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SG Budget Reactions: Fitch says Budget 2017 targets structural issues

THE expansionary stance of Singapore's Budget 2017 reflects the headwinds faced by the economy, Fitch Ratings said on Wednesday.

The credit rating agency said Budget 2017 stuck to the broadly expansionary fiscal stance of the last few years, as the government looks to support the economy amid structural pressures and a difficult external environment.

"The higher spending and smaller budget surplus planned for the next year do not pose a risk to Singapore's sovereign credit profile, and the government's strong fiscal framework should remain a significant credit strength for the foreseeable future,'' said Fitch, which affirmed Singapore at 'AAA' with a stable outlook in September 2016.

Singapore's gross domestic product (GDP) growth is projected to remain close to 2 per cent in 2017, which is in line with the government's 1-3 per cent forecast range, burdened by weak external factors and oil sector woes, amongst others. The recent report by the government's Committee on the Future Economy (CFE) also concluded that growth is likely to average 2-3 per cent per year over the next decade, down from a previous expectation of 3-5 per cent.

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Fitch viewed the government's new labour productivity growth forecast of 1-2 per year on average over the next decade, as more realistic than its previous 2-3 expectation.

"However, average labour productivity growth was just 0.6 per cent per year in 2006-2016, which underlines why the government is encouraging economic restructuring and channelling funds toward supporting innovation, digitalisation, and training."

It said the Singapore government's strong finances and robust fiscal framework put it in a strong position to manage the long-term economic challenges.

"Fiscal discipline is underpinned by a constitutional requirement that the budget is balanced over a government's five-year term, which often means that governments run surpluses early in the term to build a buffer in case deficits need to be incurred later.

"The government has a history of meeting multi-year fiscal plans, and the authorities are usually conservative in setting their budget targets,'' Fitch concluded.