Here’s how the government can help SMEs without sacrificing its restructuring goals

It’s a delicate balancing act.

Singapore’s policymakers are caught between a rock and a hard place: while the ongoing economic restructuring and productivity drive is a necessary evil in order to help Singapore move forward, local businesses are nonetheless being strangled by unprecedentedly tight manpower curbs.

BMI Research believes that the government needs to strike a balance between maintaining its restructuring stance and helping small and medium enterprises (SMEs) cope with tighter economic conditions.

“As Singapore's SMEs continue to grapple with poor external demand conditions amid an extremely tight domestic labour market, we expect to see further extensions to some measures aimed at supporting these firms amid difficult times. Firms in the manufacturing and hospitality sectors have been particularly hard-hit as the government makes the hiring of foreign workers progressively more costly,” a report by BMI Research said.

However, BMI Research noted that the political imperative to continue restructuring is “too great”, and therefore policymakers have little choice but maintain its restructuring drive.

“What the government can continue to do is to further postpone levie increases on low-to-mid-skilled workers in the hardest hit sectors, and we would not be surprised to see such measures in the FY2016-17 budget when it is announced in February. This gives firms some measure of breathing space without backtracking on the broader economic restructuring plan,” said the report.

“At the same time, the support that it provides is marginal, therefore forcing those firms which are overly dependent on foreign labour and potentially unfit to perform in the new environment to either rapidly shift their business model or fall prey to creative destruction. The same holds true for tax rebates, as well as incentives towards investment in productivity enhancing technology, processes, and skills-training,” BMI Research added.