b1110
Challenges for the Singapore Economy
and S$7 billion in the previous two years. Revenue fell because of a fall
in tax receipts while both operating and development expenditure
increased. Using the ‘Fiscal Impulse’ (FI) measure to better capture the
overall stance of fiscal policy
87
, it clearly switched from being contrac-
tionary in 2007 to expansionary mode in 2008 and 2009 (Monetary
authority of Singapore, 2010). Moreover, simulations by the Monetary
Authority of Singapore (2009) suggest that the measures introduced in
the January 2009 budget would add approximately 1.5 percentage
points to GDP growth in 2009 and reduce headline inflation by
0.2 percentage points. Monetary policy, by comparison, would have
had a smaller impact on GDP growth, although it may have helped to
alleviate some of the burden on exporters’ revenue streams at a time
when they were being hit by falling sales orders.
Overall, therefore, both monetary and fiscal policy switched
from being contractionary in 2007 when the economy was operat-
ing above potential to expansionary in 2008 and into 2009 when
GDP started to fall below potential as the global crisis began to
impact the Republic. Although one can always argue that the mag-
nitude of the fiscal and monetary stimuli could have been larger,
the fact remains that the economy has recovered much more
quickly than expected and the depth of the recession was much less
severe than anticipated.
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