Speeches

Mr Emmanuel Daniel,
President and CEO of Asian Banker,

Distinguished guests,

Ladies and Gentlemen,

1.    I am very pleased to join you at this Summit, for which The Asian Banker has brought together public- and private-sector delegates from many countries and organisations.

2.    Given the current economic backdrop, the theme, "Fiscal integrity and monetary sovereignty in a borderless world" is not surprisingly a recurring one. After four consecutive quarters of negative year-on-year growth, the global economy finally began recovering in the fourth quarter of 2009.

3.    But the recovery, a fairly quick one given the severity of the recession, was not without costs: Aggressive government bailouts and sizeable fiscal injections have undermined quite a few governments' balance sheets, which in some cases, were already structurally weak at the onset.

4.    With the fragile debt situation in Europe and other advanced economies, the issue of debt financing and fiscal responsibility has become a focal point in global discussions.  Countries such as the US, UK and France have already begun the process of government spending reforms as well as recovering bailout costs through bank levies and bonus taxes.

The global financial crisis has highlighted the importance of fiscal responsibility

5.    Indeed, the importance of fiscal prudence and sustainability could not be better illustrated than by the recent global recession: economies with healthy reserves and adequate fiscal space were relatively resilient, not least due to the implementation of sizeable fiscal stimulus packages and government back-stop guarantees for bank deposits. On the other hand, some governments were hamstrung in their ability to offer such support owing to their relatively weak fiscal positions and structural deficits from untenable social security spending. In several European economies, unsustainable sovereign positions have become a problem source, forming negative feedback loops with the private banking sector and the real economy.

Fiscal policies must be rooted in long-term capability building for sustainable growth

6.    Fundamentally, the role of fiscal responsibility goes beyond balancing the books and macroeconomic stabilisation in the immediate term. It entails creating opportunities for economic growth while meeting social needs and stepping in where there is market failure.

In this regard, fiscal policy should ideally be conducted with a long-term view to build capacity for sustainable and inclusive growth. Tax incentives and government spending on human capital or infrastructure should ultimately promote work, enterprise, productivity and growth, without crowding out the private sector.

7.    Governments will do well not to lose sight of this strategic long-term focus even during a downturn and in the face of political pressure. Discretionary fiscal stimulus should be temporary in nature, with well-defined exit strategies to safeguard long-term budgetary health. Short-term measures to provide relief should also be accompanied by reforms in labour and product markets as well as by policies that increase future productive capacity.

8.    For example, countries such as Australia and South Korea introduced stimulus packages that comprised both one-off measures that provided reliefs for families and individuals as well as new spending on infrastructure development to improve competitiveness.

9.    It was also on this basis that Singapore formulated its biggest ever fiscal stimulus package.  Budgeted at 20.5 billion Singapore dollars, the package included bold temporary schemes to help households and businesses weather the recession while strengthening Singapore's long-term competitive advantage. One such temporary scheme was the Jobs Credit Scheme, which was a transfer to employers based on the wage bills incurred. This helped to keep businesses afloat and reduced unemployment during the downturn. In addition, the Skills Programme for Upgrading and Resilience, or SPUR, was rolled out to help companies re-skill and upgrade their workers during the economic lull. Together, these two schemes helped our businesses maintain and deepen their capabilities during the downturn, thus enabling them to respond quickly to the uptake in demand when the economy rebounded.

10.    At the same time, we also sought to enhance our future economic capacity and liveability by stepping up infrastructure investments. Furthermore, we funded these initiatives by tapping on our past reserves, rather than borrowing. By doing so, we minimised economic distortions and avoided crowding out private investments.

11.    Given the importance of long-term growth, it is essential for governments to be on a path to fiscal sustainability. In countries where fiscal space is limited, there is an urgent need to review fiscal spending. The Germans have taken the lead in Europe by making constitutional amendments to have a 'debt brake' to limit the government budget deficit to just 0.35% of GDP from 2016 onwards. France is now considering a similar measure, and other countries in Europe are also putting in place policies to cut deficits.  These countries have to manage the difficult and delicate equilibrium between balancing their budgets and revitalising their economies.

12.    There is also a pressing need to chart a well-defined future course for policies that require a fundamental shift. These include reviewing social programmes that were previously built to cater for much shorter life expectancy and are therefore no longer sustainable. However, given the reality of political short-termism and the threat of social instability, changes, where possible, will likely have to be carefully calibrated and phased in. Several countries are already moving in this direction.

The Greeks have agreed to raise their retirement age to 63, while France is in the process of increasing its retirement age to counter the pressure on its pension system.

The crux lies in the excellence of execution; there is therefore a need for prudent fiscal rules

13.    Of course, the ability of a government to discharge its fiscal duties effectively ultimately lies in the excellence of execution.

14.    In this regard, prudent fiscal rules and constitutional safeguards are key to ensuring discipline and anchoring expectations about sustainable public finances. Yet, at the same time, sufficient flexibility should be allowed for so that governments can respond to unanticipated economic shocks.

15.    This was the basis upon which we institutionalised the constitutional framework for the protection of Singapore's reserves in 1991. Under this constitution, the government's total expenditure is limited to the total revenue collected over the term of each government. Any drawdown on past reserves can only be carried out with the approval of our elected President. This imposes the fiscal discipline that has enabled Singapore to build up healthy reserves during normal times. Yet it is flexible enough to allow the government to tap into our past reserves for the first time in 2009 to fund extraordinary measures that were instrumental in helping Singapore companies and households weather the global downturn and emerge with stronger capabilities for the recovery.

16.    Finally, alongside well-designed frameworks for efficient cost management within government ministries, fiscal rules incentivise public sector productivity.

Conclusion

17. & nbsp;  I have spoken at length about the importance of fiscal responsibility of governments. Let us also be mindful that public-private partnership is integral to the health of an economy: ultimately, the private sector must be the engine of growth. The government's role should remain rooted in providing an environment that is conducive for savings, investment and enterprise.

18.    In this regard, I am confident that the dialogues between public and private sector stakeholders and practitioners over the next two days will help advance this important partnership.

19.    I wish you a fruitful Summit. Thank you.