Should Singapore brace for another deficit in Budget 2016?

Last year’s shortfall was the largest since the GFC.

Singapore’s fiscal accounts are expected to return to surplus in FY 2016/2017, after last year’s budget booked the largest deficit in over seven years.

Analysts at BMI Research noted that last year’s shortfall was mainly driven by the bumper election year budget, which saw increased spending on social safety nets and various productivity schemes.

Last year’s deficit is estimated at 0.5% of the country’s Gross Domestic Product (GDP) or $2 billion, in stark contrast to the government’s penchant for booking annual surpluses.

“The Singapore government's fiscal accounts will return to surplus in FY2016/17 following a one-off primary deficit (estimated at 0.5% of GDP), and we forecast a modest surplus equivalent to 0.2% of GDP next year,” BMI Research said.

BMI Research added that the government will pare back its expansionary fiscal trajectory following the ruling party’s landslide victory at the polls. Despite this, the report stressed that productivity enhancement schemes will continue to get support while social safety nets will continue to be deepened.

The report also said that Singapore will remain one of the most fiscally responsible countries in the world over the coming years, and public coffers will continue to be boosted by the government’s considerable revenues from land sales.

“This means that its actual fiscal position is significantly stronger than even its annual primary surpluses suggest, and this contributes to its consistently growing stockpile of fiscal reserves. Coming from a position of such strength, the government has the ability to tweak its fiscal programmes on an annual basis without jeopardising its structural fiscal position,” said the report.

Likewise, the government has significant leeway for more powerful stimulus programmes should the need arise, providing a considerable buffer against a potential external downturn.