Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Singapore

March 17, 2008

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. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2007 Article IV Consultation with Singapore is also available.

Public Information Notice (PIN) No. 08/34
March 17, 2008

On September 5, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Singapore.1


Singapore's economy has become increasingly resilient to changing global conditions, supported by pragmatic macroeconomic management and ongoing structural reform. Since the last Article IV consultation, economic performance has been impressive, with growth remaining strong and inflation subdued. Real GDP growth reached 7.9 percent in 2006, driven by solid external demand and a pick-up in domestic spending, especially investment. Growth registered 7.6 percent (year-on-year) during the first half of 2007, driven by a further strengthening in domestic demand, while external demand slowed. Growth is projected at around 7½ percent for 2007 as a whole.

Asset markets have been generally orderly, and risks appear contained despite the recent turbulence in global financial markets. Similar to elsewhere in the region, the equity market has performed strongly in 2007, although prices dropped recently in response to the rise in global credit risk concerns. Property market prices have continued to strengthen with private residential prices rising by 21 percent (year-on-year) in the second quarter of 2007, but remain well below pre-Asian crisis levels.

The current account surplus widened further in 2006, reflecting strong export growth. At the same time, capital inflows surged, reflecting: (i) favorable growth prospects for Singapore and the ongoing appreciation of the Singapore dollar, which have increased the attractiveness of Singapore assets; (ii) increasing use of the Singapore dollar as a proxy for the strengthening major regional currencies; and (iii) greater foreign investor participation in the high-end property market. The current account surplus continued to rise in the first half of 2007, largely driven by the shifting of the income balance into positive territory.

The monetary policy stance has been kept on a tightening bias since April 2004, targeting a modest and gradual appreciation of the nominal effective exchange rate (NEER). The Singapore dollar (as calculated by the IMF) has appreciated by about 2½ percent in nominal effective terms since the beginning of 2006.

Fiscal performance in FY 2006 (ending March 2007) was better than budgeted, owing to higher receipts from government property sales and tax revenue gains associated with strong growth, as well as slower-than-planned development spending and net lending. The fiscal impulse was positive, mostly reflecting large one-off income transfers.

Executive Board Assessment

Executive Directors commended the authorities' continued prudent macroeconomic management and proactive approach to structural reform, which have underpinned impressive growth and enhanced the economy's resilience to shocks. Inflation remains low, overall wage growth is contained, and asset markets are generally orderly. Directors considered the near-term outlook to be positive, and noted that a further deepening of structural reform will support sustained robust growth over the medium term.

Directors observed that large net fiscal reserves, which are the result of past prudence, provide scope for fiscal expansion aimed at addressing challenges related to globalization and aging. They commended Singapore's proactive steps and policies to further move the economy up the value-added chain and, looking forward, suggested that consideration be given to streamlining tax incentives and accelerating divestment of nonstrategic government-linked companies. Directors welcomed recent efforts to support low-income workers and plans to reform the Central Provident Fund (CPF), and also welcomed the implementation of the Work Income Supplement scheme as a positive step. They encouraged the authorities, nonetheless, to consider a further expansion of the social safety net, including the possible introduction of an unemployment insurance scheme while preserving work incentives. Directors also recommended additional efforts to enhance financial security in retirement, and suggested that options allowing more but simple investment alternatives for CPF savings could be explored.

Directors commended the Monetary Authority of Singapore's (MAS) vigilance as the financial sector further integrates into the global system and praised their implementation of the Financial Sector Assessment Program (FSAP) recommendations. While noting that local banks' direct exposures to the rapidly growing asset management industry appear limited, they stressed the importance of strengthening cross-border risk management in financial institutions and monitoring.

Directors noted that the exchange-rate-based monetary policy framework has served Singapore's small, open economy well. As inflation expectations are well anchored, they agreed that the present monetary policy stance of targeting a gradual nominal effective exchange rate appreciation remains appropriate. Many Directors viewed MAS sterilization operations as a legitimate domestic policy instrument for containing inflation, while some noted that the authorities should avoid sustained sterilized foreign exchange intervention. Some Directors emphasized that greater transparency in exchange rate management would support the maintenance of price stability.

Most Directors considered that the large current account surplus can be explained mainly by structural and cyclical factors. They agreed that the surplus will narrow as cyclical factors dissipate and structural factors gradually shift in the direction of reducing surpluses. Rapid acceleration of aging will reduce national savings and the economy's increased resilience to shocks will reduce the need for maintaining large fiscal reserves. Directors noted the staff's assessment that, as part of this adjustment process, the Singapore dollar is expected to appreciate in real effective terms, and that it appears currently undervalued relative to its long-term equilibrium level. Most observed, however, that the range of estimates of the deviation of the real exchange rate from its equilibrium level is wide and provides for an inconclusive assessment. While the view was held that large current account surpluses and large-scale sterilized intervention could suggest that the exchange rate may be undervalued, a number of other Directors noted that the absence of sustained price and wage pressures over longer time periods is an indication that the exchange rate is in line with fundamentals.

Directors welcomed the authorities' agreement to undertake a fiscal Report on the Observance of Standards and Codes (ROSC) in 2008, and urged the authorities to publish consolidated public sector accounts, including more information on the financial position of the Government of Singapore Investment Corporation.

Singapore: Selected Economic and Financial Indicators, 2000-06 1/
  2000 2001 2002 2003 2004 2005 2006

Growth (percentage change)


Real GDP

10.1 -2.4 4.2 3.1 8.8 6.6 7.9


15.6 3.6 5.3 1.3 4.5 3.8 4.2

Gross capital formation

24.1 -22.2 -5.0 -32.4 34.9 4.6 13.1

Net exports

-23.4 21.5 20.1 54.7 4.6 14.2 10.4

Inflation and unemployment (period average, percent)


CPI inflation

1.3 1.0 -0.4 0.5 1.7 0.5 1.0

Unemployment rate

2.7 2.7 3.6 4.0 3.4 3.1 2.7

Central government budget (percent of GDP) 2/



29.2 27.4 23.0 20.5 20.6 21.7 21.3


20.4 23.9 18.7 14.2 14.6 13.4 15.6

Overall balance

8.7 3.5 4.2 6.3 6.0 8.4 5.7

Primary operating balance

1.1 -3.5 -2.7 -3.0 -2.0 -1.2 -2.8

Money and credit (end of period, percentage change)


Broad money (M3)

-1.8 4.0 -0.8 5.9 6.1 6.4 19.1

Lending to nonbanking sector

4.7 5.8 -1.0 6.3 4.5 2.2 6.3

Interest rate (three-month interbank, in percent)

2.8 1.3 0.8 0.8 1.4 3.3 3.4

Balance of payments (US$ billion)


Current account balance

10.7 12.0 12.1 22.3 21.5 28.6 36.3

(percent of GDP)

(11.6) (14.0) (13.7) (24.2) (20.1) (24.5) (27.5)

Trade balance

14.0 17.3 18.8 29.6 32.9 36.7 44.7

Overall balance

6.9 -0.9 1.3 6.8 12.1 12.3 17.0

International reserves and international investment position


Gross official reserves (US$ billion)

80.2 75.7 82.2 96.2 112.6 116.2 136.3

MAS forward position (US$ billion)

3.0 -0.3 -0.5 5.4 13.9 21.3 58.8

Net international investment position (US$ billion)

... 60.9 81.6 93.9 102.6 104.5 ...

Exchange rate (end of period)



1.732 1.851 1.737 1.701 1.634 1.664 1.534

Nominal effective exchange rate 3/

102.4 100.1 101.0 97.0 97.9 100.3 104.1

Real effective exchange rate 3/

102.2 98.1 97.5 92.7 92.4 93.2 95.3

Sources: Data provided by the Singapore authorities; and IMF staff estimates and projections.
1/ Data available as per August 2007
2/ Fiscal year beginning April 1.
3/ IMF Information Notice System monthly index (2000 full-year average = 100).

1 Under 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.


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