IMF Executive Board Concludes 2008 Article IV Consultation with Singapore

Public Information Notice (PIN) No. 08/107
August 13, 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 2008 Article IV Consultation with Singapore is also available.

On July 16, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Singapore.1


Spillovers from the global slowdown and lingering turbulence in international financial markets have been propagated to Singapore mostly through the trade channel. After growing by about 7¾ percent last year, flagging exports have weighed on the pace of activity since late 2007. Relatedly, the current account surplus fell from 24 percent of GDP in 2007 to 14 percent of GDP in the first quarter of this year.

Inflation has risen significantly on the back of international and home-grown cost pressures, reaching a 26-year high of around 7 percent during January-April this year. Increases in food and energy prices have added to pressures from a hike in indirect takes, a housing boom, and tighter labor markets. Housing prices have stabilized but there may remain some froth in the high-end market.

The global market turmoil has had only limited reverberations on Singapore's financial system. Credit spreads have widened, equity volatility has risen, and banks have incurred trading-related losses, including on structured credit products. Yet, none of these developments have had systemic implications, so far.

Monetary policy has been tightened further. Following a slight increase in the slope of its policy band for the nominal effective exchange rate of the Singapore dollar last October, in April 2008 the Monetary Authority of Singapore shifted the band up by an estimated 2 percent in response to inflation concerns and upward pressures on the exchange rate.

Fiscal policy has been loosened. After a sizable revenue overperformance last fiscal year (which ended in March), the FY 2008-09 budget is slightly expansionary. It focuses on improving competitiveness and supporting household disposable income through tax measures (including a one-off personal income tax rebate) and targeted cash transfers.

Executive Board Assessment

Executive Directors noted that the pragmatic macroeconomic policies and proactive structural reforms have underpinned Singapore's strong economic performance and increased resilience to adverse external shocks. Directors observed that, given the challenges of weakening global growth, ongoing turbulence in international financial markets, and mounting inflation pressures, the pace of economic activity in Singapore is likely to decline in the near term, with inflation remaining elevated. Against this background, ensuring that inflation expectations remain well anchored is a policy priority.

Directors agreed that, given the uncertainties in the global outlook facing Singapore's open economy, macroeconomic policies should remain flexible and pragmatic and seek an appropriate balance to sustain solid growth while containing inflationary pressures and maintaining macroeconomic stability.

Directors welcomed the recent steps by the Monetary Authority of Singapore to tighten the monetary policy stance further by adjusting the exchange rate target band. Directors noted the staff's assessment that the Singapore dollar remains weaker than the level implied by long-term fundamentals. However, given the downside risks to growth, many Directors favored maintaining the current policy mix in the short-term, with the authorities remaining ready to modify the policy stance going forward if necessary. These Directors felt that the extent of exchange rate undervaluation is difficult to gauge, and that given monetary policy lags, it would be sensible to assess the impact of the monetary tightening already in the pipeline before adjusting the policy stance. In this regard, indications of recent easing in wage pressures were welcomed.

A number of other Directors favored the staff's view that a further degree of rebalancing of the macroeconomic policy mix toward a somewhat tighter monetary stance and a looser fiscal policy would be desirable in the current conjuncture from both a domestic and an international perspective. Given the recent upsurge in inflation, they considered that a moderately faster pace of appreciation would help ensure that price expectations remain well-anchored and facilitate the needed external adjustment. These Directors acknowledged the difficulty of additional tightening when the external environment remains fragile, but observed that the width of the exchange rate policy band could provide flexibility to cope with adverse shocks. They also considered that a stronger Singapore dollar would fend off upside risks to inflation, facilitate external adjustment, and create room in the near-term for additional targeted spending to alleviate the impact of rising prices on low-income households. Directors generally agreed that a gradual external adjustment is warranted in light of Singapore's exceptional trade and financial openness.

Directors agreed that, over the medium term, a broader reorientation of the policy mix is desirable. Singapore's ample fiscal reserves provide space for more spending on physical and social infrastructures once inflation risks abate, in line with the authorities' medium-term priorities.

Directors commended the Monetary Authority of Singapore for continuing efforts to bolster the already strong regulatory and supervisory frameworks, including by enhancing stress-testing and crisis management. In their view, this proactive approach has largely shielded domestic financial institutions from the impact of the global financial turmoil. Nonetheless, Directors noted that the risks of a price correction in some segments of the property market and the possibility of contagion through the trade and financial channels warrant continued vigilance.

Directors welcomed Singapore's participation in the Fund-facilitated initiative to identify best practices for sovereign wealth funds.

Singapore: Selected Economic and Financial Indicators, 2004-09

  2004 2005 2006 2007 2008 2009

Growth (percentage change)


Real GDP

9.0 7.3 8.2 7.7 4.5 4.5

Total domestic demand

14.0 2.9 7.7 9.2 8.9 5.3


4.2 4.4 4.8 4.1 4.4 4.2

Private consumption

5.2 3.9 3.3 4.6 4.0 4.3

Gross capital formation

48.1 -1.0 15.2 21.4 18.2 7.4

Net exports

-2.0 21.2 8.3 5.4 -6.9 1.8

Contribution to GDP growth

-0.6 5.5 2.5 1.6 -2.0 0.5

Saving and investment (percent of GDP)


Gross national savings

38.4 38.5 41.8 46.8 43.8 43.8

Gross capital formation

21.7 19.9 20.0 22.6 25.6 26.2

Inflation and unemployment (period average, percent)


CPI inflation

1.7 0.5 1.0 2.1 6.7 3.5

Unemployment rate

3.4 3.1 2.7 2.1 2.1 2.2

Central government budget (percent of GDP) 1/



20.1 21.1 21.6 24.3 23.2 23.4


14.3 13.0 14.4 14.7 17.5 16.8

Overall balance

5.8 8.2 7.2 9.5 5.7 6.6

Primary operating balance

-1.9 -1.2 -1.8 0.4 -1.6 -1.2

Money and credit (end of period, percentage change)


Broad money (M3) 2/

6.1 6.4 19.1 14.1 12.4 ...

Lending to non-banking sector 2/

4.5 2.2 6.3 20.0 24.4 ...

Interest rate (three-month interbank, in percent) 2/

1.4 3.3 3.4 2.4 1.4 ...

Balance of payments (US$ billion)


Current account balance

18.2 22.3 29.8 39.2 34.5 36.2

(percent of GDP)

(16.7) (18.6) (21.8) (24.3) (18.2) (17.6)

Trade balance

31.0 37.1 43.4 49.2 48.8 49.4

Overall balance

12.1 12.3 17.0 19.4 17.7 10.8

Gross official reserves (US$ billion)

112.6 116.2 136.3 163.0 180.7 191.5

(months of imports) 3/

(5.4) (4.7) (5.0) (5.0) (5.1) (4.9)

Exchange rate (end of period)


S$/US$ 4/

1.634 1.664 1.534 1.441 1.366 ...

Nominal effective exchange rate 5/

97.9 100.3 104.0 106.0 109.5 ...

Real effective exchange rate 5/

92.4 93.2 95.1 98.0 102.6 ...

Sources: Data provided by the Singapore authorities; and IMF staff estimates and projections.
1 Fiscal year beginning April 1.
2 Latest observations as of April 2008.
3 In months of following year's imports of goods and services.
4 Latest observations as of May 2008.
5 IMF Information Notice System monthly index (2000 full-year average = 100). Latest observations as of May 2008.

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.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100