MARC has affirmed the Republic of Singapore’s (Singapore) foreign currency sovereign rating of AAA with a stable outlook based on its national rating scale.  The AAA rating reflects a number of strengths, including its dynamic and competitive economy which has the highest GDP per capita in the region. Singapore’s success as a global business and financial hub is underpinned by its sound macroeconomic management as well as good governance and credible institutions. The rating strength also takes into account Singapore’s strong fiscal discipline, as the government has consistently recorded more years of surpluses than deficits. Meanwhile, its external position remains robust, thanks to persistent current account surpluses. As a result, the country has built up a massive amount of foreign reserves that continue to serve as an important buffer against external shocks.

Nevertheless, Singapore faces fast-rising external downside risks. Its growth volatility over the last decade has been higher than that of most of its AAA-rated peers. This is indicative of the susceptibility of Singapore’s small and open economy to external shocks. Meanwhile, its rapidly ageing population continues to be an issue. We see fiscal policy becoming more challenging given the need to counteract the demographically induced downward pressure on growth potential. Singapore’s march towards a technology-driven and innovation-based economy could, as a result, be affected.

Singapore’s stable outlook is predicated on expectations of the authorities’ continued pragmatic and effective response towards negative domestic and external developments without substantially eroding its considerable fiscal and external buffers. The government has so far announced four stimulus packages totalling about SGD92.5 billion, or 19.5% of GDP, to mitigate the economic and social impacts of the COVID-19 pandemic. We do not expect the unprecedented size of the stimulus packages to materially impact Singapore’s fiscal position due to its manageable level of public debt and massive fiscal reserves.

MARC is, however, cautious on the outlook as headwinds facing the economy have been made worse by the COVID-19 pandemic. Real GDP is expected to contract by between -7.0% and -4.0% and there are growing signs of deflation.

Major Rating Factors