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Stimulus Can’t Stay Forever, MAS Head Warns Global Policy Makers

(Bloomberg) — The global economic recovery from the pandemic is heading into a critical period as nations balance the need to prop up consumers and businesses against the threat of unmanageable debt, Singapore’s central bank chief said.

“The world is now entering a phase where the crisis is long, drawn-out, the peak of the crisis is behind us, but we’re not in full recovery,” Ravi Menon, managing director of the Monetary Authority of Singapore, told Bloomberg.

“In this undefined twilight zone of sorts, what is the appropriate policy mix?” Menon said. “Fiscal policy would have to start unwinding, but gradually,” while monetary policy makers must recognize that extraordinary measures can’t continue indefinitely.



a man holding a sign: Stimulus Can’t Stay Forever, MAS Head Ravi Menon Warns Global Policy Makers


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Stimulus Can’t Stay Forever, MAS Head Ravi Menon Warns Global Policy Makers

Ravi Menon interviewed in Singapore yesterday.

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Photographer: Wei Leng Tay/Bloomberg

Governments worldwide have pumped trillions of dollars into their economies, with that fiscal support taking the lead in combating the effects of the pandemic and winning the backing of multilateral institutions like the International Monetary Fund that usually are more cautious about debt. Meanwhile, central bankers have kept interest rates near record lows and have tinkered with unconventional tools.

If officials don’t start the process now of fine-tuning their stimulus, they risk seeing a destabilizing “fiscal-cliff effect” later if support has to be withdrawn all at once, Menon said in a separate interview with Bloomberg Television’s Haslinda Amin.

Under Pressure

As virus outbreaks worsen, including in the U.S. and across Europe, officials are under pressure to pump in more aid, even as some earlier stimulus may still be making its way to the intended targets and as long-term debt worries linger.

“If you unwind too rapidly, that will harm the recovery,” Menon said. “But if you stay on current levels of support — be it monetary or fiscal — that will create its own problems, the most prominent being debt accumulation.”

Monetary policy makers have been playing a “very accommodative and complementary role” to governments, he said, providing ample liquidity and in some cases buying up government debt in addition to keeping rates low.

Menon echoed Prime Minister Lee Hsien Loong’s recent comments on the likely need to maintain Singapore’s fiscal policy support into next year, which could mean a fiscal deficit endures. The policy mix will then need to evolve into areas that enhance growth, Menon said, including digitization and infrastructure.

2022 Horizon

“That’s one way to give confidence to the markets, that you’re not just pumping stimulus into the economy and borrowing to fund it. You’re also spending to help restructure the economy,” Menon said.

It could take until 2022 before economies return to their pre-pandemic levels, he added.

Singapore’s economic contraction eased to 5.8% year-on-year in the third quarter after a 13.3% decline in the previous three months. The information and communications and finance and insurance sectors strengthened further, helping to offset some of the pain in aviation, tourism and retail.

The government sees the economy shrinking 6%-6.5% this year before rebounding to 4%-6% growth in 2021, according to estimates released Monday.

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