Republic of Singapore - 2015

MARC has affirmed the Republic of Singapore’s foreign currency sovereign rating of AAA with a stable outlook based on its national rating scale. The rating reflects MARC’s opinion of the sovereign’s ability to meet its foreign currency obligations in full and on time. The government of Singapore has no debt rated by MARC. The rating also serves as a country ceiling for ringgit-denominated debt issued locally by issuers domiciled in Singapore. Transfer and convertibility (T&C) risks are reflected in the country ceiling. The analysis is based solely on information available in the public domain.

The rating reflects Singapore’s macroeconomic strength as portrayed by a high-income economy coupled with a well-developed financial centre, exceptionally strong external position, prudent fiscal management and very high global institutional ranking. The rating also takes into account Singapore’s high exposure to the external sector as well as its rapidly ageing population.

Singapore’s rating is underpinned by its status as the world’s third wealthiest country, with gross domestic product (GDP) per capita in purchasing power parity (PPP) terms of USD82,762 in 2014, a stark improvement from a low of USD8,845 in 1980. The relatively stable political environment, progressive economic policies as well as significant attention paid towards structural growth factors have contributed to the acceleration of per capita income. Singapore’s high degree of trade openness has helped spur the development of the finance sector, which in turn buoyed the economy through the development of deep capital markets and efforts to attract major global banking houses. The services sector formed two-thirds of the country’s output, which is common in other developed economies, while the manufacturing sector remains a steady contributor to the economy, averaging close to 20.0% of GDP over the last decade.

The rating is further supported by Singapore’s exceptionally strong external position that is characterised by its huge current account (CA) surplus which, to a certain extent, helped it to accumulate substantial external assets. As a ratio to GDP, Singapore’s CA surplus stood at a whopping 20.0% of GDP in the five years post-Global Financial Crisis (GFC) through to 2014, sharply above advanced countries’ average of 1.9% of GDP. Singapore’s external position is further strengthened by its status as a large net creditor nation as evidenced by its very strong positive net international investment position (IIP) which stood at an average 189.3% of GDP over the last five years, one of the highest in the world. As such, MARC believes that Singapore is in a strong position to guard against any external shocks, further backed by its large foreign reserves stockpile (2014: SGD340.4 billion), which in total is larger than the size of its external liabilities.

On the fiscal front, the government’s prudent fiscal management, as evidenced by sustained fiscal surpluses since 2005 save for the recessionary year of 2009, is a credit positive. Its fiscal balance averaged at 0.9% of GDP in five years through to fiscal year 2014 (FY2014), broadly unchanged from the period prior to the GFC. While the government is projecting a fiscal deficit in FY2015, MARC opines that the government’s finances will remain in good shape, and will enable the country to utilise past fiscal reserves to respond to the current weak economic momentum. The government also has been proactive in raising its top marginal personal income tax rate for the first time in 30 years during the latest 2015 Budget, in anticipation of its large future spending bills, as part of its efforts to avoid a sustained annual budget deficit as required under the Constitution. Risk on the debt profile, meanwhile, is minimal due to its pure reliance on domestic sources. Moreover, public external assets remain ample, suggesting that the government’s budgetary position will remain sturdy over the medium to longer term.

Also underpinning the rating is Singapore’s high global institutional rankings, particularly in terms of governance, competitiveness and business environment. It ranked exceptionally well in all but one of the sub-indicators of the World Bank’s 2014 Worldwide Governance Indicators, and has consistently ranked second out of 151 countries in the World Economic Forum’s (WEF) Global Competitiveness Index (GCI) in the four years through 2014-2015. Singapore is also well-known for its efficiency and for being largely corruption-free, ranking seventh out of 175 countries on Transparency International’s 2014 Corruption Perception Index, albeit falling slightly from its previous position. Similarly, the World Bank also continues to rank Singapore as the most attractive place to do business, placing it at the top of its Ease of Doing Business rankings since 2007.

The rating also takes into consideration Singapore’s high exposure to the external sector given its status as a regional trade and financial hub. The value of total trade was more than triple the size of its GDP, the world’s second highest after Hong Kong. As a result, Singapore’s growth record is tied to the path of the global economy. Its growth volatility is the highest among advanced economies at 5.1% in the five years post-GFC (advanced economies average: 0.9%). In the aftermath of the GFC, the overall growth momentum continues to moderate, averaging 6.4% during the five years through to 2014 (pre-GFC: 7.4%), undermined by sub-par economic growth in other advanced economies and slower growth in East Asia.

Going forward, the prospects of long-term growth will continue to be constrained by the rapidly ageing population. MARC views positively the government’s efforts to nurture a new growth model that focuses on higher productivity. This will help reduce its reliance on foreign workers and set the stage for a more sustainable growth path over the medium to longer term.

The stable outlook reflects MARC’s expectations that Singapore will maintain its good showing, supported by a high degree of policy flexibility and favourable external conditions going forward.

Major Rating Factors

Strengths

• High-income economy with well-developed financial centre;
• Exceptionally strong external position;
• Prudent fiscal management; and
• Very high global institutional ranking.

Challenges

• High exposure to the external sector; and
• Rapid population ageing.