Insolvencies in Singapore to rise 3% from pre-Covid 2019 - among world's lowest

Singapore

A PROJECTED 3 per cent rise in insolvencies in Singapore this year compared to pre-Covid 2019 is expected to be among the lowest in the world at the point governments withdraw the unprecedented support measures, Atradius senior economist Theo Smid told The Business Times.

"If we compare the level of insolvencies at the end of 2021 with 2019, we see an increase of only 3 per cent. This ranks the evolution of insolvencies in Singapore in 2021 relative to pre-Covid-19 figures among the lowest increases among the countries we analysed," he said.

Atradius is a global provider of credit insurance, surety and collections services, with a presence in more than 50 countries.

Its report, titled "2021: A turn of the tide in insolvencies", says that global insolvencies are estimated to have declined by 14 per cent in 2020, underpinned by temporary adjustments to insolvency laws and fiscal support packages.

However, as support measures are phased out, global corporate insolvencies are forecast to increase by 26 per cent this year. Countries with the highest expected increase in insolvencies in percentage terms this year are most likely the ones with unusually low insolvencies in 2020.

Nearly all regions and countries are expected to see a rise, except for Turkey, where bankruptcies were already on the rise in 2020. The largest increases are expected in Australia, France, Austria and Singapore - countries that had strong government measures in place in 2020.

Putting this in perspective, Mr Smid said: "This upward trend is not surprising, as we expect that the temporary measures that kept insolvencies unusually low in 2020 - insolvency law amendments, fiscal support - are gradually phased out in 2021. The level of bankruptcies at the end of 2021 will be higher in virtually all markets than it was in 2019."

Singapore is ranked among the countries with the highest insolvency growth rate - at 75 per cent in 2021 - mostly because of a base effect: It comes from the fact that the level of insolvencies registered in 2020 was very low - minus 41 per cent in 2020 compared to 2019, thanks to the government support measures.

"Strong gross domestic product (GDP) growth for Singapore in 2021 is definitely contributing to limiting the insolvency increase in 2021," Mr Smid said.

However, according to Atradius' GDP forecast, at the end of 2021 the GDP level will be slightly above the pre-Covid-19 level. This means that the deviation of GDP from its long-term trend remains negative.

"In other words, the Covid-19 crisis led to losses in output relative to the potential output, which will not be compensated by the end of 2021. These losses in output are an additional force pushing up insolvencies. For Singapore, this force is strong relative to that in other countries, as it has a high mean GDP growth rate of 4.6 per cent in our sample from 2005 to 2020," the economist said.

Atradius' forecast for insolvencies is based on a model that links the insolvency dynamics to GDP growth, adjusted to reflect factors specific to the Covid-19 crisis including the effect of government support in 2020 and 2021 as well the effect of delayed insolvencies.

Three forces are expected to shape the development of global insolvencies in 2021: The strength and breadth of economic growth this year, the gradual phasing out of government stimulus and other support schemes, and whether temporary changes in bankruptcy legislation reduced or just delayed filings.

"Their combined impact will greatly influence actual insolvency numbers and trade credit risk in 2021 and 2022," Mr Smid said.

"For the coming years, we expect that the level of bankruptcies will remain elevated. The phasing out of fiscal support packages and the return to normal insolvency procedures continue to make the business environment very challenging," he added.