Our govt can afford to spend more from reserves during Covid-19 crisis: Ex-GIC Chief Economist

Soft truths to keep Singapore from stalling.

Mothership | April 10, 2020, 03:21 PM

OPINION: Singapore needs to be more bold in the face of the Covid-19 crisis, and use more of its reserves in order to save businesses, particularly SMEs.

Yeoh Lam Keong is an economist, who previously served as the Chief Economist of GIC. He wrote two separate posts on Facebook on April 4 and April 7, explaining why he thinks more rental relief measures are necessary in the face of the current Covid-19 situation:

  • With the loss of business and consumer confidence, it will take many months for businesses to recover to previous levels.
  • The Singapore government needs to do more to help businesses, especially in terms of alleviating rental costs.
  • The money needed for Covid-19 support measures is relatively small compared to the size of our reserves.
  • Our reserves are designed to help us in a time of a crisis. This is the time.

Here, we reproduce an edited version of his posts:


By Yeoh Lam Keong

DPM Heng Swee Keat’s initial Resilience Budget, as well as the additional measures during the Solidarity Budget, especially the 75 per cent payroll support for all companies in April, are of course welcomed.

However, I feel I have to say that I am disappointed at the lack of boldness overall, now that we are indeed moving into the one month “circuit breaker” phase.

The latest announcements largely only target the impact of the measures happening in this month.

We have lost a good chance to offer multi-month assistance for payroll, keeping in mind that even if the new circuit breaker measures are lifted in a month, normal multipliers and uncertainty means business will take many more painful months to recover to previous levels.

In a crisis like this, business and consumer confidence are key.

And piecemeal, month-by-month support simply does not do this effectively enough.

Important to support rentals as well, not just wages

There was no mention of vitally needed rental relief measures, without which much of the relief from labour costs might well be nullified.

Rentals are often just as onerous a cost as labour to our businesses, which have been hard-hit by Covid-19.

The period of worst hit business damage is finite and should thus be minimized.

So far, we have only dipped S$17 billion into past reserves for the Resilience Budget, with the in-principle approval for another S$4 billion obtained from President Halimah Yacob for the Solidarity Budget.

The government can do more. The support needed is well within our reserve capacity.

It thus makes sense not just to support employment costs but also a chunk of the rentals to keep businesses open and able to recover. It would be a pity if necessary the wage support in the resilience bill is nullified by closures due to rental costs.

Our SMEs are particularly vulnerable. Many already face 50 to 75 per cent falls in business and and consultants report often a 50 per cent cut in bank credit lines which are commonly needed to maintain business operations in this environment.

Tenants affected by Covid-19 should pay reduced and fair rent during this period

Remy Choo, who is the director at Peter Low & Choo LLC, noted that while the Covid-19 Bill protects commercial tenants from having their leases terminated for non-payment during the temporary relief period, the full amount of unpaid rent will still need to be paid after the period ends, which is currently after six months.

With commercial tenants being hit hard after PM Lee’s announcement on “circuit-breaker” measures, it is not clear how tenants would be able to pay back-rental owing after the temporary relief period.

In response to this, he suggested providing for an extended period of repayment of rental arrears accrued over the temporary relief period.

He also suggested considering a clause in the Bill permitting tenants materially affected by Covid-19 to pay a reduced and fair proportion of rent during the temporary relief period.

I agree with these suggestions.

Policy-makers need to do considerably more to give much-needed rental relief in the local context.

SMEs make up a huge proportion of employment and livelihoods.

Some public money injection may be needed in order to not put an unfair burden on non- institutional and SME commercial property owners, and ultimately, local banks too in terms of mortgage deferment.

We also urgently need to make up the difference in reduced credit lines to SMEs with zero interest loans.

Let’s put our money where our mouth is and look after our own firms and workers in this crisis. We can well afford it.

Covid-19 support costs are relatively small compared to our reserves

Let’s go through the basic public policy economics of Covid-19 financial support again.

This pandemic is clearly a crisis similar to a natural disaster like a massive earthquake. There is thus minimal moral hazard and maximum moral imperative to use collective state funds to alleviate the worst of it.

Such costs are socially necessary for the resilience and maintenance of livelihoods and productive capacity.

In addition, the likely costs are finite ex ante (unlike say during the global financial crisis when we did not know when it might end).

And for Singapore, likely Covid crisis support costs are relatively small in size relative to our reserves, which in all likelihood will easily grow back again in time.

In equity terms, support for a natural disaster should, in principle be shared between companies, workers, landlords and the government in a sustainable and equitable way for all.

The proportion of burden should depend on the size of the total cost relative to the resources of each of these parties.

This is what our reserves are for

In our case, overwhelming resources lie in the government reserves, which have been funded by taxpayers, households and corporations, especially our own SMEs.

In addition, economic and financial damage for this particular pandemic are largely due to the measures necessary to safeguard public health, and should thus be regarded as both a public good that needs to be funded largely by the public i.e. using government resources.

The government has lost an important chance to properly implement a decisive financial package to support households and local businesses -- the main employers of our labour force through this huge economic crisis.

It’s still not too late for a better solidarity package. In my honest opinion, an additional S$4-5 billion or 0.8 to 1 per cent of GDP going into the following months is clearly not enough.

We are one of the few countries that have the fiscal resources to really support our economy through the Covid-19 pandemic. It is the rainy day our reserves are designed to protect us against.

This is the time to be bold, not penny wise and pound foolish.

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