Singapore: Budgets, governance and capital markets

2 June 2020: Nothing is normal in Singapore under COVID-19 conditions. The business world is trying to adhere to good governance principles while staying afloat, as well as deal with unpredictable capital markets.

Singapore is just coming out of “Circuit Breaker”, a similar version of lockdown in the West. It has battled significant levels of contagion (more than 35,000 cases), thankfully resulting in few deaths (only 23). The government has responded with four budgets within a timespan of less than four months.

The first budget was termed the Unity Budget and took place on 18 February 2020 (the usual timing for a Singapore Government Budget) which pledged spending/investment of S$6.4bn (the usual sum). Because of COVID-19, there was a second Budget, called the Resilience Budget on 26 March 2020 which came with a S$48.4bn spending commitment. The third, or Solidarity Budget, came on 6 April 2020, along with the lockdown, and with this the government committed another S$5.1bn. The final one – the Fortitude Budget – was delivered on 26 May 2020 and brought with it another S$33bn.

Dr Ernest Kan, Senior Advisor (Corporate Governance, Chinese Services Group, Global IFRS & Offerings Services) at Deloitte Singapore, and Chief Advisor (Capital Markets China), Singapore Exchange, says: “Through these Budgets, the Singapore Government has committed close to S$100bn funds to support businesses, workers, households and families. This represents close to 20% of Singapore’s GDP.”

Dr Kan specialises in corporate governance. When asked where good corporate governance fits with COVID-19 emergency measures, he responds: “My immediate reaction is that companies want to remain a going concern and hence an instinct for survival comes first.”

He says that, as in many countries, companies in Singapore are struggling during this pandemic, and are looking for government support. And fortunately support from government in Singapore has been readily available, especially for SMEs.

Businesses such as retail outlets, gyms and cinemas that cannot reopen immediately after lockdown ends on 1 June will continue receiving 75% wage support until August, or when they can resume operations. There will also be help for the construction, and offshore and marine, sectors which cannot resume operations on-site for now. They will be supported by the foreign worker levy waiver and rebate. There has been a rental relief package for SMEs. Financial support has been available for promising start-ups, and money has been allocated to improve the pace of digitisation and innovation. “Without this support, SMEs in particular may not survive,” he says. “Cash flow and funding are the priority at present.”

At the other end of the scale, larger companies are suffering a crisis of revenue, and cash is drying up. “Companies have to study their balance sheets,” says Dr Kan. “Larger companies who are highly geared, not unknown to us as Chartered Accountants, have to look long and hard at their financial statements.”

“I have seen so many businesses who, in better times, are tempted to go to financial institutions and borrow or issue medium-term notes because equity funding is less readily available. When times are bad, such as now in the midst of COVID-19, many of these companies could be on the brink of collapse,” says Dr Kan. “They must be mindful of their financial ratios or else risk financial institutions seizing control when the terms of loan covenants are being breached.”

Then he turns to receivables. “Companies must also look at the profiles of their receivables or debtors. Where do they come from (which countries)? What do they represent (which sectors)? The food and beverage sector, travel, real estate and retail are all struggling.”

He continues: “High levels of inventory are also a problem – especially if perishable. The food and agriculture sector has especially suffered because of lockdown and cannot export. And for the first time, negative oil prices have felt their presence – again, an inventory problem.”

There is definitely a lot of negativity in the air and the Singapore Government is doing its best to protect jobs. “Saving and creating jobs will be our priority,” wrote PM Lee on his Facebook page on 25 May 2020. “At this challenging time, it will be impossible to protect all jobs, but the government will help businesses adapt and transform, create new jobs and provide more training opportunities to workers,” says Dr Kan.

But there are some strong performers. “The capital markets are doing very well. We are seeing tremendous trading activity as stock-market investors have seized the opportunities of the steep slide in equity prices caused by the COVID-19 outbreak. The elevated levels of volatility are likely to be prolonged in the light of uncertainty around the eventual financial and economic impact of COVID-19 and the path to recovery.”

In the same vein, the Singapore Exchange (SGX) has reported a 38% jump in its fiscal third quarter net profit to a 13-year high. Trading activity rose across its equity, currency and commodity asset classes, driven by the COVID-19 pandemic and the geo-political tensions in the global oil market.

Singapore is coping with lots of extremes and the outcome is sure to be challenging. The economy is now expected to shrink between 4% and 7% for 2020, potentially Singapore’s worst recession since independence. “That is disturbing,” Dr Kan says, “but we have not felt the ill effects yet as the government is doing a good job through its four Budgets, totalling close to S$100bn, with more than half of it expected to be drawn from reserves.”