Singapore's expanded fiscal program, unveiled in Thursday's 2016-2017 budget, may see the central bank hold off on monetary stimulus at its April meeting even as the economy flirts with technical recession.
The government will spend $53 billion for the fiscal year starting April 1, a 7.3 percent rise from the previous year and well above consensus expectations, bringing the overall budget surplus to $2.5 billion, Finance Minister Heng Swee Kiat announced on Thursday.
The bulk of funds are directed at supporting businesses, especially small and medium sized enterprises (SMEs), with measures including higher corporate income tax rebates. Meanwhile, higher levies on foreign workers—monthly fees local businesses pay for each foreign worker—will be deferred for certain struggling industries, such as the marine sector. Investment in public infrastructure projects will also increase, said Heng.
This fiscal package provides the Monetary of Singapore (MAS), the island-nation's central bank, with leeway to keep monetary policy steady even as many regional central banks are looking to ease, economists said.
"A contractionary fiscal policy stance, while not our base case, would have raised the probability of an exchange rate policy easing move by the MAS in April. These risks did not materialize," said Michael Wan, economist at Credit Suisse, in a note.