Budget 2022: balancing growth priorities on the pandemic tightrope

WHEN Singapore unveils its 2022 Budget, the world would have entered the third year of the Covid-19 pandemic. Planning for the Budget is well underway, but Omicron has now injected fresh uncertainty.

There's nervousness over whether existing vaccines are just as effective against the latest mutation of the coronavirus. Investors were shaken after Moderna chief executive Stephane Bancel said the current suite of vaccines might be less effective against the new strain, and that new shots targeting Omicron would be months away. If so, this does not bode well for global economies looking to further re-open their borders, and adopt a living-with-Covid strategy.

When the pandemic first hit Singapore, the government allocated S$13.8 billion in response in Budget 2020. It turned out to be just the first tranche, as the government committed S$97.3 billion in all over 5 budgets to support the economy and community in fighting the pandemic. In Budget 2021, Singapore set aside S$11 billion for the Covid-19 Resilience Package to address the economic fallout from the pandemic.

Before the emergence of the Omicron in November, Singapore's 2022 GDP growth was projected at 3 per cent to 5 per cent, compared to a strong 7 per cent forecast for 2021. The recovery is likely to remain unbalanced across sectors. While government spending is expected to remain strong, overall fiscal policy may be less supportive in 2022. This should not be a surprise as support has to come to an end once the recovery has taken hold. But the Omicron variant has reminded all of the surprises and shocks that may still lurk around the pandemic. Instead of pulling back on Covid-19 support, the government may find itself needing to budget for fresh supplies of updated vaccines that can protect against the new variant. Or periodic booster jabs may become part of the new endemic Covid normal. As of late-2020, Singapore had set aside more than S$1 billion to procure enough Covid vaccines for every resident by the third quarter of 2021.

Borders are gradually opening up, but a fresh round of Covid concerns could force a knee-jerk reaction to close borders again, shut factories and create new delays to global supply chains - all of which would drive up the costs of goods and worsen inflation. Singapore's reopening experience, with a surge in Covid cases and fatalities despite a high 87 per cent vaccination rate, illustrates the painful trade-off when opening up enroute to living with endemic Covid.

Many parts of the economy are still in flux, with costs and prices impacted by rising imported inflation. While it is too early to determine the economic impact of the Omicron variant, there is some assurance that Singapore is in a much better spot than this time last year. While the 2020 Budget focused on survival issues, and 2021's on supporting businesses and households, next year's Budget requires tough decisions around ensuring that Singapore can emerge ever more resilient - given the slew of challenges at hand, including ageing population issues, structural economic shifts, global taxation and climate change. And all these, with the Covid virus still lurking in the shadows.