A landmark Resilience Budget to combat COVID-19

Share:

Singapore has launched a landmark supplementary Resilience Budget, worth S$48.4 billion to combat the fallout from the coronavirus (COVID-19) outbreak. The second stimulus package will augment the earlier Unity Budget announced in late February which means that a total of close to S$55 billion (or 11% of GDP) will be parcelled in efforts to “save jobs and support companies” in order to build up resilience in the national economy. It comes after the official GDP forecast was slashed to -1% to -4% from 0.5% and 1.5% earlier.

The $48bn package will result in a 7.9% budget deficit from 2.1% previously, exceeding that during the Great Financial Crisis of 2008 (GFC). To finance it, the government will tap up to S$17.0 billion from reserves to fund some of the measures. Despite the increased deficit, Singapore’s fiscal standing remains sustainable, given its disciplined use of past reserves.

The most impactful scheme would be the Job Support Scheme (JSS) which will see the government is effectively paying 75% of gross monthly wages to workers in the beleaguered aviation sector (Singapore citizens for the first $4,600 till end-2020). For those in the F&B sector, the subsidy will amount to 50% of gross monthly wages. For all others the subsidy would be 25%. Self-employed individuals will receive direct cash amount of $1,000 a month for 9 months.

Businesses & household support

For commercial property affected such as hotels, serviced apartments, tourist attractions, shops, restaurants, there will be 100% rebate on property tax; while offices and industrials will get 30% tax rebate.

As for small and medium enterprises (SMEs), the government has launched a bridging loan scheme to all sectors in which the state will shoulder the lion’s share or 80% of the risks. Principal repayments have been suspended by a year which should ease the temporary cash flow crunch faced by many SMEs.

For consumers, especially low-income families, there will be more support in the form of grocery vouchers, workfare payments and enhanced care and support package. This would make sure that these households have enough to tide through these difficult times instead of having to cut back on consumption of essentials.

In addition to that, the government has also announced that it will waived all fees including school fees and interest paid on government issued mortgages for the rest of this year.

Have we seen the bottom?

With US stocks rallying for the third day in a row following news of a $2 trillion stimulus package out of Washington and G20 economies pledging to inject another $5 trillion into economies (many governments in the Asia-Pacific have also pumped billions into their revised budgets – Japan $19.6b; Hong Kong $15.4b; Thailand $12.7b; Australia $11.4b and a host of others ranging from $1.1b for the Philippines to $9.8b for South Korea), Asian stocks are also picking up.

The questions some investors are asking: “Have markets finally bottomed? When and what can we buy?” Our view is that we have yet to see clear signals of any sustained recovery and elevated volatility remains. However, it may be worth looking at where some of the blue chip companies are trading vis-à-vis their GFC lows. While some stocks in the tourism or oil and gas related industries have sunk below their GFC lows, there are many others that are still a long way off their GFC bottom.

We would like to remind investors is that every crisis is different and we should not expect the same GFC playbook to work out exactly in the same way this time. We are urging caution in these extraordinary times but we know that this too shall pass and that in every crisis lies opportunities for those who are prepared.