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Economy

Singapore to fund infrastructure with debt as COVID swells deficit

GST hike 'sooner than later' in 2022-25, deputy PM says in budget speech

Proceeds from Singapore's planned bonds will go toward new rail lines like this one as well as tidal walls to protect against rising sea levels.   © Reuters

SINGAPORE -- Singapore will issue up to 90 billion Singapore dollars ($68 billion) in bonds to finance big infrastructure projects, the government revealed in a budget presentation on Tuesday, in a rare move for the wealthy city-state.

The country is bracing for a record fiscal deficit due to extensive spending to cushion the impact of COVID-19. In the past, it has generally issued government bonds for developing the domestic debt market, though the administration had said it was exploring such options for "long-term" infrastructure.

Unveiling the draft budget for the fiscal year starting April, Deputy Prime Minister and Finance Minister Heng Swee Keat told parliament that the government will submit a bill later this year to legalize the new loan financing. With this legalization, "the government will now issue bonds for an additional purpose of financing major, long-term infrastructure," Heng said.

Proceeds from the new bonds will go toward infrastructure assets that are "crucial to Singapore's long-term development and sustainability," including new MRT rail lines as well as tidal walls to protect the island state from rising sea levels. Local media reports said certain past projects did involve borrowing, including the first MRT lines.

The limit of SG$90 billion was set based on projects in the pipeline over the next 15 years, Heng said. The government will also include safeguard measures in the bond legislation, which will be open to parliamentary and public scrutiny. The minister did not go into details like bond maturity periods and coupon rates.

The move comes as Singapore is expected to log a record fiscal deficit of SG$64.9 billion -- equivalent to 13.9% of its gross domestic product -- in the current financial year ending March.

In fiscal 2019, the country had an overall surplus of SG$840 million. But since the outbreak of the coronavirus, Singapore has rolled out economic relief packages worth about SG$100 billion.

A socially distanced outdoor movie screening in Singapore: The government will allocate SG$11 billion for an additional COVID-19 relief package in the 2021 budget   © Reuters

Tuesday's budget announcement followed revised GDP figures released Monday, which showed the economy shrank 5.4% last year. Without the fiscal and monetary support measures, Heng stressed, the contraction would have been "at least 12.4%."

For 2021, the government projects growth in the range of 4% to 6%.

COVID-19 is not the only strain on public finances. Even before the pandemic, the city-state faced an aging population that was raising the health care and welfare burden.

Back in 2018, the government vowed to meet the challenge by raising the goods and services tax to 9%, from 7%, sometime between 2021 and 2025.

That hike will not happen this year, Heng said on Tuesday. "However, we will not be able to put off the increase for too long," he emphasized. "We will have to make the move sometime during 2022 to 2025, and sooner rather than later, subject to the economic outlook."

According to the draft budget for fiscal 2021, the planned expenditure and special transfers will total about SG$107 billion, down from SG$147 billion expected in fiscal 2020. Overall, the government expects a budget deficit of SG$11 billion for the coming year.

To continue to address the pandemic and support the economic recovery, the government will allocate SG$11 billion for an additional COVID-19 relief package in the 2021 budget. This is to include spending on coronavirus vaccinations as well as job support programs.

Moreover, the government will spend SG$24 billion over the next three years to help businesses and workers innovate and adjust to the post-pandemic era. This will include investment in the core aviation sector as well as in collaboration projects with neighboring countries.

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