SINGAPORE (Mar 26): All eyes are on the government’s second stimulus package to be announced by Deputy Prime Minister Heng Swee Keat on March 26.

This comes as Singapore’s gross domestic product fell 2.2% in the first quarter, worse than the median forecast of a 1.4% decline in a Bloomberg survey of economists.

From an earlier forecast of - 0.5% to 1.5%, Singapore's 2020 GDP is now likely to contract by between 4 and 1%, according to government estimates released earlier this morning.

Meanwhile, inflation levels slipped to -0.5% in February 2020 – for the first time this decade – amid declining tourist arrivals, retail spending and increasing layoffs and wage cuts.

The upcoming package is expected to surpass the $20.5 billion stimulus package unveiled in 2009 to help the city-state tide through the global financial meltdown.

Such a situation would involve tapping Singapore’s past reserves, economists say. If approved, this will be the second time in Singapore’s history that the government has drawn on its national reserves.

More help needed, say businesses

A poll by the Singapore Business Federation (SBF) revealed that 73% of 188 respondents believe this should be as large or even larger that the $4 billion Stabilisation and Support Packaged announced by DPM Heng on Feb 18.

Additionally, just over half of these respondents are looking for the package to be rolled out immediately or in a month’s time – signalling the urgency of additionally relief.

Of the measures requested, 13% of respondents logged a need for support in managing cash flows while 11% said they require help in covering rental costs.

To this, economists estimate this supplementary budget to fall between $14 billion and $33 billion. Of this, they estimate greater weightage to be given to help workers keep their jobs.

But whether this comes in the form of cash handouts or targeted measures is left to be seen.

Maybank Kim Eng economists Chua Hak Bin and Lee Ju Yu believe a more targeted approach is ideal to better aid the affected sectors. For instance, they recommend a targeted Jobs Credit scheme of cash grants subsidising wages of the worst-hit sectors.

“This can be calibrated to be equivalent to a 13% point cut in the employers’ CPF contribution rate,” they say, adding that the move would incentivise firms to retain low and middle age workers.

United Overseas Bank (UOB) economist Barnabas Gan goes a step further suggesting the government raise the bar of the Jobs Support Scheme from its current three month 8% offset ratio to 12% and enhanced to cover full year wages.

Aside from this, Chua and Lee suggest a temporary Bridging Loan Programme to help the tourism, retail and food and beverage sectors that have been hit by reduced consumption.

Others, such as OCBC’s head of research and strategy Selena Ling, are looking at cash handouts beyond the $100 to $300 disbursed earlier, to cushion the blow for lower income households. This she says, is in line with the move by the US, Hong Kong and Japan.

However, Chua and Lee say cash handouts may not be as effective given the current social distancing measures and closure of entertainment joints which collectively inhibits consumer spending.

While market watchers appear divided on the path ahead, Ong Sin Beng, JP Morgan’s executive director for emerging markets Asia, economic and policy research, says that the government may well need to come up with more packages in time to come, given Singapore’s vulnerability to external shocks.

“Given that containment measures have been gradually increased, it also suggests a dynamic fiscal response calibrated to the severity of the containment measures. Thus, the supplementary budget on March 26 may not be the last,” he says in a research note.