBC OCBC
Revenue 68,964 75,816 73,738 74,727 68,800 67,000 72,500
Expenditure 71,045 73,556 77,824 78,163 110,500 110,500 80,000
Primary Balance -2,080 2,259 -4,086 -3,436 -41,700 -43,500 -7,500
Special Transfers 6,372 6,122 8,989 15,265 51,200 51200 25000
NIR 14,577 14,724 16,413 17,048 18,600 18600 19500
Overall Balance 6,125 10,861 3,339 -1,653 -74,300 -76,100 -13,000
2020 2020 2021
% of GDP 2016 2017 2018 2019 Official OCBC OCBC
Revenue 15.4% 16.2% 14.5% 14.7% 14.3% 13.9% 14.1%
Expenditure 15.9% 15.7% 15.3% 15.4% 22.9% 22.9% 15.6%
Primary Balance -0.5% 0.5% -0.8% -0.7% -8.6% -9.0% -1.5%
Special Transfers 1.4% 1.3% 1.8% 3.0% 10.6% 10.6% 4.9%
NIR 3.3% 3.1% 3.2% 3.3% 3.9% 3.9% 3.8%
Overall Balance 1.4% 2.3% 0.7% -0.3% -15.4% -15.8% -2.5%
Treasury Research & Strategy 4OCBC TREASURY RESEARCH Singapore 5 February 2021 Treasury Research & Strategy 5
OCBC TREASURY RESEARCH
Singapore
5 February 2021
Initiatives Summary
Green Finance • Strengthen the financial sector’s resilience to environmental risks
Action Plan • Develop green financial solutions and markets for a sustainable economy
• Harness technology to enable trusted and efficient sustainable finance flows
• Build knowledge and capabilities in sustainable finance
IFC-MAS • MAS partnership with International Financial Corporation (IFC), a member of the World
Partnership Bank Group, to promote the growth of green bond markets in Asia
Singapore • Singapore’s first research institute dedicated to green finance research and talent
Green Finance development
Centre (SGFC) • Supported by the Monetary Authority of Singapore (MAS) and nine founding partners:
Bank of China Limited, BNP Paribas, Fullerton Fund Management, Goldman Sachs,
HSBC, Schroders, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, and
UBS AG
HDB Green • 10-year plan to make HDB towns more sustainable and liveable by 2030
town • Aims to achieve 10% reduction in annual energy consumption in HDB towns and by a
programme further 15% by 2030
Zero waste • Reduce the waste sent to Semakau Landfill each day by 30 per cent by 2030
master plan • Extend Semakau Landfill’s lifespan beyond 2035
• Achieve 70% overall recycling rate
Green Finance • Encourage research cantered on environmental and climate risks
Centre • Groom a pipeline of talent in green finance across the career spectrum— from the
undergraduate to the executive education levels
Grants/financing
Green and • Support corporates of all sizes to obtain green and sustainable financing by defraying
Sustainability- the expenses of engaging independent service providers to validate the green and
Linked Loan sustainability credentials of the loan
Grant Scheme • Encourage banks to develop green and sustainability-linked loan frameworks to make
(GSLS) such financing more accessible to small and medium-sized enterprises (SMEs).
Green • US$2 billion of SG funds with asset managers with a strong green focus.
Investments • Support the Singapore financial centre in promoting environmentally sustainable
Programme projects and mitigating climate change risks in Singapore and the region
MAS’ • To defrays the cost of external reviews to demonstrate the alignment of sustainability
Sustainable bonds with international standards
Bond Grant • More than S$8 billion in green, social and sustainability bonds have been issued in
Scheme Singapore since the introduction of the Scheme in 2017
• Offsets up to S$100,000 for eligible green, social, sustainability and sustainability-
linked bonds for bond issuers
Source: CEIC, Singstat, MAS, MOF, OCBC Bank
Treasury Research & Strategy 6OCBC TREASURY RESEARCH Singapore 5 February 2021 Treasury Research & Strategy Macro Research Selena Ling Tommy Xie Dongming Wellian Wiranto Terence Wu Head of Strategy & Research Head of Greater China Research Malaysia & Indonesia FX Strategist LingSSSelena@ocbc.com XieD@ocbc.com WellianWiranto@ocbc.com TerenceWu@ocbc.com Howie Lee Carie Li Herbert Wong Thailand & Commodities Hong Kong & Macau Hong Kong & Macau HowieLee@ocbc.com carieli@ocbcwh.com herberthtwong@ocbcwh.com Credit Research Andrew Wong Ezien Hoo Wong Hong Wei Seow Zhi Qi Credit Research Analyst Credit Research Analyst Credit Research Analyst Credit Research Analyst WongVKAM@ocbc.com EzienHoo@ocbc.com WongHongWei@ocbc.com ZhiQiSeow@ocbc.com This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic t rends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the inform ation contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investme nt objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC Bank, its related companies, their respective directors and/or employees (collectively “Related Pers ons”) may or might have in the future interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issu ers. OCBC Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, comm unicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (6 00/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (i ncluding, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Treasury Research & Strategy 7
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