MARC recommends affirming 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 Singapore’s prudent economic management, robust external position, high fiscal discipline, as well as strong governance and institutions. Its credit strengths are, however, tempered by its susceptibility to external developments and challenges coming from a rapidly ageing population.

Thanks to its credible and effective policies, the Singapore economy is likely to remain resilient and globally competitive. The country’s upbeat growth performance has thus far been supported by a highly diversified economy. Over the past five years, the resilient services sector contributed, on average, about two-thirds of total annual output, while manufacturing accounted for about 18%.

Singapore’s persistent current account (CA) surpluses are a strong rating support. In 2018, its CA balance registered an all-time high, equivalent to 17.7% of GDP and net international investment position stands at a significant 227.5% of GDP. While we foresee CA surpluses easing over the medium term amid increased spending related to structural reform efforts, Singapore’s external position will likely remain exceptionally robust given its substantial buffers.

The Singapore government operates on a balanced budget over each term of government. As such, it has zero fiscal debt and zero government guarantees. Given its prudent fiscal management, the city-state has enjoyed fiscal surpluses in all but five years over the last 20 years. This was also due in part to the Net Investment Returns Contribution of its sovereign wealth funds.

Singapore’s strong governance and institutions are central to its development success. Over the last decade, the city-state has consistently remained in the top three of the World Economic Forum’s Global Competitive Index. It also ranks well in the World Bank’s Worldwide Governance Indicators and Ease of Doing Business report. Given the country’s proven track record in policy-making and implementation, as well as proactive embrace of technological change, MARC expects Singapore’s strong governance and institutional framework to continue supporting its overall credit profile.

As a small and highly open economy, Singapore is susceptible to global headwinds. This is reflected by its high GDP growth volatility. It has also not been spared the uncertainties triggered by trade tensions between the US and China. Nevertheless, the US-Singapore free trade agreement should partially shield it from the spillovers of a global trade war. In any case, MARC believes that Singapore is capable of riding through potential external shocks given its significant fiscal and external buffers.

Over the medium term, the Singapore economy faces issues related to its rapidly ageing population as its old-age support ratio fell to 4.8 in 2018 from 7.6 in 2008. This translates into fewer working age adults supporting each resident aged 65 years and above. As fiscal policy needs to accommodate rising social and security expenditures, there will be implications on Singapore’s fiscal performance, productivity and economic growth.

Contacts:
Ummi Kalsom Yaacub, +603-2717 2934/ ummikalsom@marc.com.my;
Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my;
Nor Zahidi Alias, +603-2717 2936/ zahidi@marc.com.my.