In the face of growing inflation, Singapore has tightened its monetary policy four times since last October, so that the Singdollar will be stronger relative to the basket of currencies it trades against.
While this has helped blunt the worst impact of the inflationary pressures hurting economies across the world, Prime Minister Lee Hsien Loong warns that there’s a limit to this move.
“The Singapore dollar has strengthened. It makes travelling overseas more affordable. At home, it makes imported goods cheaper, in Singdollar terms,” says Lee at the National Day Rally on Aug 21.
“A stronger Singdollar also makes our exports more expensive, and we lose competitiveness against other countries. We have to be very careful not to overdo things,” warns Lee.
Singapore’s core inflation for June, the most updated figure thus far, hit 4.4% - the highest in 13 years, while the headline inflation reached 6.7%.
Economists have flagged inflation growth rate might be easing given how oil prices have come off a quarter off their recent highs.
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Inflationary pressures aside, global economy has deteriorated in recent months, prompting the government to narrow and lower its 2022 GDP growth range from 3% to 5%, to 3% to 4%.
From Lee’s perspective, the “basic reality” is that international economic conditions have fundamentally changed, and it is not just the pandemic or the war in Ukraine.
Lee says that the recent decades, where globalisation was in full swing and international trade flourishing, were an “exceptional period”.
With China’s then low cost manufacturing muscle, goods could be produced cheaply for rest of the world but that “era is now over.”
Besides China’s own rising costs, the trade war between US and China has spooked countries into prioritising resilience and self-sufficiency.
“While companies are opting for “just-in-case” instead of “just-in-time” production. All these trends are raising costs and pushing up inflation everywhere, including in Singapore,” says Lee.
In his speech, Lee reiterates that the government is ready to help people, especially lower income households, with rising costs of living.
GST hike
Given the on-going inflationary pressure from external factors, the timing of the government’s planned GST hike from 7% now to 8% next year and 9% in 2024 has been questioned.
“I understand these sentiments,” says Lee. “Not raising the GST would be a politically expedient move. However, it would be irresponsible. This is because our population is ageing rapidly.”
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Lee points out that 1 in 6 Singaporeans are already aged 65 and above and by 2030, this number will increase to 1 in 4.
“We were able to cope better than others with the pandemic because we have always managed our finances prudently and had sufficient reserves to help ease part of our people’s burdens,” he says.
“We should continue to save for a rainy day, and plan for the future,” says Lee.
