Budget 2025 may run generous deficit of up to S$6.6 billion, after FY2024 surplus: economists

SINGAPORE should have the fiscal room for a generous deficit in Budget 2025 – the final Budget of the government’s term – thanks to an expected “bumper” surplus for the 2024 financial year, said economists.

At least six banks have released estimates for the 2025 Budget deficit, ranging from S$3 billion to S$6.6 billion.

Under the Constitution, Singapore’s government must maintain a balanced Budget over its entire term. The current term began after the 2020 general election (GE) and runs from FY2021 to FY2025.

FY2021 and FY2022 saw surpluses, but these were mostly offset by a deficit in FY2023, noted OCBC chief economist Selena Ling. This means any surplus in FY2024 – from Apr 1, 2024 to Mar 31, 2025 – will essentially form the “fiscal headroom” for Budget 2025, she told The Business Times.

Prime Minister and Finance Minister Lawrence Wong will deliver the Budget statement on Feb 18, ahead of the upcoming GE, which must take place by November.

Varying estimates

Out of six banks that have released estimates for the FY2025 deficit, RHB has the highest absolute estimate of S$6.6 billion, or about 0.8 per cent of gross domestic product for the year.

This is assuming that FY2024 runs a surplus of 0.8 per cent of GDP, or S$6.1 billion, said acting group chief economist Barnabas Gan and associate research analyst Laalitha Raveenthar in a Feb 10 report.

This was raised from their earlier surplus forecast of 0.1 per cent of GDP. The RHB economists noted that Singapore collected S$87.5 billion in operating revenue in the first three quarters of FY2024, about 80.5 per cent of the official full-year forecast.

They have estimated another S$26.5 billion in the fourth quarter, bringing full-year operating revenue to S$114 billion, exceeding the official forecast of S$108.6 billion.

Maybank economists Chua Hak Bin and Brian Lee also expect FY2024’s surplus to be 0.8 per cent of GDP, for a cumulative surplus – across the electoral term – of S$6.7 billion.

Their forecast for Budget 2025’s deficit is a shade smaller at S$6 billion – though this still means “drawing down most” of the cumulative surplus, they said in a Feb 4 report.

Staying prudent

Both OCBC’s Ling and HSBC Asean economist Yun Liu expect Budget 2025 to have a S$5.7 billion deficit, despite very different estimates of the FY2024 surplus.

Ling projects a “bumper surplus” of S$6.8 billion in FY2024. Budget 2025 may thus “pencil in a stimulative deficit” of S$5.7 billion, she said, “given it is likely the last Budget for this current term of government and the external economic outlook remains challenging amidst the Trump 2.0 policy shifts”.

Liu expects a much larger FY2024 surplus of S$8.8 billion, which could provide the “basis for a generous Budget in FY2025”. But her deficit forecast is also S$5.7 billion. “While theoretically the surplus can be all spent in FY2025, we do not believe this is the case, given Singapore’s traditional prudent position,” she noted.

DBS economist Chua Han Teng expects a FY2025 deficit of S$3.8 billion, with his estimate for the FY2024 surplus being S$5.5 billion. The cumulative fiscal surplus from FY2021 to FY2024 could reach S$6.6 billion, “implying greater fiscal ammunition” for FY2025, he added in a Feb 5 report.

Expecting the smallest FY2025 deficit, of S$3 billion, is Citi economist Kit Wei Zheng. But after full-year GDP growth figures were revised upwards on Friday (Feb 14), he noted that a larger surplus in FY2024 may provide “more room” for a bigger deficit.

His estimate for the FY2024 surplus is also the lowest, at 0.6 per cent of GDP or S$4.2 billion. However, there are “upside risks” to this, given the “larger revenues and slower-than-expected development spending” in the first three quarters of FY2024, he felt.