Chart of the Day: Budget deficit to hit 0.4% of FY19/20 GDP

Revenue may also surpass initial projections and grow to $78.92b.

Singapore is expected to register a fiscal deficit of 0.4% of GDP in FY2019/20, narrower than the government’s initial projection of -0.7% of GDP in a testament to the city state’s prudent fiscal policies, according to Fitch Solutions.

Also read: GDP growth to fall to 0.9% by end-2019 as technical recession risks loom

Despite heightened economic uncertainties, Singapore is also likely to beat revenue targets given steady collection of revenues during the first five months of the year. Fitch Solutions expects operating revenue to hit $78.92b, considerably higher than the $74.89b estimated by finance minister Heng Swee Keat during his 2018 budget address.

The government has already achieved 44% of its targeted revenue for FY2019/20 as of May, collecting cover $32.9b over the five month period. Of this figure, 40% are sourced from income tax collection. “We expect this to bring the primary balance to a deficit representing 0.7% of GDP, smaller than the government’s 1.1% projection, if total expenditure comes in accordance with official projections at $80.25b,” Fitch Solutions said.

In spite of a protracted slowdown in domestic consumption with retail sales shrinking for five consecutive months from January-May, revenue collection has not been significantly impacted. In fact, the collection of the goods and services tax (GST) from the first five months hit $5.42b, similar to that collected over the corresponding period in 2018.

“We believe that decades of commitment towards fiscal prudence has provided the Singapore government with room to expand fiscal policy if needed to cushion the pace of economic deceleration,” the firm said, adding that government consumption expenditure came in at $16.4b in Q1, representing about 20% of the total budgeted expenditures.

However, based on current revenue levels, the government’s expected 11.8% increase in revenue from customs and excise taxes is likely to fall significantly lower at around 5.7% for the year. “We therefore highlight the risk of total expenditures exceeding the budget’s projection of $80.3b at the end of the fiscal year should the government indeed decide to raise fiscal spending to support economic activity,” Fitch Solutions concluded.