Singapore’s projected fiscal surpluses for FY2024-FY025 is eye-catching and masks an expansionary stance for FY2025, says Bank of America Global Research (BofA). While a small disinflationary impulse for 2025 is likely, BofA’s economists think the inflationary impulse for 2026 will perhaps be dampened with lower childcare fees.
In a Feb 18 note, Merrill Lynch (Singapore) Asean economist Ang Kai Wei and BofA Securities India’s India & Asean economist Rahul Bajoria say there are “little implications” for the Monetary Authority of Singapore’s (MAS) coming policy decision in April.
“We think that broad contours for Budget 2025 were perhaps already factored into MAS’s baseline outlook in January. Our base case remains for MAS to stay on hold in April,” say the economists.
MAS announced on Jan 24 that it will reduce the slope of its Singapore dollar nominal effective exchange rate (S$NEER) policy band “slightly”, while there will be no change to the width of the band or at the level at which it is centred. It marked the first time the central bank had eased its policy since March 2020.
‘Generous and broader’ measures
Singapore is “unleashing [its] fiscal strength”, and Prime Minister Lawrence Wong unveiled “more generous and broader” consumption-boosting measures at Budget 2025 on Feb 18, says BofA. Measures include a slew of spending vouchers for a broad range of beneficiaries, such as the CDC and SG60 cash vouchers.
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Singaporean households will receive $800 in CDC vouchers. This will be given out in two tranches: $500 in May and $300 in January 2026. To mark Singapore’s 60th birthday, Singaporeans aged 21 and above this year will receive cash vouchers of up to $800. This will be given out in July. Each Singaporean adult will receive $600, while seniors aged 60 and above will receive an additional $200.
The government has also expanded the Climate Vouchers scheme to private property residents, which can be spent on a range of energy-efficient household appliances.
“The far greater use of spending vouchers marks a shift from cash handouts in the past — perhaps aimed at raising fiscal multipliers and reducing leakage, such as overseas spending,” says BofA.
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As a result, they think MAS may see a lift in real GDP this calendar year of 0.4 percentage points (ppts) or above. This will mark the highest in at least a decade, excluding the pandemic years.
‘Expansionary stance’
For FY2024 ending March 31 this year, Singapore’s overall fiscal position as a percentage of GDP was revised up to +0.9%, compared to -0.1% originally.
Singapore’s Ministry of Finance projected a similar surplus of +0.9% for FY2025, defying consensus expectations for a deficit. The projected surpluses reflected a surprise step-up in corporate income tax, up to 4.1%-4.3% of GDP in FY2023-FY2025 from 3%-3.3% in FY2019-2022.
“If [the] growth outlook deteriorates materially, the government thus has ample room to increase spending while still meeting [a] constitutional requirement for the Budget to be at least balanced over the current term of government, which started in August 2020,” add the analysts.
What matters more for the growth outlook in FY2025 is the change in basic balance compared to FY2024. Basic balance is more reflective of current spending, says BofA, as it includes “special transfers”, or short-term spending programmes; and excludes top-ups to endowment and trust funds, along with investment income from GIC, Temasek and MAS.
On this count, the basic balance as a percentage of GDP is projected to turn negative in FY2025 at -0.6% compared to +0.1% for FY2024. MOF’s calculations — which likely incorporates current spending elements from “endowment and trust funds” — projects the positive fiscal impulse to be 0.9% of GDP, notes BofA.
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Coming inflation likely dampened
The government’s widening healthcare subsidies and coverage for seniors may lead to a “small disinflationary impulse” in 2025, says BofA, as healthcare consumer price index (CPI) accounts for around 10% of the core CPI basket.
“The disinflationary impulse may be slightly exaggerated when CPI is rebased from January, [which will be] published on Feb 24, considering that the weight for healthcare CPI would likely be raised,” add the economists.
Any inflationary impact from consumption boosting measures “should turn more meaningful” in 2026, considering transmission lags, says BofA.
However, the economists suspect that the impact could be dampened through lowering childcare fees by some 4.5% if it starts from January 2026.
The exact start date of such a measure has not been disclosed, but childcare makes up about 1.9% of the current core CPI basket. BofA estimated this measure lowering core CPI by 0.07ppts on a full-year basis, assuming the split for government-supported and private schools to be 80:20.
