Abstract
Strong policies, resilient markets, and an improved external environment have helped Singapore tide over the recession. Singapore has a strong track record of proactive and forward-looking economic policymaking. Fiscal policy has regained its traditional medium-term orientation. Official reserve accumulation has to be kept under review. Social safety nets are well placed. Singapore’s exchange rate regime continues to serve the economy well, and the Monetary Authority of Singapore’s exchange-rate-centered monetary framework has been an important source of stability in times of economic turbulence.
On July 16, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Singapore.1
Background
Singapore’s 2008–09 recession turned out less deep than feared. A broad-based expansion is now on. Output losses have been recouped and medium-term issues are again at the top of the policy agenda.
Activity started to shrink in the second quarter of 2008. At its low mark a year later, GDP was 9 percent lower than pre-crisis. The output recovery has been as swift as the contraction. Growth has been double-digit for three of the last four quarters, reaching nearly 39 percent (quarter-on-quarter, seasonally adjusted annualized rate) in the first quarter of this year. Price dynamics have mirrored those of output. Headline inflation declined quickly and turned negative in the second half of 2009. With dissipating base effects, rising fuel and transport costs, and growth above potential, the consumer price index is back to its previous peak.
Although tested, Singapore’s financial system withstood the world recession well. As global market volatility subsided, financial activities staged a rapid recovery beginning in early 2009. Banking and insurance led the way, while brokerage and wealth management were slower in posting gains.
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From a historical perspective, Singapore’s exit from recession has been more vigorous than those following the 2001 dotcom crash and the 1997–98 Asian crisis. Improved global demand and sentiment as well as strong domestic policies and resilient labor markets have limited the severity of the downturn and set the stage for the expansion underway.
Macroeconomic management started to transition out of crisis-relief mode late last year. Policy normalization has by now been achieved. Monetary, fiscal, and macroprudential policies are appropriately calibrated to sustain the expansion and curb risks in the goods and asset markets. Medium-term issues are again at the top of the policy agenda.
The economy is projected to expand nearly 10 percent in 2010.2 Both external and domestic demand should continue to support growth, although the exceptional momentum of the first quarter is bound to wane. As the output gap turns positive, inflation will be trending up, in part because of one-off factors.
Executive Board Assessment
Executive Directors commended the authorities for the strong fundamentals and policy frameworks developed over time and the forceful countercyclical policies in response to the global downturn. A broad-based recovery is now underway and the focus has rightly shifted to sustaining the expansion. Given Singapore’s high exposure to risks from a slowdown of world trade or from financial linkages, flexible and proactive policies continue to be important.
Directors commended the Monetary Authority of Singapore for a skillful unwinding of the monetary stimulus and the restoration of broadly neutral monetary conditions. The return to a modest and gradual appreciation of the Singapore dollar in nominal effective terms is consistent with internal and external stability. Directors pointed out that changes in the outlook for growth or inflation warrant vigilance and could call for a further recalibration of monetary policy in the period ahead.
Directors agreed that Singapore’s exchange rate regime remains appropriate and that the exchange-rate centered monetary framework has been an important source of stability in challenging times. They noted the staff’s assessment that the Singapore dollar appears to be somewhat weaker than its medium-term equilibrium level, although considerable uncertainty clouds this assessment. They also noted that the Singapore dollar would likely strengthen in real effective terms over time as reforms promote faster productivity growth and the domestic economy continues to expand.
Directors considered that last year’s extraordinary fiscal support has been appropriately withdrawn in the 2010 budget and that fiscal settings are now close to neutral and in tune with internal balance. They supported the return of fiscal policy to its traditional medium-term orientation and the emphasis on measures to facilitate innovation, capital deepening, and productivity growth. The authorities’ intention to increase spending on physical and social infrastructure is welcome.
Directors agreed that Singapore’s strong supervision and risk management systems had been crucial in safeguarding financial stability in the global downturn. They endorsed the plans to unwind by year-end the blanket deposit guarantee and move to a system with higher deposit coverage. The authorities’ approach will ensure international consistency among economies with strong linkages. Directors welcomed recent measures to contain risks in exuberant segments of the property market and encouraged continued close monitoring of the situation.
Directors acknowledged the authorities’ rationale for promoting self-reliance over social welfare programs, reflecting society’s preferences. At the same time, they encouraged the authorities to adapt their approach over time as needed to preserve social and intergenerational fairness. Directors also noted that because of the special features of Singapore’s economy, building strong foreign exchange and fiscal reserve buffers has been a central element of economic strategy which has served the country well. They considered that, over time, a slower pace of reserve accumulation could be expected given Singapore’s demographic profile going forward.
Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2010 Article IV Consultation with Singapore is also available.
Singapore: Selected Economic and Financial Indicators, 2005–11
On a calendar year basis.
In months of following year’s imports of goods and services.
Singapore: Selected Economic and Financial Indicators, 2005–11
| Proj | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | ||||
| Growth (percentage change) | ||||||||||
| Real GDP | 7.4 | 8.6 | 8.5 | 1.8 | -1.3 | 9.9 | 4.9 | |||
| Total domestic demand | 2.6 | 7.1 | 7.8 | 14.7 | -4.9 | 9.0 | 5.7 | |||
| Consumption | 3.9 | 4.0 | 5.7 | 3.9 | 2.1 | 6.5 | 6.1 | |||
| Private consumption | 3.6 | 3.1 | 6.5 | 2.7 | 0.4 | 5.8 | 6.0 | |||
| Gross capital formation | -0.4 | 15.1 | 12.4 | 38.0 | -16.1 | 12.3 | 5.1 | |||
| Saving and investment (percent of GDP) | ||||||||||
| Gross national saving | 41.3 | 45.0 | 47.9 | 48.5 | 45.0 | 46.4 | 45.1 | |||
| Gross domestic investment | 20.0 | 20.8 | 21.2 | 29.9 | 27.2 | 27.8 | 27.7 | |||
| Inflation and unemployment (period average, percent) | ||||||||||
| CPI inflation | 0.5 | 1.0 | 2.1 | 6.6 | 0.6 | 2.5 | 2.1 | |||
| Unemployment rate | 3.1 | 2.7 | 2.1 | 2.2 | 3.0 | 2.2 | 2.3 | |||
| Central government budget (percent of GDP) 1/ | ||||||||||
| Revenue | 20.0 | 20.2 | 23.1 | 24.1 | 20.1 | 20.3 | 21.0 | |||
| Expenditure | 12.8 | 13.0 | 12.6 | 17.0 | 20.2 | 20.5 | 20.8 | |||
| Overall balance | 7.3 | 7.1 | 10.5 | 7.1 | -0.1 | -0.2 | 0.2 | |||
| Primary operating balance | -1.3 | -1.4 | 0.3 | -1.9 | -4.9 | -4.2 | -4.3 | |||
| Money and credit (end of period, percentage change) | ||||||||||
| Broad money (M3) | 6.4 | 19.1 | 14.1 | 11.6 | 10.6 | … | … | |||
| Lending to nonbanking sector | 2.2 | 6.3 | 19.9 | 16.6 | 3.4 | … | … | |||
| Three-month interbank rate(percent) | 3.3 | 3.4 | 2.4 | 1.0 | 0.7 | … | … | |||
| Balance of payments (US$ billions) | ||||||||||
| Current account balance | 26.7 | 35.1 | 47.2 | 35.8 | 32.4 | 40.7 | 40.8 | |||
| (In percent of GDP) | (21.3) | (24.2) | (26.7) | (18.5) | (17.8) | (18.6) | (17.4) | |||
| Trade balance | 36.4 | 42.6 | 46.1 | 26.5 | 30.0 | 41.7 | 51.5 | |||
| Exports, f.o.b. | 232.7 | 274.7 | 302.5 | 341.7 | 272.4 | 347.9 | 385.6 | |||
| Imports, f.o.b. | -196.3 | -232.2 | -256.4 | -315.2 | -242.4 | -306.2 | -334.1 | |||
| Financial account balance | -16.7 | -14.8 | -31.3 | -24.0 | -20.3 | -29.2 | -33.0 | |||
| Overall balance | 12.3 | 17.0 | 19.4 | 13.1 | 11.3 | 11.1 | 7.4 | |||
| Gross official reserves (US$ billions) | 116.2 | 136.3 | 163.0 | 174.2 | 187.8 | 198.9 | 206.3 | |||
| (months of imports) 2/ | (4.7) | (4.9) | (4.9) | (6.4) | (5.7) | (5.6) | (5.4) | |||
On a calendar year basis.
In months of following year’s imports of goods and services.
Singapore: Selected Economic and Financial Indicators, 2005–11
| Proj | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | ||||
| Growth (percentage change) | ||||||||||
| Real GDP | 7.4 | 8.6 | 8.5 | 1.8 | -1.3 | 9.9 | 4.9 | |||
| Total domestic demand | 2.6 | 7.1 | 7.8 | 14.7 | -4.9 | 9.0 | 5.7 | |||
| Consumption | 3.9 | 4.0 | 5.7 | 3.9 | 2.1 | 6.5 | 6.1 | |||
| Private consumption | 3.6 | 3.1 | 6.5 | 2.7 | 0.4 | 5.8 | 6.0 | |||
| Gross capital formation | -0.4 | 15.1 | 12.4 | 38.0 | -16.1 | 12.3 | 5.1 | |||
| Saving and investment (percent of GDP) | ||||||||||
| Gross national saving | 41.3 | 45.0 | 47.9 | 48.5 | 45.0 | 46.4 | 45.1 | |||
| Gross domestic investment | 20.0 | 20.8 | 21.2 | 29.9 | 27.2 | 27.8 | 27.7 | |||
| Inflation and unemployment (period average, percent) | ||||||||||
| CPI inflation | 0.5 | 1.0 | 2.1 | 6.6 | 0.6 | 2.5 | 2.1 | |||
| Unemployment rate | 3.1 | 2.7 | 2.1 | 2.2 | 3.0 | 2.2 | 2.3 | |||
| Central government budget (percent of GDP) 1/ | ||||||||||
| Revenue | 20.0 | 20.2 | 23.1 | 24.1 | 20.1 | 20.3 | 21.0 | |||
| Expenditure | 12.8 | 13.0 | 12.6 | 17.0 | 20.2 | 20.5 | 20.8 | |||
| Overall balance | 7.3 | 7.1 | 10.5 | 7.1 | -0.1 | -0.2 | 0.2 | |||
| Primary operating balance | -1.3 | -1.4 | 0.3 | -1.9 | -4.9 | -4.2 | -4.3 | |||
| Money and credit (end of period, percentage change) | ||||||||||
| Broad money (M3) | 6.4 | 19.1 | 14.1 | 11.6 | 10.6 | … | … | |||
| Lending to nonbanking sector | 2.2 | 6.3 | 19.9 | 16.6 | 3.4 | … | … | |||
| Three-month interbank rate(percent) | 3.3 | 3.4 | 2.4 | 1.0 | 0.7 | … | … | |||
| Balance of payments (US$ billions) | ||||||||||
| Current account balance | 26.7 | 35.1 | 47.2 | 35.8 | 32.4 | 40.7 | 40.8 | |||
| (In percent of GDP) | (21.3) | (24.2) | (26.7) | (18.5) | (17.8) | (18.6) | (17.4) | |||
| Trade balance | 36.4 | 42.6 | 46.1 | 26.5 | 30.0 | 41.7 | 51.5 | |||
| Exports, f.o.b. | 232.7 | 274.7 | 302.5 | 341.7 | 272.4 | 347.9 | 385.6 | |||
| Imports, f.o.b. | -196.3 | -232.2 | -256.4 | -315.2 | -242.4 | -306.2 | -334.1 | |||
| Financial account balance | -16.7 | -14.8 | -31.3 | -24.0 | -20.3 | -29.2 | -33.0 | |||
| Overall balance | 12.3 | 17.0 | 19.4 | 13.1 | 11.3 | 11.1 | 7.4 | |||
| Gross official reserves (US$ billions) | 116.2 | 136.3 | 163.0 | 174.2 | 187.8 | 198.9 | 206.3 | |||
| (months of imports) 2/ | (4.7) | (4.9) | (4.9) | (6.4) | (5.7) | (5.6) | (5.4) | |||
On a calendar year basis.
In months of following year’s imports of goods and services.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
This projection predates the release of the advance estimate for GDP growth for the second quarter of 2010.