1. I rise in support of the Budget. Please allow me to address some of the concerns Members have raised on the impact of the conflict in Ukraine on Singapore’s economy. I will also respond to Members’ comments on what we can do to help businesses and Singaporeans cope with rising inflation and the challenges ahead.
Impact of Situation in Ukraine on Singapore’s Economy
2. Let me start with the situation in Ukraine. The Minister for Foreign Affairs Vivian Balakrishnan had earlier delivered a Ministerial Statement on the matter; I will focus on its potential impact on Singapore’s economy.
3. We are closely monitoring the rapidly unfolding situation. Our initial assessment is that the immediate and direct impact on our economy and firms has been manageable, for now. Singapore companies have a limited presence in Ukraine, and we do not import many essential supplies from Ukraine and the region.
4. We have adopted a multi-pronged strategy to manage supply chain risks, especially for essential goods, which we had enhanced during the COVID-19 pandemic. This includes diversifying our imports, stockpiling, and producing locally where viable, and working with major importers and retailers to ramp up supply from alternative sources if necessary.
5. Having said that, the conflict is still evolving, and the situation could change very quickly. Make no mistake, that while Ukraine may seem far away from Singapore, the conflict there will have real and significant impact on all of us.
6. With the sanctions being imposed on Russia by various countries and the disruption to supplies, global prices of energy and other products are set to rise in the coming weeks.
7. Earlier today, Minister Vivian announced that we will act in concert with like-minded countries to impose appropriate sanctions and restrictions on Russia. These measures will certainly come at a cost to us too. But I hope Singaporeans will understand why we need to make a clear stand even if it there is a price to pay, as Minister Balakrishnan has explained.
8. One key area we will be significantly impacted by the conflict in Ukraine is energy cost, as we import most of our energy needs. We have already seen in recent months a spike in the global prices of oil and natural gas, which Russia is a major exporter of. For example, Liquified Natural Gas, or LNG, prices have doubled from about USD17/MMBTU about half a year ago to about USD35 currently. Brent Crude benchmark also surged past USD100 per barrel a few days ago, compared to the USD71 average we saw last year.
9. Motorists must therefore expect pump prices for petrol and diesel here to rise. Electricity rates for both businesses and households will also increase in tandem with escalating global energy costs. These will undoubtedly impact Singaporeans, and further raise the cost of living here.
10. The crisis will also further strain global supply chains, as Russia and Ukraine are major exporters of commodities such as wheat, and metals like nickel and palladium. Supply disruptions for these commodities will raise prices of goods that use these commodities as intermediate input. For example, a global disruption in the supply of nickel could affect the production of stainless steel, which is used in the manufacturing and construction sectors. Disruptions to palladium supply will affect the semiconductor industry, and consequently the wider technology goods market. We are working with our key companies to review their business continuity plans, to minimise disruptions to their business operations.
11. We must also be prepared for the follow-on impact on trade and investment flows. A protracted conflict will affect business confidence and weigh on global economies, and impact their recovery from the pandemic.
12. What does this mean for Singapore’s economy? We earlier projected that our GDP would grow by 3% to 5% this year, with CPI-All Items inflation between 2.5% and 3.5% and the MAS Core Inflation between 2% and 3%.
13. The Ukraine crisis has clouded our economic outlook. The actual impact on Singapore’s GDP growth and inflation is difficult to estimate at this stage given the uncertainties. A lot will depend on how the conflict unfolds, the global response to the situation, and the longer-term impact on the global economy. However, what is clear is that inflationary pressures are likely to rise further in the near term, especially through an increase in the prices of oil-related items in the first instance. The downside risks to our economy have also increased significantly.
14. Some may ask, can we shield Singapore from the impact of these external factors. As an open economy, we will not be able to totally insulate Singapore from the impact of higher global costs.
15. Some ask whether we can help businesses and households. The Small Business Recovery Grant and the Household Support Package we announced at the Budget will help our businesses and households. We will continue to monitor the situation closely and if necessary, introduce additional measures to help them cope with the challenges.
Addressing Business and Household Concerns over Inflation
16. Businesses are understandably concerned. After two years of the pandemic, many have been looking forward to ride the wave of a strong recovery in the global economy this year. The conflict has added considerable volatility and stress on what is an already challenging business environment, arising from supply chain disruptions, higher electricity and fuel prices, and a tight labour market. Households have been similarly affected by these inflationary pressures.
17. The Government understands the strain that businesses and households are under, and will do our best to help them. We have put in place a multi-pronged strategy to do so.
18. First, we will work with industries and firms to keep the Singapore economy competitive, so that it can continue to sustain real wage growth for Singaporeans. Despite inflation having gone up, the real median income of full-time employed residents for 2021 grew by close to 1%, in a COVID-19 year. The growth was significantly higher at 4.4% for lower-income residents at the lowest 20th percentile.
19. Second, MAS on 25th January this year raised the rate of appreciation of the trade-weighted Singapore dollar. A stronger Singapore dollar will help moderate the impact of external cost pressures.
20. Third, the Government works with a wide range of stakeholders to carefully manage the various cost drivers.
a. In January this year, Minister of State Low Yen Ling shared with Members in detail our measures to address inflationary pressures. These include – carefully managing the supply of industrial and commercial space to help manage rental costs; working closely with industry partners to ensure that the prices of daily necessities are competitive and affordable, including diversifying food import sources to reduce our vulnerability to global price fluctuations; and working with the Consumers Association of Singapore (or CASE) to promote price transparency and help consumers make informed decisions.
b. Some Members expressed concerns about electricity prices. As Second Minister Tan See Leng explained to the House last year and recently in February this year, MTI and EMA have put in place several measures to enhance our energy security and resilience, and moderate the volatility in electricity prices. These include ensuring that the electricity generation companies have sufficient fuel reserves, establishing a Standby Fuel Facility which generation companies can tap on to produce electricity, and introducing the Temporary Retail Electricity Contracting Support (or TRECS) scheme. We have already extended the TRECS from March to May, and will extend it further if necessary. We are also working with generation companies and electricity retailers to offer more supplies under such contracts.
Notwithstanding these measures, with the ongoing conflict between Russia and Ukraine, electricity prices are likely to remain elevated or even increase further
c. Members also spoke about the challenges businesses face in labour shortage and rising manpower costs. I am heartened that Members appreciate the difficult balance we need to achieve, between ensuring sufficient manpower for our enterprises, and uplifting the capabilities and employment outcomes of our domestic workforce, especially our lower-income workers. Singapore will continue to build a conducive environment for enterprises to grow, our economy to remain open and competitive, and for our workers to benefit from the growth. The Minister for Manpower Tan See Leng will share more, on what the Government is doing to help firms, especially SMEs, manage the impact of our manpower policy changes.
d. The Minister for Finance had also announced a suite of measures in his Budget speech to support businesses, especially SMEs, to cope with higher costs.
i. The Small Business Recovery Grant of $1,000 per local employee, up to $10,000 per firm, will help eligible firms in sectors most badly affected by COVID-19.
ii. The extension of enhanced enterprise loan schemes will facilitate SMEs’ continued access to financing and ease their cashflow.
iii. The enhanced SkillsFuture Enterprise Credit (or SFEC) will now be available to more small and micro enterprises, and the enhancement of the Productivity Solutions Grant (or PSG) will provide support for a broader range of solutions. Together, more firms will be able to tap on Government support to improve their efficiency and reduce their reliance on manpower.
iv. To encourage take-up, the Government will intensify our outreach to SMEs, by proactively reaching out to them through the Trade Associations and Chambers and Enterprise Singapore.
e. Households have also been affected by the rise in inflation, especially from higher utilities and grocery bills. The Government will continue to lean forward and help them to manage the higher cost of living.
i. The Household Support Package introduced as part of this Budget will help HDB households, which will receive double the quantum of their quarterly U-Save vouchers in 2022, to help them defray the cost of higher electricity bills. The support measures are not limited to just HDB households – all Singaporean households will receive an additional $100 in Community Development Council (or CDC) vouchers to help them with their daily expenses, and all children below the age of 21 will receive a top-up of $200 to their Child Development Account, Edusave Account, or Post-Secondary Education Account to help them with their education needs.
ii. This is in addition to the wide range of support measures for seniors and low-income families that the Government has enhanced, such as the Silver Support scheme, and the Workfare Income Supplement scheme. Regular support measures such as the Public Transport Vouchers and the permanent GST Vouchers scheme also help ease the higher cost of living for many Singaporeans. This is a reflection of our commitment to give more support to those who need it the most.
iii. Households that still need extra help can also continue to apply to Comcare for financial assistance.
iv. The Government will monitor the inflation situation carefully, and will not hesitate to provide more help should there be a need to.
Strong Support for Business and Workforce Transformation
21. Sir, beyond the immediate challenges at hand, in the longer-term Singapore will continue to face resource constraints such as manpower. There is an urgent need for our enterprises to digitalise and improve their productivity. Firms that are resource-intensive must recognise the need to transform their businesses and workforce, so that they are able to do more with less, and unlock new business opportunities and access new markets and customers. Workers must also recognise that the best way for them to compete and stay employable in an increasingly volatile environment is to constantly learn and upgrade themselves, so that they remain relevant and productive.
22. I will share more about the challenges and economic opportunities that we see, and how we will help businesses and workers overcome the challenges and capture these opportunities during the Committee of Supply debate on MTI later this week.
23. Sir, the conflict in Ukraine is a stark reminder that as a small country and open economy, we are vulnerable to the vagaries of international developments, be they military conflict, global inflation and supply chain disruptions, or other trends like technology and climate change. It is crucial that we strengthen our defences against such external shocks. To do that, we need to build a vibrant, diversified, and resilient economy, as well as forge a cohesive and united society. While there are significant challenges ahead, I am confident that we can weather these headwinds if we work together – the people, the businesses, and the Government. This way, we can face the future with confidence.
24. Thank you.