SINGAPORE -- The next few years will be the most challenging period facing Singapore since the city-state became independent nearly 40 years ago, Defense Minister Tony Tan said in remarks published in the ***Sunday Times***.

"We have to be prepared for difficult economic times," Tan said late Saturday at an event to honor party stalwarts and activists from the ruling people's action party.

"The next few years will be among the most difficult that Singapore has faced since we gained independence in 1965," said Tan, who is also deputy prime minister, AFP reported.

Apart from a slowing economy, the island now also has to contend with the threat of terrorism and prospects of a military conflict in the Middle East, Tan said.

Authorities here have arrested 31 men since last year for an alleged plot to blow up local and foreign targets here, including the U.S. Embassy.

Singapore has, like the rest of Southeast Asia, been on a heightened state of alert since the October 12 carbombing on the Indonesian resort Island of Bali.

The city-state can overcome such challenges if Singaporeans remain united, Tan said.

"We need not be disheartened. We are facing the challenges from a strong base," Tan said. "With good economic growth over the years, we have built up ample reserves ... if we maintain our unity and resolve, I am confident that we will overcome the new challenges."

Singapore emerged from its worst recession in 2001 in the second quarter this year but the government was forced last month to trim its 2002 growth forecast by at least a third to 2.0-2.5 percent amid disappointing economic data.

Trade and tourism are crucial to the coastal city-state's economy, and any deterioration in the external environment usually has consequences for Singapore.