Extraordinary Times, Fundamental Principles: The 2009 Budget and the Ministry of Finance's Approach to Countercyclical Economic Strategy

Four key principles anchor the bold anti-recessionary measures in Singapore’s 2009 Budget.

Date Posted

1 Jul 2009


Issue 6, 14 Jul 2009

On 22 January 2009—a month earlier than convention dictated—Singapore’s Minister for Finance introduced an extraordinary Budget, designed to address “a time of grave economic crisis”.1 In response to the gravity of the global financial crisis, the Government put forward a S$20.5 billion Resilience Package. The size of the Budget—with the Basic Balance amounting to a deficit of 6% of GDP—is unprecedented in the history of independent Singapore.2


Along with initiatives to help individuals and households, as well as direct Government spending to pump-prime the economy, Budget 2009 focuses primarily on helping Singapore’s businesses weather the downturn brought about by the crisis, while building competitiveness for the long term. Underpinning the Government’s assistance to businesses are two unique measures: the Jobs Credit scheme; and the Special Risk-Sharing Initiative (SRI).

As with any recession, preserving jobs remains a key Government priority. Prior to the Budget speech, Credit Suisse analysts estimated that up to 300,000 jobs might be lost during the downturn, with 100,000 of those jobs held by Singaporeans. In order to save jobs, the Jobs Credit scheme offers incentives for companies to retain existing workers and to employ new ones, where their business warrants.

Singaporean banks have remained well-capitalised and relatively unburdened by toxic assets. However, when we were looking at the issue at the time of the Budget, we saw that the credit contraction that began on Wall Street rapidly degenerated into systemic risk aversion across banks worldwide, including Singapore. In order to help viable companies receive the financing they need to stay afloat and grow, the SRI provides a suite of measures in which the Government takes on a significant share of the risks of bank lending.


The Jobs Credit scheme provides businesses with a cash grant based on the wages of Singapore and Permanent Resident (PR) employees, set at 12% on up to the first S$2,500 of wages per month. Structured as four quarterly payments, the payments are based on the preceding three months’ wage bill but only for workers employed at the end of the period. Calculated using CPF contribution data, the scheme requires no additional application and paperwork on the recipient firms’ part.

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Since the two measures target different objectives, they are structured quite differently.

The Jobs Credit scheme addresses the fundamental need to mitigate the effect of a sharp downturn by alleviating business costs through a fiscal injection. With the Jobs Credit scheme, the Government provides significant direct assistance to businesses, with no additional administrative burden on recipients.

In contrast, the SRI addresses the need to unfreeze credit chokepoints across diverse loan types, for diverse uses across the entire supply chain. As such, the SRI comprises a suite of credit measures intended to cover a whole range of business activities. Some of these measures could also be relatively complex and require close collaboration amongst financial institutions, recipient companies and the Government.

Nevertheless, both policies are based on common fundamental principles that reflect the Ministry of Finance (MOF)’s countercyclical economic strategy:

  • Act with impact: Unprecedented circumstances require responses of unprecedented scale;
  • Act with a long-term view: Achieve balance between short-term needs and long-term goals;
  • Act with efficiency: Build on established infrastructure for timely intervention, with minimal administrative burden to participants;
  • Act in partnership: Move cohesively with all stakeholders, public and private.


The impact of the ongoing crisis is unprecedented in its swiftness and scale. The global financial system acted as a transmission mechanism for the psychological panic that followed the collapse of Lehman Brothers in September 2008, which then rapidly affected business operations in the real economy. At the same time, all the major regions of the world experienced economic decline simultaneously—making this the first truly global recession in the post-war period.

In view of these unique challenges, the scale of the new Budget measures had to be correspondingly bold. In formulating the Jobs Credit scheme and the SRI, the Government has decided to err on the side of impact instead of caution.

The 12% wage offset provided by the Jobs Credit scheme is generally equivalent to a 9-percentage point Central Provident Fund (CPF) contribution rate cut.3 When compared against the 14.5% prevailing employer contribution rate for most workers, this translates into a 62% reduction in the employer’s share of CPF contributions.4 However, unlike CPF cuts, the Jobs Credit scheme does not undermine workers’ retirement savings or their ability to service their mortgage payments through CPF. Never in the past has the Singapore Government stepped in to replenish employees’ CPF contributions in conjunction with a CPF cut to lower business costs. Since its introduction, the Jobs Credit scheme has generally been welcomed as a vital cashflow boost.5

The Government needs to help companies find breathing space to ride out temporary dislocations in demand. At the same time, businesses must still have incentive to restructure and adapt to changing circumstances.

The SRI schemes also represent an unprecedented level of risk-sharing in terms of Government credit measures. With 80% risk-share on unsecured working capital loans of up to S$5 million, the new Bridging Loan Programme under Budget 20096 is the most generous Government loan scheme available that does not require any collateral. At the time, MOF also felt that 80% risk-sharing was as high as we could accommodate for a broad-based scheme while still aligning the banks’ interests and objectives with ours.


Economic crises lead to a reshuffling of the deck that creates an opening for Singapore and Singaporean companies to improve our competitive positioning. In such an environment, the survival instinct prompts resilient businesses to review business models, improve products and explore new markets.

However, anti-recessionary business measures can be a double-edged sword. By intervening in the marketplace to limit the impact of any downturn, governments may also blunt necessary market adjustments.

Landmark measures such as the Jobs Credit scheme and the SRI must balance short-term needs and long-term goals. On the one hand, the Government needs to help companies find breathing space to ride out temporary dislocations in demand. At the same time, businesses must still have incentive to restructure and adapt to changing circumstances.

In order to achieve this subtle balance, it is vital for programmes of such generous scale to be temporary. Hence, the Jobs Credit scheme and the SRI have definite end dates articulated upfront, although there is a possibility of limited extensions. The Jobs Credit scheme has four payments over the course of one year. Loans can be issued under the SRI schemes within one year, while a four-year cap on the loans’ tenure makes the initiative essentially self-terminating after five years.

Companies have shared anecdotes on how the Jobs Credit scheme has positively shaped their employment strategies for the downturn.7 Some companies who have been less affected by the downturn are even using the injection of funds to reinvest in future growth8 —for instance, by hiring more staff, or investing in training and new equipment.

The time-limited nature of the SRI schemes may also have prompted participating banks to respond positively. In the first month since the SRI and other enhancements to Government credit schemes was launched, SPRING Singapore, our enterprise development agency, reported a record of 729 loan approvals under Government schemes, up from 411 in January and almost three times the monthly average in the previous year.


Given the suddenness of the downturn, the disruption to Singapore’s economy would have been worse had the Government not acted decisively. Even prior to Budget 2009, the Government had launched major initiatives as early as November 2008 in response to acute and rapidly developing shocks to the economy.

The speedy implementation of the Jobs Credit and SRI schemes was made possible only by building on established processes and mechanisms, such as the CPF system, to minimise working lag time.

Given the suddenness of the downturn, the disruption to Singapore’s economy would have been worse had the Government not acted decisively.

Given its goal of saving jobs by easing cash-flow constraints posed by the downturn, the Jobs Credit scheme had to be implemented in a manner that posed minimal administrative burden to recipients. MOF, in close collaboration with the Central Provident Fund Board (CPFB) and the Inland Revenue Authority of Singapore (IRAS), used existing administrative data from CPF contribution and tax filings to compute and distribute Jobs Credit payouts. This avoided the need for burdensome declarations from companies.

We also had to sacrifice comprehensiveness for efficiency in some instances. For example, MOF decided not to use rental costs (in addition to wages) to calculate payment quantum to businesses, as we would then have to ask businesses to submit rental information.

Similarly, the SRI schemes had to be put in place quickly due to the prospect of an acute arrest in credit flow. MOF and the Ministry of Trade & Industry (MTI) harnessed the network of financial institutions and the existing government framework of smaller-scale credit schemes, allowing government agencies to launch the new credit programmes as early as six working days after the Budget speech.


A timely response need not also be reactionary. Due to the volatility of the situation, it was essential not to launch schemes on the scale of the Jobs Credit scheme and the SRI without careful assessment.

The complexity of the modern economy means any successful countercyclical strategy requires both whole-of-government collaboration and private sector buy-in. MOF’s processes for involving relevant government agencies and the private sector in formulating the Budget are well institutionalised. These range from a defined work stream of developing, reviewing and fine-tuning the budgets of individual Ministries, to pre-Budget consultations with businessmen, subject experts, unionists and other key stakeholders in Singapore. The formulation of the Budget 2009 measures illustrates MOF’s longstanding commitment to inclusiveness.

For instance, the need to ease business costs in an environment of declining revenues was a recurrent theme in pre- Budget dialogues. Similarly, the SRI is the product of intense engagement with the banking community and corporate representatives of the worst-affected sectors.

On the Government front, in formulating the policies, MOF worked very closely with the Ministry of Manpower (MOM) on the structural elements of the Jobs Credit scheme, and with MTI, SPRING and IE Singapore for the SRI.

The same cohesiveness has been reflected in the execution of the measures. Multiple government Ministries monitor the impact of the Budget 2009 measures, evaluate private sector feedback, and share policy-relevant information across agency boundaries.

The Minister for Finance has consistently reiterated that the success of both the Jobs Credit scheme and the SRI requires the private sector to collaborate with the Government to achieve the objectives that are in the best interest of all parties. The Government can take in feedback, set clearly defined policy objectives and commit substantial resources in support of the business sector. However, it does not have control over hiring and retrenchment decisions of employers, nor does it have the expertise to evaluate commercial viability and credit worthiness of businesses across the whole of Singapore’s diverse economy. For the Jobs Credit scheme and SRI to succeed, we need companies and financial institutions to respond positively.


These basic principles are not specific to anti-recessionary measures, nor are they unique to MOF or new to the Singapore Public Service. Indeed, they are defining characteristics of the public policy landscape in Singapore.

The two key Budget 2009 measures, although differing in many ways, are illustrative of how these principles are expressed and embodied in Singapore’s major public policies.

However, to paraphrase Keynes, the injunction that “when the facts change, we change our minds” remains the most fundamental principle of all. Given the volatility of the economic environment, the Government must place a premium on flexibility and remain nimble in its responses. Should the needs of the Singaporean economy change, the Government will not hesitate to fine-tune—or, if necessary, overhaul—our strategies and policies, in order to advance the interests of Singaporeans and Singapore businesses.


Jonathan Pflug is an Associate for Economic Strategy in the Ministry of Finance. He is a member of both inter-agency teams responsible for formulating, implementing and monitoring the Jobs Credit scheme and the SRI.


  1. Budget 2009 speech. For more details, see
  2. Prior to 2009, the largest deficit on record was 3% of GDP in 2003, in response to the recession that followed the outbreak of the Severe Acute Respiratory Syndrome.
  3. Based on internal MOF data
  4. With the employer’s CPF contribution standing at 14.5% of employee wages, a 9-percentage point CPF cut would lower employer contribution rates to 5.5%. This is a 62% reduction. The scale of this reduction is in line with those undertaken in response to the 1985 recession, when the employer’s CPF contribution was lowered from 25% to 10% in the following year.
  5. In a February 2009 post-Budget survey, the Singapore Chinese Chamber of Commerce and Industry (SCCCI) asked its 131 member associations which measures they considered to be most helpful. 78% of respondents cited the Jobs Credit scheme. See Teh Shi Ning, “Jobs Credit scheme most helpful: survey”, Business Times, 19 March 2009.
  6. Under Budget 2009, the new Bridging Loan Programme supplants an initiative of the same name, originally launched in November 2008, which provided a 50% risk-share on unsecured working capital loans of up to $500,000. The Budget 2009 version of the programme surpasses the November initiative on every scale.
  7. In terms of retaining jobs, multi-national corporations, like German chipmaker Infineon Technologies Asia-Pacific, have applauded the Jobs Credit scheme for easing the pressure off their labour costs. Meanwhile, Deloitte and Touche has cited the scheme as affirmation for its decision to hire 150 new graduates. Some other companies have also said that they would use the funds in different ways, such as investing in training and new equipment. See Alvin Foo and Robin Chan, “Cash grant helps wage bill”, The Straits Times, 24 January 2009.
  8. At a March 2009 tripartite dialogue with unionists, Mr Tan Peng Heng, President of the Singapore Industrial and Services Employees’ Union, raised the example of an aerospace company that intends to use the wage bill savings to subsidise training. See Jeremy Au Yong, “How the Budget helped one company”, The Straits Times, 25 February 2009.

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