Monetary Policy in Singapore and the Global Financial Crisis

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Challenges for the Singapore Economy

the January 2009 S$4.5 billion Jobs Credit Scheme which was

designed to keep Singaporeans in employment.

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One way to think about this is that during a recessionary phase in

the business cycle there is a need to reduce the real effective exchange

rate to offset the fall in external demand. This can partially be done

by a central-bank induced depreciation of the nominal trade-

weighted Singapore dollar (TWS$) but this can be reinforced by a fall

in domestic costs. For a historical look at these issues, see Peebles and

Wilson (2005).

The difficulties for monetary policy are compounded by the fact

that the Singapore government appears to be very reluctant to use

fiscal policy automatically as a countercyclical tool in the same way as

in other countries, but rather prefers to apply fiscal measures in an 

ad

hoc

and temporary fashion during downturns. This stems partly from

the very large import leakage from a dollar of government spending,

but also from a long-term commitment to budget surpluses to sup-

port a high savings rate, an ideological aversion to universal welfare

payments and the desire to focus fiscal policy on long-run goals,

including the attraction of export-oriented mobile foreign capital and

social goals, such as increasing the citizen birth rate and reducing

traffic congestion.

In the recent economic downturn both monetary and fiscal

policies were employed in Singapore to lighten the impact of the

global crisis on the domestic economy but the main emphasis was

undoubtedly placed on the fiscal response.

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The FY2009 Budget

was brought forward to January and included a S$20.5 billion

Resilience Package (about 8% of GDP) to save jobs, enhance the

cash flow and the competitiveness of firms, support families, and

strengthen the economy’s long-term capabilities. A key feature of

the package was the S$4.5 billion Jobs Credit Scheme, which pro-

vided cash grants to employers to subsidise part of their local wage

bill. The government also extended S$5.8 billion in capital for a

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C. H. Kwan and P. Wilson

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The adjustment of the labour market during the crisis and the role of government

subsidized training schemes is the focus of Chapter 5.

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See Chapter 9 for details on Singapore’s fiscal policy in relation to the crisis.

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