Singapore stays the course on globalization and fiscal policy

Singapore, rated (Aaa stable) by Moody’s, stayed on course with its focus on fiscal prudence and maintaining its role as a global trading and business services hub.

In its report on Singapore following the country’s Finance Minister Heng Swee Keat tabling of the Budget for the fiscal year ending March 2018, Moody’s said the budget is built on the recommendations of the recently published report of the Committee on the Future Economy (CFE), which put forth strategies for Singapore’s economic development over the next decade.

In each of these policy initiatives, the Singapore government has stayed the Fiscal space maintained through targeted spending

The government projects a surplus of 0.4% of GDP for FY2017, smaller than an expected surplus of 1.3% for FY2016 (Exhibit 1). The fiscal stance is thus mildly expansionary.


Moody;s said Singapore’s fiscal framework which requires a balanced budget, indicated that the two consecutive budget surpluses leave room for countercyclical measures in the event of a more pronounced slowing of economic growth through 2020.

Singapore recorded real GDP growth of 2.0% in 2016 and 1.9% in 2015 —among the lowest non-recessionary rates of growth in at least the past twenty years—as the country faced headwinds from external demand.

As noted in the budget speech, performance across sectors has been uneven given particular sensitivities to such shocks as the downturn in oil prices in recent years.

As such, the government has responded by announcing more targeted assistance to households and particular sectors instead of broader general stimulus.

It has also made modest enhancements to corporate and personal income tax rebates. In addition, the government has brought forward SGD700 million (0.2% of GDP) worth of public infrastructure projects over the next two fiscal years.

Notwithstanding the short-term relief measures, the FY2017 budget serves as an initial step towards the implementation of the CFE’s recommendations and has focused on longer-term initiatives, said Moody’s.

The finance minister announced that a total of SGD2.4 billion (0.6% of GDP) will be spent over the next four years on CFE-related programs. This is in addition to the SGD4.5 billion (1.1% of GDP) allocated for “industry transformation”—which has been identified as a key strategy by the CFE—that was announced in last year’s budget.

As a small and very open economy, trade is vital to Singapore. With the sum of its exports and imports of goods and services at 326% of GDP in 2015, Singapore’s reliance on trade is one of the highest in the world and has been facilitated by well-developed infrastructure.

In 2016, Singapore ranked fifth among 160 countries in the World Bank’s Logistics Performance Index (Exhibit 4), which incorporates assessments on the quality of infrastructure, logistics, and customs processing among others.

The CFE’s recommendations include the ongoing expansion of Changi International Airport and the construction of the Tuas mega port—both of which received funding in the budget—as well as changes to the regulatory framework for project financing.

The development of these large projects would help to secure passenger flows and container transhipment volumes amid volatile macroeconomic conditions that are affecting global trade and increasing competition from other regional transport hubs.

Infrastructure corporates such as PSA Corporation (Aa1 stable) and Changi Airports Group (unrated) will benefit.

Recommendations to facilitate access to competitive long-term financing for infrastructure would also allow infrastructure projects to access a wider funding pool and encourage funding diversity for the region’s infrastructure sector, which currently relies heavily on banks as a source of debt capital for infrastructure projects.

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