, Singapore

UOB projects Budget 2021 deficit at $5.8b

The value is 1.1% of Singapore's GDP.

Ahead of the announcement of Budget 2022 on 18 February, UOB released their projections as well as reviews on the 2021 budget.

Whilst the economy contracted 5.4% in 2020, the rebound to a gross domestic product (GDP) growth of 7.2% in 2021 illustrated that an economy can recover despite COVID-19-related drags. As of 25 Jan 2022, 91% of Singapore’s eligible population are fully vaccinated. This is one of the highest vaccination rates in the world. Notwithstanding the economic rebound in 2021, policymakers spared no effort in supporting economic growth and strengthening social nets in the FY2021 Budget. Total expenditure is expected to grow by 8.8% to $102.3b whilst operating revenue is estimated to expand by 18.6% to $76.6b. With many broad-based measures allowed to taper or lapse, special transfers might fall by 90.9% to $4.8b.

Based on how operating revenue and expenditure trend in the first quarter of 2021, UOB estimated the budget deficit in FY2021 would be closer to the S$5.8bn (1.1% GDP) mark. Other income receipts such as Stamp Duty (75.7% of budget estimates) and Vehicle Quota Premiums (70.3%) were also among those that surpassed the 50% mark. Overall, operating revenue in the first half of 2021 was 56.2% of the official FY2021 budget estimates.

Here are other highlights from UOB's report:

  • With Singapore well on the path towards an endemic COVID-19 environment, we expect the upcoming budget to shift its focus towards medium- to long-term goals in developing Singapore's competitiveness and strengthening social safety nets. These may include revisiting top-ups to endowment & trust funds, which were previously absent in the FY2021 Budget. Meanwhile, targeted policies to mitigate COVID-19-related risks may still be on the cards. In all, we identify five key thrusts to be seen in the FY2022 Budget: (1) a Global-Asia node of technology, innovation and enterprise, (2) building a resilient revenue base, (3) support for businesses, (4) the need for jobs and the skills relevant for them and (5) a sustainable and green Singapore.
  • The need to build up a resilient tax revenue base to finance Singapore's social and economic programmes are more urgent than ever. Therefore, an increase in goods and services tax (GST) may be introduced as early as July 2022. Operating revenue in FY2021 will likely exceed budget estimates given the strong economic recovery in 2021 (GDP 2021: +7.2%), but it is still likely to be insufficient to fully offset total expenditure. As such, Singapore is likely to see an overall budget deficit of S$5.5bn in FY2021 and FY2022. This is the biggest deficit in the first two years of the government's five-year term since available data from FY1996. 

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