SINGAPORE — Global economic conditions have fundamentally changed and are responsible for bringing about the end of an “exceptional period” marked by low prices and an openness to international trade, Prime Minister Lee Hsien Loong said on Sunday (Aug 21).
As a result, inflation and living costs are rising everywhere, said Mr Lee in his National Day Rally 2022 speech at the Institute of Technical Education headquarters in Ang Mo Kio.
While Singapore can do little to influence this global phenomenon, it is not out of options, said Mr Lee as he addressed the state of the global economy in his English and Mandarin speeches.
“What is within our power is to make ourselves more productive and competitive. Then our workers can earn more, and more than make up for the higher prices of food, fuel and other imports,” he said.
“That way we can all become better off, in real terms,” said Mr Lee.
End of stable, low prices
Giving an overview of how the current economic situation came to be, Mr Lee said that the Covid-19 pandemic or the ongoing war between Russia and Ukraine are not the sole causes of the current economic reality.
“International economic conditions have fundamentally changed,” said Mr Lee.
“China’s economy was growing exponentially, and exporting more and more goods at highly competitive prices to the world. This brought down the cost of many products, and kept prices world-wide very stable.
“This era is now over,” he said.
As China’s growth and exports slowed, nations also began to raise tariffs against each other, said Mr Lee, referring to the trade tariffs that United States and China levied on each other.
“Countries are also re-looking at their supply chains to prioritise resilience and self-sufficiency,” said Mr Lee, adding that businesses, too, have changed their production strategies from “just-in-time” to “just-in-case”.
These are causing prices and inflation to go up globally, something which Singapore has little influence in.
Apart from rising prices, physical supplies are also being disrupted as governments place domestic needs first when faced with their own internal food shortages and inflation.
Citing Malaysia’s export ban on chickens, Indonesia’s temporary halt of palm oil exports and India’s ban on wheat exports, Mr Lee said that Singapore “must expect more arbitrary actions like this”.
Furthermore, the ongoing war between Russia and Ukraine has worsened problems that were already under strain due to the pandemic, clouding growth outlooks at a time when economies were beginning to recover.
Mr Lee said that some of the key disruptions include supply of oil, gas and grain, which led to disruption and soaring prices globally.
Singapore’s response
In response to these external factors, Mr Lee said that the Government is “doing everything necessary to support Singaporeans, especially middle- and lower-income families”.
For example, cash payouts, rebates for utility bills and service and conservancy charges, MediSave top-ups as well as Community Development Council (CDC) vouchers, help residents defray some of their daily expenses.
In his earlier speech in Mandarin, Mr Lee highlighted that close to S$180 million (RM578 million) worth of such vouchers have been spent by households so far, with more vouchers to be given out in January.
“This will not cover fully every cost increase, but it will help lighten the burden on Singaporean households,” said Mr Lee in his English speech.
The Government stands ready to do more if the situation worsens, he added.
In addition, the Monetary Authority of Singapore has also tightened its exchange rate policy, which will lower the cost of imported goods in Singapore dollar terms.
But there is a limit to doing so, as a stronger Singapore dollar would also make the Republic’s exports more expensive and less competitive, he said.
At the same time, Singapore will need to continue building up its supply resilience by diversifying import sources and stockpiling food and essentials in order to prepare for external disruptions.
An example of this is Singapore’s “30 by 30” food security goal, which is a 2030 target for Singapore to produce 30 per cent of its nutritional needs within the country.
Although building such a buffer would incur costs, Singaporeans must think of this as “paying for insurance”, said Mr Lee.
He also reiterated that Singapore has to become more productive and competitive, given its limited influence on global inflation.
This is why Singapore must press on with economic upgrading and restructuring, while continuing to encourage workers to upgrade their skills, he said.
Scraping GST hike would be ‘irresponsible’
In his earlier speech in Mandarin, Mr Lee reassured that everyone will receive some form of support to cope with inflation, with the amount each family receives tailored according to their income level and housing type.
After March next year, the Government will also continue to provide Singaporeans with support through the Assurance Package to offset the upcoming impending Goods and Services Tax (GST) increase.
But Mr Lee also acknowledged that some may ask why not postpone or scrap the impending GST hike amidst rising costs.
Plans on the upcoming hike in GST rates were announced as early as in 2018, though the timeline for implementation was announced by Finance Minister Lawrence Wong during this year’s Budget.
Since then, the Government has explained on various occasions why it is proceeding with the move amidst concerns over global inflation and the gloomy economic outlook.
Mr Lee said that a decision to not raise the GST would be “politically expedient”, but also “irresponsible”.
At present, one in six Singaporeans are aged 65 and above. By 2030, this number will rise to one in four Singaporeans, he said.
Given the rapidly ageing population, Singapore must be prepared to take better care of its elderly, stressed Mr Lee. Doing so will mean providing more medication subsidies and building more medical facilities, he said.
While the people worry about not having enough money to spend, the Government is likewise concerned about not having enough resources to take care of low-income families and the healthcare needs of the elderly, said Mr Lee.
Mr Lee said that Singapore’s prudent financial management and national reserves has enabled it to cope better than others with the pandemic while helping some of its people’s burden.
“We should continue to save for a rainy day, and plan for the future,” he said. — TODAY
