ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Opinion

Singapore risks underestimating 2021 global economic trauma

Overconfidence puts V-shaped recovery at risk

| Singapore
Singapore's balancing act is of vital importance to economies everywhere.   © Reuters

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."

Milton Friedman's edict about never letting an economic crisis go to waste is alive and well in modern-day Singapore.

The late Nobel laureate's shock doctrine has gotten lots of traction since the 1990s in myriad contexts. The West saw the 1997-1998 Asian crisis as an excuse to push neoliberal policies on the region. The Sept. 11, 2001 attacks were deemed a chance to disrupt the Middle East. The Lehman shock recession of 2008 transformed central banks into ATMs for investors everywhere.

Sometimes, though, governments get it right amid the chaos. Case in point: Singapore harnessing COVID-19 dislocations to restructure a rigid economy.

As Deputy Prime Minister Heng Swee Keat unveiled the 2021 budget this week, he detailed a slew of savvy public investments. They include $45 billion for cutting-edge suburban rail networks; $18 billion to boost the skills of companies and workers; money for electric-vehicle-related initiatives and technological upgrades in the agri-food space; large blocks of funding to mitigate the effects of climate change; and a slew of sustainable public sector projects financed via the sale of green bonds.

Yet Heng's bold ambitions for the next 10 to 12 years have an obvious blind spot: timid spending plans for the next 10 to 12 months. Why does it see 2021 as an appropriate moment to throttle back short-term public stimulus efforts?

The headlines this week highlight Prime Minister Lee Hsien Loong's government dipping further into its deep fiscal reserves for a second year. Yet the $8.3 billion of COVID-19 related spending in the business year beginning Apr. 1 is a universe away from today's $75 billion. Put another way; the budget deficit will quickly shrink to 2.2% of gross domestic product from 13.9% now.

This downshift suggests complacency at best, or hubris at worst. Singapore's small, open economy cannot thrive in a vacuum. The 5.4% contraction in 2020, the worst since independence in 1965, is a reminder enough of that. The 4% to 6% growth the government expects this year is dependent upon exports, aviation, hospitality and transport. All this depends on governments around the globe also curbing the pandemic.

It is grand that infections among Singapore's 5.8 million inhabitants are falling. Vaccinations are being deployed. Elsewhere, though, things are moving much slower as more virulent coronavirus strains intensify. Not just in neighboring Indonesia, Malaysia and the Philippines, but Japan, which is struggling to save the Tokyo Olympics slated to begin in July.

China's 2.3% growth in 2020 surely helps. But until its imports surge, mainland growth will be a largely insular affair. The U.S. is approaching 28 million COVID-19 cases, while Europe suffers new waves of infection. All this means that hopes for V-shaped or even U-shaped recoveries in 2021 may be delayed.

Here, Singapore is more of a good-news story than a cautionary tale. And it is wise for Heng's team to be telegraphing an increase in the 7% consumption tax "sooner rather than later." Ultralow income and corporate taxes in Singapore -- and Hong Kong -- leave few resources to limit inequality and support safety nets.

Yet Heng, who is also finance minister, risks hinging too much on assumptions that better days lie ahead. If global demand is less rosy, the pent-up demand for high-end electronics, fifth-generation, or 5G, networks, construction activity and infrastructure projects on which Asia is betting could be more of a 2022 phenomenon. And what if hopes are dashed that U.S. President Joe Biden will end Washington's trade war with China?

Heng Swee Kiat, second from right, with his budget team, pictured in February 2020: Heng risks hinging too much on assumptions that better days lie ahead.      © Singapore Press/AP

There is also reason to worry about moves to tighten hiring procedures for foreign workers in manufacturing. The reason many locals choose other sectors is higher wages levels. Importing foreign labor at all levels of the economic food chain is among the secrets of Singapore's success. Singapore must avoid policy changes it might come to regret.

Singapore's balancing act is of vital importance to economies everywhere. The globe knows few more reliable early-warning systems than Lee's economy, which sits on the front lines of trade-flow inflection points.

One lesson from Singapore's 2020 is the importance of getting COVID-19 right. After some early missteps, Singapore -- with about 30 deaths all in -- joined the ranks of exemplars showing that recovery relies on curbing infection rates along with South Korea, Taiwan and New Zealand.

Another is the importance of multitasking. This gets us back to Friedman's belief that crises are opportunities to engineer sweeping change. There is history here. Beginning in the 1980s, Friedman, who died in 2006, often called Singapore an example of how to get development right compared to, say, China.

Today's Singapore routinely wins shoutouts from titans like Charlie Munger, the No. 2 at Warren Buffett's Berkshire Hathaway, who is a "big admirer" of its economic model. It is a model that Lee, and deputy Heng, are recalibrating as we speak.

But as Singapore looks to the economic forest beyond the trees of the moment, it risks underestimating the global trauma limiting its 2021 prospects. It is one thing to harness a crisis. It is quite another to be thrown off course should Singapore's best-laid plans get undone by external events. Really, who saw 2020 coming?

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more