Should Singapore be worried over its massive $6.7b budget deficit?

This is the largest budget shortfall on record.

Despite a forecasted $6.7b budget deficit, analysts from BMI Research believe that Singapore continues to have a rock-solid fiscal position and is unlikely to experience notable fiscal strains over the next five to ten years.

If the forecasted deficit comes to fruition, it will represent the largest shortfall in the city-state’s history. However, BMI Research believes that the actual deficit will be smaller than the projected figure.

“We believe that the deficit will come in somewhat smaller than this figure, particularly given that the PAP is traditionally extremely conservative in its fiscal revenue and spending projections. Indeed, for 2015 we forecast a deficit of just SGD0.8bn, which will amount to an insignificant 0.2% of GDP,” said the report.

BMI believes that the government will continue to focus on policies to expand the country’s safety net and support businesses amid a difficult economic climate.

These measures include improved social spending programmes such as the Silver Support Scheme and the SkillsFuture credit, as well as more measures to help small and medium enterprises (SMEs) cope with the the ongoing economic restructuring.

“Following the PAP's extremely strong election performance in September, the government will likely look to normalise its fiscal policy heading into 2016, and we expect to see a smaller deficit next year as a result,” BMI Research said.