The Covid-19 pandemic has forced economies into a tailspin, kicking off a long-drawn and painful downturn. We will soon start to see real, massive corporate and banking failures as well as individual bankruptcies that could last for the next two to three years. Singapore is saddled with long-term structural issues and short-term issues caused by the Covid-19 issue and the related panic it has created. The long-term issues the country already had will now create much bigger problems for companies looking to survive this unprecedented downturn. The short-term issues will also aggravate the situation. Coronavirus: Singapore’s closed borders spark scramble to return home amid global flight cuts While we should expect record bankruptcies and company closures in the coming months, business costs are not likely to drop in tandem, making things worse for companies and people. We will see an acceleration of structural changes in our economy. How the government responds will either cause further stress or allow Singapore to tap opportunities in these uncertain times. Measures announced as part of the budget seem far from sufficient, even before the global financial meltdown happened. But more can be done in the second stimulus package that finance minister Heng Swee Keat is expected to announce on Thursday. LONGER-TERM ISSUES AND IMPACT Costs in Singapore are mainly driven by the “real-estate economy”, with wages and rental making up a high component of total business costs. Why is this? Companies need to pay higher wages so Singaporeans – more than 90 per cent of whom are homeowners – can pay for inflated property prices. Rental, taxes and running costs paid by companies in the city state are also high. Given these cost burdens, we can expect a steep rise of business failures, and this will lead to job losses. How can the government provide support, and will future jobs return? And if so, will the rate of creation of new jobs be as fast as the rate of destruction of old jobs? For Singapore, will displaced workers be able to re-skill fast enough for the new jobs created or will we need to rely mainly on foreigners to do those jobs created? There are some immediate off-budget actions that the government can take. Coronavirus: US officials overruled expert advice on listing places visited by Patient 1 For individuals: Singaporeans need real cash grants to have more money in their pockets. They need to spend on essentials, and keep basic living conditions comfortable. The amount is a matter of judgment, but I anticipate something in the range of S$200 to S$300 (US$140-US$210) per working adult per month, for a one-year duration – perhaps half in cash and half in groceries vouchers. People who have lost their jobs should be prioritised, as should the self-employed and gig economy participants. In addition to cash grants to individual households, I suggest an additional employment allowance for every worker a company keeps hired, even at a reduced salary. This can help top up the loss of income for employees. This will encourage companies to keep people hired, even if they cut salaries to what they can manage. It is a win for all, with employers keeping their skilled people at a cost they can afford and Singaporeans keeping their jobs. This is a better option than retrenching workers, as companies can keep trained employees and be ready to ramp up production and services when demand comes back rather than hiring or training new employees in the future, which will add to costs. Singapore Airlines slashes flight capacity, grounds nearly all planes in response to coronavirus There should be a mortgage moratorium of three months, with the option of extending payments for a few years. Emergency legislation may need to be put in place to stop banks from calling back loans. To do this, the government may also need to shore up support to financial institutions to ensure they can manage the loss of income during the extended period of delay. For companies: Allow companies to take in employees, incentivise them to do so, and the government can provide 50 per cent to 70 per cent of the first year’s salary and sponsor their training. Help pay salary costs through the existing Jobs Support Scheme. While companies must try to find new areas and new markets to generate future demand, the government has already stepped in, allowing companies to claim an 8 per cent cash grant on the gross monthly wages of each local employee (citizens as well as permanent residents) for the months of October 2019 to December 2019, subject to a monthly wage cap of $3,600 per employee. The government needs to be prepared to do this for at least one year, with a possible extension of six months to a year. The government may also have to step in to help companies pay all or part of the contributions to the Central Provident Fund – Singapore’s mandatory savings and pension scheme – for employers as well as employees. This will put cash in employees’ pockets as well as help companies reduce cost and improve cash flow. All companies should receive a direct rental-rebate cheque – a one-time payment to help reduce costs. On top of this, rental laws should be implemented – and new laws gazetted if required – to determine fair rentals to be paid by tenants. OTHER MEASURES Cut charges for Electronic Road Pricing (a traffic management tool designed to reduce congestion by charging for the use of roads), fuel tax, utilities tax and halve the 7 per cent goods and services tax (GST) across the board – or, better still, reduce it to zero for the next two years, as this will help households too. Allow companies to retain their government GST payment for the next three months to help them with cash flow. Extend the bridging loan scheme for amounts between S$3 million to S$5 million for a minimum period of two years to assist companies worth saving, especially medium-sized enterprises. Coronavirus: Singapore’s tourist ban aims to curb imported infections, ease health care pressure Get banks to extend loan repayment periods. One thing banks can do is to require only interest payments for a year to help companies keep cash in the company. The government needs to see how banks can be incentivised to do this. The Monetary Authority of Singapore should work with banks to stop them calling back loans, by assuring them that these will not be counted as non-performing loans for the next few years. Singapore should also back all old loans under its new Loan Insurance Scheme, which sees the government guarantee 80 per cent to 90 per cent of loans. This means going to banks and allowing them to move old loans under this scheme, while there could also be a one-time loan securitisation scheme under which the government could buy the loans of small and medium-sized enterprises (SMEs) from banks, to be sold back when things stabilise. Loan guarantee schemes should be extended to new nonbank financial institutions and fintech companies engaged in financing businesses. Many of them are far better than banks in working with smaller companies, especially SMEs. Some form of direct government grants or loans to SMEs and start-ups, expanding existing government schemes such as the Growth Enterprise Fund that are mainly for equity investments in start-ups and growth companies. Aggressive tracing, lessons from Sars: how Singapore is flattening the coronavirus curve It may be worth converting these vehicles into venture debt structures, expending schemes like convertible loans and debts or even direct equity injection into companies that are assessed to have longer-term viability. There may be many companies that cannot service additional debts, and it may make sense for the government to step in through the likes of Temasek Holdings and GIC to help fund them. Income tax payments for individuals and companies should be delayed for the next one to two years. The whole idea is for companies to have liquidity and have sufficient cash flow to stay afloat for that period. Around the world, we are seeing numbers in the range of US$100 billion to US$200 billion being set aside by governments for loans to help companies. These are loans, not grants, and even if 10 per cent of these fail, it is not a big loss for Singapore if we can save companies and save jobs. These are extraordinary times, and the government’s second stimulus package should be aggressive enough to address the issues faced by companies and individuals in Singapore. Done right, we will come out stronger – done wrong, this may lead to a downward spiral that could take a long time to bring Singapore back to our past glory. Norway just announced that it is prepared to dig into its reserves to fund its economic rescue package. Singapore has to do the same. Singapore’s GDP is about S$500b. If we take a ballpark figure of 5 per cent of GDP for a rescue package, then we are talking about at least S$25 billion (US$17.5 billion, not including any loan schemes that will get paid back over time). This is modest compared to the rescue packages other countries have announced, such as A$189 billion (US$114 billion) in Australia; the European Central Bank’s € 750 billion (US$830 billion) and Spain’s € 220 billion (US$221 billion). This is the time Singaporeans will appreciate past governments’ strategy of tightly safeguarding the country’s reserves. We now have the firepower to do what is needed to save Singapore, and the time is right to be aggressive, rather than conservative. Inderjit Singh is a serial entrepreneur, and former People’s Action Party Member of Parliament from 1996 to 2015 Purchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A. Offer valid until 31 March 2020.