Public Information Notice: IMF Concludes Article IV Consultation with Singapore

June 30, 2000

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.

On June 5, 2000, the Executive Board concluded the Article IV consultation with Singapore.1


Singapore's economy has rebounded strongly from the sharp slowdown in 1998, growing by an estimated 5½ percent in 1999. The economy slid into a recession in early 1998 as a result of the Asian crisis and the weakening in the global electronics market. The recession was, however, shallower and shorter-lived than in other countries in the region, in large part because of Singapore's robust fundamentals and the authorities' pragmatic and flexible policy responses.

Both external and domestic demand contributed to the strong growth performance. Initially, the recovery was led by robust external demand, but since the second quarter of 1999, domestic demand has also contributed. The rise in domestic demand was led by private consumption, but since the second half of 1999, there have also been signs of a rebound in fixed investment.

The traditionally strong external position has strengthened further. The current account surplus surged by more than 7 percent of GDP to 25 percent of GDP in 1998 and remained broadly unchanged in 1999. During 1999, exports rose markedly reflecting the sharp pick up in global demand for semiconductor and telecommunication products, more than offsetting the robust import growth. Rising regional demand for entrepot services and a sharp recovery in visitor arrivals led to the improvement in the service balance. Capital outflows moderated from the high level recorded in 1998, mainly as a result of lower withdrawal of foreign interbank funds from Singapore. Official foreign reserves stood at almost US$75 billion at end-March, 2000.

Inflation has remained low, reflecting continued slack in the economy. In contrast, equity prices staged a strong comeback, and current levels are well in excess of those before the crisis. In line with the recovery, labor market conditions have improved. Significant business cost reductions helped not only to moderate the need for layoffs during the slowdown, but also to underpin the recovery in employment. From a peak of 4½ percent in late 1998, the unemployment rate dropped to 3 percent at end 1999.

The easier monetary policy stance adopted in mid-1997 has largely been maintained. Between mid-1997 and mid-1999, the exchange rate depreciated by some 9 percent in real effective terms. Since mid-1999, however, the real effective exchange rate has remained broadly stable at that level.

In light of the stronger-than-expected recovery, fiscal stimulus was withdrawn in FY 1999. Although the budget for FY 1999 called for a widening in the operating deficit, the recorded budgetary outturn is estimated at a surplus of 2 percent. With the recovery now firmly established, fiscal policy in FY2000 is aimed at maintaining a broadly neutral stance, with the primary operating surplus estimated to be 1¾ percent of GDP, higher than the budget target of 1¼ percent of GDP.

During 1998 and 1999, the authorities undertook important structural reform measures with a view to promoting a dynamic private-sector led, knowledge-based economy. These include measures to raise foreign participation and competition in the domestic banking system, to expose the insurance industry to greater competition, to further develop the bond and equity market and the asset management industry, and to open up the telecommunication and power sectors.

Executive Board Assessment

Executive Directors commended Singapore's recent economic policies and performance, which could contain valuable lessons for other emerging economies. The authorities' flexible policy responses, together with strong macroeconomic and structural fundamentals, had brought the country through the Asian financial crisis relatively unscathed.

Directors considered that the short-term economic outlook is healthy. The economy is well positioned to take advantage of the upswing in the global electronics cycle and the regional economic recovery. The chief macroeconomic policy challenge is to support growth while avoiding overheating. Directors endorsed the current mix of fiscal policy—which has appropriately shifted to a neutral stance—and monetary policy which, with minimal inflationary pressures, remains relatively accommodating. Continued strong external and domestic demand could narrow the output gap and lead to price and wage pressures. Directors welcomed the authorities' commitment to remain vigilant against any emergence of such pressures. In this context, they noted that the authorities are prepared to tighten monetary conditions preemptively, by allowing the exchange rate to appreciate, to head off these risks.

Directors noted that the long record of prudent fiscal policies has served the country well. It has created a government net asset position strong enough to allow the fiscal impact of the aging of the population to be absorbed, while tax and expenditure policies are adjusted to support productivity growth and competitiveness. While endorsing the authorities' policy of maintaining a strong fiscal position over the long term, some Directors, nevertheless, indicated that the scope for further efficient increases in spending on human capital and social protection programs should be considered.

Directors welcomed the recent initiatives to widen the range of assets in which Central Provident Fund (CPF) balances can be invested. They generally encouraged the authorities to consider a comprehensive approach to reforming the CPF and associated programs, including its being refocused as a core retirement scheme. The latter would permit lower contribution rates—which would serve to lower business costs—and could be combined with tighter limits on preretirement withdrawals. At the same time, reforms of the management of CPF funds would serve to achieve the twin objectives of ensuring higher rates of return on assets and promoting the development of Singapore's financial sector.

Directors welcomed the financial sector reforms that have been implemented to date, as well as the authorities' resolve to move quickly with further reforms. They recommended that the development strategy for the financial sector be focused on leveraging traditional strengths to widen the base of the domestic financial sector. A priority is to address the remaining constraints on the development of a more liquid domestic bond market by taking steps to further develop markets for government securities, repos, and derivatives. More generally, Directors noted that various issues concerning the conduct of financial policies would likely need to be considered by the authorities as the financial system becomes more internationally oriented. Some Directors suggested that further consideration be given to issues related to the ongoing and welcome liberalization of the policy of non-internationalization of the Singapore dollar.

Directors acknowledged the past success of Singapore's government-led development strategy. Continued success in shifting to a knowledge-based economy will rely increasingly on the development of a more dynamic and entrepreneurial private sector, through deregulation, privatization, and upgrading human capital. They welcomed recent measures to open up the banking, telecommunications and power sectors, and saw scope for similar initiatives in some other areas, such as information technology and media services. Privatization of Government Linked Companies would be a key step toward improving incentives and enhancing competition.

Directors encouraged the authorities to move toward greater transparency on a number of fronts relevant to economic policies, noting that greater transparency would enhance the efficacy of policies. A few Directors suggested that the authorities consider introducing an inflation targeting framework, although they recognized that Singapore's monetary policy has high credibility with market participants. Directors also emphasized the benefits of fiscal transparency and encouraged the authorities to consider providing more information on the government's investment income, and to consolidate the various off-budget accounts, so as to enhance fiscal analysis on a consolidated basis.

Directors noted that Singapore provides data to the Fund on a timely basis and has subscribed to the SDDS. Directors urged the authorities to continue to make progress in improving statistical coverage, including trade statistics.

Singapore: Selected Economic and Financial Indicators

  1996 1997 1998 1999

(Change in percent)
Real economy        
Real GDP 7.5 8.4 0.4 5.4
Real domestic demand 12.1 10.2 -7.3 6.5
Real exports 10.1 11.6 -0.3 5.4
Real imports 9.5 10.2 -12.9 9.5
CPI inflation 1.4 2.0 -0.3 0.0
Unemployment rate (in percent) 2.0 1.8 3.2 3.5
Gross national savings (percent of GDP) 52.0 57.2 58.2 57.8
Gross capital formation (percent of GDP) 36.8 39.3 32.8 32.8
(Percent of GDP)
Public finance 1/        
Revenue and grants 36.7 36.6 30.1 28.8
Expenditure, net lending, and fund transfers 28.2 27.1 28.5 24.9
Overall balance 8.5 9.5 1.6 3.9
Primary operating balance 2/ 2.0 3.9 0.5 1.9
(End of period)
Money and credit        
M1 (change in percent) 6.7 1.7 -1.0 14.2
M3 (change in percent) 3/ 8.6 8.3 8.1 7.3
Private domestic credit (change in percent) 15.8 12.7 8.0 -3.0
Interest rate (three-month interbank, in percent) 3.4 6.6 1.6 2.6
(U.S. $ billion)
Balance of payments        
Current account balance 13.9 16.9 21.0 21.3
(In percent of GDP) 15.2 17.9 25.4 25.0
Balance on goods 2.2 1.1 14.8 11.3
Exports, f.o.b. 126.0 125.7 110.6 115.6
Imports, f.o.b. -123.8 -124.6 -95.8 -104.3
Overall balance 7.4 8.0 3.0 4.3
Gross official reserves 77.0 71.4 75.0 77.2
(End of period)
Exchange rate        
S$/US$ 1.400 1.676 1.661 1.666
Nominal effective exchange rate 4/ 125.9 125.2 120.8 118.9
Real effective exchange rate 4/ 118.1 117.2 108.4 106.6

Sources: Data provided by the Singapore authorities; and IMF staff estimates.

1/ Fiscal year beginning April 1; in percent of fiscal year GDP.
2/ Overall balance excluding capital revenue, investment income, net lending, debt service, and fund transfers.
3/ Adjusted for the acquisition of POS Bank by the Development Bank of Singapore in November 1998.
4/ IMF Information Notice System index (1990 = 100).

1Under 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. In this PIN, the main features of the Board's discussion are described.


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