(Updates with economist comments)
By Neil Chatterjee
SINGAPORE, Jan 19 (Reuters) - Singapore is considering dipping into its reserves worth hundreds of billions of dollars for the first time to tackle an economic slump, as it plans a budget this week expected to fund infrastructure and tax rebates.
The government could draw on the central bank's foreign reserves that totalled $174.2 billion in December, or its two secretive sovereign funds GIC and Temasek that had at least a combined $230 billion in assets in reported figures last year.
"The reserves are sizeable, notwithstanding recent losses, which gives the government a huge buffer -- this is a good move," said Kit Wei Zheng, economist at Citigroup in Singapore.
"The question is: do other countries have this level of reserves?" Kit said, adding that most Asian countries were still able to pump prime their economies, with some exceptions in Southeast Asia, such as Malaysia, and in South Asia.
Governments around the world have launched multi-billion dollar economic stimulus plans in recent months, a bid to stave off more job losses and prevent an even deeper and longer recession. The United States and Britain are expected to announce further spending plans this week.
Singapore's central bank, the Monetary Authority of Singapore, uses its reserves to steer monetary policy by managing the Singapore dollar within an undisclosed trading band.
"I don't think they will tap central bank reserves -- I don't think they will do anything that will compromise the central bank's ability to defend the Singapore dollar," Kit said.
The Government of Singapore Investment Corp invests foreign exchange reserves and says it manages much more than $100 billion, though analysts estimate the figure to be above $300 billion. Seven percent of its portfolio was cash as of March 2008.
The exact size of government reserves, which could also include revenues from land sales and dividends from firms owned by Temasek, has also never been disclosed.
"We've always said 'the reserves are for a rainy day'. If this is not a rainy day, I don't know what is a rainy day," the Business Times quoted Senior Minister Goh Chok Tong as saying.
Asked how much should be drawn from the reserves, Goh said it depended on the measures that would justify their use.
TAX REBATES, WEAKER SING DOLLAR?
Finance Minister Tharman Shanmugaratnam will announce on Thursday a budget that is expected to create a deficit possibly three times bigger than an estimated S$800 million ($538 million), which would be funded by a S$6.4 billion surplus in the fiscal year to March 2008, the government said in November.
"The government is lining up a sizable fiscal stimulus ... which we expect to focus on alleviating the short-term pain," said Goldman Sachs in a report on Monday, adding this could include tax rebates, infrastructure projects and training.
"However, these policy responses may not be aggressive enough to provide a meaningful offset to the global macro headwinds plaguing the economy," it said, revising down its GDP forecast for Singapore to a 4 percent contraction for 2009.
Singapore was the first country in Asia to fall into recession last year, when its non-oil domestic exports slid 7.9 percent as demand weakened in its key trading partners such as the Europe and the United States.
Singapore's budgets amid the Asian financial crisis in 1997/1998 saw one-off rebates on personal income tax and government expenditure up 15 percent, plus two off-cycle budgets, measures that economists believe the city-state may repeate.
Citigroup felt this week's budget would not be aggressive enough with permanent income tax cuts unlikely to be part of the package. It recommended selling into strength on any pre-budget rally in the stock market.
"The drop may be aggravated by the risk that the MAS may have to weaken the Singapore dollar, by shifting the nominal effective exchange rate (NEER) band downwards, before or at the April policy meeting," Citigroup said. (Additional reporting by Melanie Lee; Editing by Jan Dahinten)