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Singapore to taper spending in 2021 after record budget deficit

National Day celebrations in Singapore

SINGAPORE (Reuters) – Singapore is expected to announce next week an expansionary but trimmed down budget to support businesses still struggling, having delivered an unprecedented fiscal stimulus last year to help the economy weather the COVID-19 pandemic.

The city-state’s trade-reliant economy is charting an uneven path to recovery after its worst ever recession in 2020, with the government having already committed tens of billions of dollars in support measures to cushion the pandemic’s impact.

The government has pencilled in a record deficit of S$74.2 billion, or just over 15% of GDP, for the 2020 fiscal year which ends on March 31.

DBS expects officials to lay out plans on Feb. 16 to trim that to S$10-S$12 billion for the 2021 fiscal year, beginning April 1, while UOB forecasts a S$12.5 billion deficit.

“Budget 2021 is expected to stay expansionary but calibrated to target specific industries and segments of the workforce still affected by COVID-19,” UOB economist Barnabas Gan said.

The government is likely to provide more support such as wage subsidies to businesses, including aviation, retail, tourism and construction, that are still reeling from the virus fallout but pull it back for other sectors that are recovering. Spending on the more vulnerable households and those who have lost their jobs is also possible, potentially via cash grants.

Economists are expecting more spending on schemes to reskill workers to prepare for a post-pandemic world in which Singapore wants to position itself as a hub for technology firms, but faces a severe talent crunch.

Finance Minister Heng Swee Keat may also provide the timeline for a planned hike in the goods and services tax after saying last year it would not take place in 2021 but would still be needed by 2025.

Singapore’s small and open economy is expected to expand 4% to 6% this year, bouncing back from a 5.8% contraction in 2020, with the city-state having largely brought the outbreak under control and rolling out its vaccination programme.

But with the virus continuing to rage outside its borders, the outlook for growth remains fragile.

The budget is also the first since an election last year, which analysts say may make for more conservative fiscal planning as the government aims to run a balanced budget over its term in office.

(Reporting by Aradhana Aravindan in Singapore; Editing by Simon Cameron-Moore)

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