Key Points
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The 2026 budget reinforces macro credibility amid global uncertainty. Strong fiscal discipline is sustained, with an overall budget surplus of 1.9% of GDP in FY25 and a 1.0% surplus projected for FY26. Persistent surpluses and adherence to a balanced‑budget framework will keep sovereign risk premia low and anchor confidence in Singapore’s financial markets.
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Spending priorities signal a strategic growth pivot. Higher overall expenditure is partly driven by a notable step‑up in development spending, with a clear focus on building national AI capabilities, supporting enterprise funding, attracting high‑quality capital, and providing targeted cost‑of‑living relief. This spending will be supported by firmer corporate tax revenues and rising net investment returns, preserving fiscal sustainability.
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The government has upgraded its 2026 growth outlook, reflecting strong late‑2025 momentum and sustained investment in advanced manufacturing, semiconductors, and AI‑related activities. Plans to establish a National AI Council, chaired by Prime Minister Lawrence Wong, will help position AI related technology adoption as a key lever to lift potential growth and help offset demographic headwinds over time.
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We remain positive on SGD, forecasting USDSGD to fall to 1.2200 level by end-2026, supported by fiscal strength, a modestly appreciating S$NEER policy, and a weaker US dollar. With growth resilient and inflation contained, we expect MAS to maintain its policy settings.
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Singapore’s bond market will also be underpinned by fiscal strength. Rising net investment returns, low inflation, and prospective SGD appreciation will continue to enhance the appeal of SGD bonds. We forecast Singapore’s 10-year government bond yield at 1.7% by end-2026, down from 2.0% currently.
