IMF Executive Board Concludes 2009 Article IV Consultation with Singapore

Public Information Notice (PIN) No. 09/110
August 31, 2009

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 2009 Article IV Consultation with Singapore is also available.

On July 29, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Singapore.1


Singapore has been severely affected by the global downturn. It was among the first countries in Asia to enter a recession and is now set for its worst economic contraction since independence. Nonetheless, economic fundamentals remain strong and provide an important buffer against the external shocks.

As elsewhere in the region, Singapore’s financial markets experienced considerable turbulence in the fall of 2008, but the impact of the crisis has been felt mainly through the trade channel. The collapse in external demand has led to a sharp contraction in GDP, which fell by almost 13 percent (quarter-on-quarter, seasonally adjusted annualized rate) in the first quarter of 2009. Although export-oriented sectors have been hit the hardest, services, including in the financial sector, have also suffered. Unemployment has risen and wage growth has decelerated. However, employment of residents has fallen less than in previous downturns as the corporate sector entered the recession in a stronger position.

The current account surplus has shrunk markedly as a result of the slump in exports. Foreign direct investment (FDI) and portfolio inflows have also fallen because of the deteriorating growth outlook and rising risk aversion. However, the decline has been more than offset by lower capital outflows owing to weaker corporate profits and concerns about asset quality in advanced economies. Outflows have also been mitigated by Singapore’s status as a safe haven.

Singapore is a major funding center for South-East Asia and its financial market conditions are highly influenced by developments abroad. The equity market fell by almost 24 percent in October 2008, the biggest month-on-month decline in more than twenty years, and money and credit markets experienced considerable liquidity pressures. However, as concerns about the severity of the global downturn have eased in recent months, and risk appetite has improved, equity prices have rebounded, and the liquidity situation has also improved.

The policy response to the crisis has been forceful and has included a large fiscal stimulus package, an easing of monetary policy, and a range of measures aimed at stabilizing the financial sector. The overarching strategy has been to lessen the impact of the external shocks, while ensuring that Singapore is well positioned to rebound once the global economy recovers.

Executive Board Assessment

Executive Directors noted that, given the openness of its economy, Singapore was among the first countries in Asia to enter a recession following the collapse of external demand. Nevertheless, strong economic fundamentals, coupled with the authorities’ skillful implementation of a broad range of policy instruments, have helped lessen the impact of the shocks. The focus now is to preserve financial stability and to ensure that Singapore is well positioned to rebound once the global economy recovers, taking advantage of the ample room for maneuver at the authorities’ disposal.

Directors considered monetary policy settings to be broadly appropriate, supporting domestic demand without undermining exchange rate stability. They agreed that, barring a significant deterioration of the outlook for growth or inflation, monetary policy should stay the course until a recovery is clearly established. Further along the recovery path, a tightening stance would be warranted to safeguard price stability, through targeting a trend appreciation of the nominal effective exchange rate.

Directors observed that the floating exchange rate regime has served Singapore well, and that the exchange-rate centered monetary policy framework has been an important source of stability in times of turbulence. They noted the staff’s assessment, though subject to considerable uncertainty, that the Singapore dollar in real effective terms appears to be somewhat weaker than its medium-term equilibrium level. The real effective exchange rate would likely strengthen, in line with fundamentals, once a global recovery takes hold.

Directors agreed that the fiscal policy response, most recently the Resilience Package contained in the 2009 budget, should go a long way toward mitigating the impact of the recession on households and businesses, while also fostering the country’s long-term growth potential. They welcomed the authorities’ readiness to take further measures if the economy’s trajectory proves more fragile than currently expected. Directors emphasized that, over the medium term, fiscal policy will need to play a part in preparing the economy for shifts in the pattern of global demand. Higher public investment in physical and social infrastructure, along with flexible labor and product markets, would create an enabling environment in which Singapore could seize new economic opportunities. Consideration could be given also to strengthening the role of automatic stabilizers.

Directors noted that Singapore’s financial sector has shown remarkable resilience and should be able to withstand an even deeper and more prolonged global downturn. They commended the authorities for proactively implementing a series of measures to safeguard the stability of the financial system. Directors stressed that, in the period ahead, priority should continue to be given to rigorous stress-testing as asset quality is likely to deteriorate, upgrading contingency planning, and strengthening cooperation with supervisors abroad. They welcomed the decision of the Monetary Authority of Singapore (MAS), the Hong Kong Monetary Authority, and Bank Negara Malaysia to coordinate the unwinding of deposit guarantees in their respective jurisdictions. Directors encouraged the MAS to continue to adapt its supervisory and regulatory framework as lessons from the crisis are learned.

Given all members’ obligations to provide accurate data to the Fund, Directors welcomed the authorities’ intention to improve over time the currently incomplete reporting of the international investment position of Singapore.

Singapore: Selected Economic and Financial Indicators, 200510

  2005 2006 2007 2008 2009 2010

Growth (percentage change)


Real GDP

7.3 8.4 7.8 1.1 -7.7 2.5

Total domestic demand

3.3 6.8 6.9 15.9 -4.5 2.4


4.4 4.5 4.6 3.6 -0.4 4.7

Private consumption

3.8 4.0 5.2 2.4 -1.3 4.5

Gross capital formation

0.6 12.4 12.3 42.8 -11.1 -1.8

Net exports

21.3 10.5 11.9 -33.8 -23.8 2.9

Contribution to GDP growth

5.6 3.1 3.6 -10.6 -4.9 0.5

Saving and investment (percent of GDP)


Gross national savings

43.0 45.5 44.2 45.7 40.4 37.9

Gross capital formation

20.2 20.1 20.7 30.9 27.1 24.7

Inflation and unemployment (period average, percent)


CPI inflation

0.5 1.0 2.1 6.5 0.3 1.3

Unemployment rate

3.1 2.7 2.1 2.2 3.9 3.6

Central government budget (percent of GDP) 1/



21.0 21.1 25.4 24.5 23.5 23.7


12.9 13.9 13.0 20.3 22.0 21.9

Overall balance

8.1 7.3 12.4 4.2 1.5 1.8

Primary operating balance

-1.2 -1.5 0.9 -3.6 -6.4 -6.2

Money and credit (end of period, percentage change) 2/


Broad money (M3)

6.4 19.1 14.1 11.6 10.7 ...

Lending to nonbanking sector

2.2 6.3 19.9 16.6 5.5 ...

Interest rate (three-month interbank, in percent)

3.3 3.4 2.4 1.0 0.7

Balance of payments (US$ billion)


Current account balance

27.5 35.4 39.2 27.0 20.8 22.1

(percent of GDP)

22.7 25.4 23.5 14.8 13.3 13.2

Trade balance

36.4 42.8 47.2 30.7 24.9 27.5

Overall balance

12.3 17.0 19.4 13.1 9.8 10.1

International reserves, external debt, and IIP


Gross official reserves (US$ billion)

116.2 136.3 163.0 174.2 184.0 194.1

(months of imports) 3/

4.7 4.9 5.0 6.9 6.8 7.0

Exchange rate (end of period)


S$/US$ 4/

1.66 1.53 1.44 1.44 1.45 ...

Nominal effective exchange rate 5/

100.3 104.0 106.0 107.6 108.5 ...

Real effective exchange rate 5/

93.2 95.1 98.0 101.9 101.3

Sources: Data provided by the Singapore authorities; and Fund staff estimates and projections.
1/ Fiscal year beginning April 1.
2/ Latest observations as of May 2009.
3/ In months of following year's imports of goods and services.
4/ Latest observations as of May 2009.
5/ IMF, Information Notice System monthly index (2000 full-year average = 100). Latest observations as of May 2009.

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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