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By Ben Teo
As Covid-19 continues wreaking unmitigated damage in 180 countries and 6 continents across the globe, Singapore is set to bear the brunt of the economic fallout, being a trade dependent economy with one of the world’s highest trade to GDP ratios (326% in 2018).
Singapore’s GDP contracted 2.2% in the first quarter of 2020, with the MTI (Ministry of Trade & Industry) issuing a forecast predicting an economic contraction of 4 to 7%. This could be Singapore’s worst ever contraction, and its first full year recession in almost two decades.
Economists have cautioned that the impact of Covid-19 could result in retrenchments of between 150,000 to 200,000 jobs this year. If so, this would be the highest number of job losses since Singapore’s independence.
In view of the daunting challenges Singapore is facing on all fronts, the government has also come up with robust responses to help businesses survive this unprecedented crisis.
Financial and legal aid for SMEs in Singapore
Finance Minister Mr Heng Swee Keat has focused government aid for SMEs on three core areas to provide immediate succor; cash, cost and credit.
In the Solidarity Budget announced on April 6, the Jobs Support Scheme (JSS) will see an increased government wage subsidy to 75% of gross monthly wages for the first S$4,600 of gross wages paid in April and May 2020, for all local employees. This is up from 25% of wages earlier.
The first JSS payout was also brought forward from May to April 2020, alleviating cash flow for many SMEs and helping businesses to retain their local workforce as far as possible.
For employers who have foreign workers on their payroll, additional help will also be provided by waiving the foreign work levy due in April 2020. There will be a foreign worker levy rebate of $750 for each Work Permit or S-Pass holder, based on previous levies paid in 2020.
Enhancements to credit support, including the broadening of existing loan programs and measures to reduce borrowing costs, have also been introduced to ensure eligible SMEs can continue tapping into working capital financing.
The government’s risk share of loans made under the Temporary Bridging Loan Programme, EFS – Trade Loan program, and SME Working Capital Loan program will be increased from 80% to 90% for loans initiated between April 8, 2020, and March 31, 2021.
Interest rates for the above financing schemes might also be lowered via the provision of a MAS SGD credit line to participating financial institutions. Financial institutions can apply from this funding line until December 2020, with the condition that they pass on the savings to SME borrowers.
SMEs may also request to defer principal payments on their loans up to December 31, 2020, subject to lenders’ credit assessment and approval.
This relief will be available to SMEs that continue to pay interest and are in good credit standing with their financiers. For other financing facilities, borrowers can initiate contact with their respective banks to work out alternative repayment options.
The Ministry of Law has also introduced a Covid-19 (Temporary Measures) Bill Act 2020 (the “COVID-19 Act”) to help SMEs with temporary deferment of any legal liabilities or fulfilment of contractual obligations. These include demands for rent, loan payments, and supply contracts entered into before March 25, 2020, which many startups and SMEs have been unable to deliver due to the pandemic’s impact on economic activity.
The provisions in the COVID-19 Act provide temporary relief to businesses who are unable to fulfil contractual obligations due on or after February 1, 2020, as a result of Covid-19. The Act came into force on April 20, and will last up to and including October 19, 2020. These months are known as the ‘prescribed period,’ and the period may be extended up to one year.
This bill will also ensure that property owners pass on the property tax rebate in full to tenants to ease their rental costs.
How much is Singapore’s government handing out?
In total, the additional S$5.1 billion provisioned for the Solidarity Budget will bring the government’s combined Covid-19 support package to $59.9 billion, about 12% of Singapore’s GDP.
This will be the biggest draw down of Singapore’s reserves and only the second instance where reserves have been called upon. We are experiencing a generational crisis of unprecedented magnitude, with threats on multiple fronts, and a strong response is only to be expected from the government.
Many SMEs are relieved that the government is providing lifelines for vulnerable companies. However, there are still critics who argue that authorities should do more, digging deeper into the reserves with bolder strategies to help prop up the economy, and by extension, SMEs.
The current situation remains very fluid and uncertain. As we tentatively and cautiously begin transitioning out of ‘circuit breaker’ measures, the full extent of Covid-19’s impact to the local economy remains to be seen.
It will take a unified and concentrated effort from the government, the citizenry, and businesses for Singapore to weather this storm with minimal damage.
The current climate further reinforces the interdependence of every individual and country. Without looking after the interests of the wider community, no business nor individual can hope to remain unscathed by the ripple effects of this pandemic.
About the Author
Ben is the marketing manager of Linkflow Capital, a SME loan financing firm that runs Singapore’s first business loan comparison portal.
Header image by Mike Enerio on Unsplash