IMF Executive Board Concludes 2012 Article IV Consultation with Singapore

Public Information Notice (PIN) No. 12/101
August 27, 2012

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 2012 Article IV Consultation with Singapore is also available.

On July 30, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Singapore, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.2


Singapore’s growth performance over the past year has been driven by global and regional events. Thus, a poor second half of 2011, reflecting deteriorating global activity as well as regional supply disruptions from natural disasters, was followed by a strong bounce back in the first quarter of 2012, as the easing of supply disruptions propelled manufacturing exports. More recently, the Singaporean economy is softening again on the back of weaker global demand and heightened international financial strains. All along, domestic demand has remained resilient, buoyed by a strong labor market and low interest rates, while the output gap remains positive.

Headline inflation has fluctuated around an elevated path since early 2011, propped up mainly by accommodation and private road transport costs. Core inflation, which excludes those two components, picked up earlier this year, reflecting wage cost pressures amid a tight labor market, but has eased recently, mainly on account of lower oil prices.

Global financial turbulence has over the past year continued to cause volatility in domestic equity and currency markets. There has also been significant deleveraging by European banks operating in Singapore, although the impact on funding has been offset by local and other foreign banks. Overall, the local banking sector remains profitable and well capitalized. Credit growth has eased, although the rapid expansion in foreign-currency lending to the rest of the region by the large local banks has led to an increase in their U.S. dollar and overall loan˗to˗deposit ratios. Housing prices and transaction volumes have moderated, particularly in the private housing market, but local banks’ exposure to real estate is high.

Singapore’s external position remains strong, with the current account surplus remaining broadly unchanged at about 21½ percent of GDP, and a large positive international investment position reflecting large official foreign assets.

Executive Board Assessment

In concluding the 2012 Article IV Consultation with Singapore, Executive Directors endorsed the staff appraisal as follows:

Singapore’s GDP growth is expected to weaken in 2012, even as inflation remains elevated. The strong global growth impulse seen earlier this year has given way to tepid world demand. Meanwhile, Singapore’s low unemployment rate and negative real interest rates are expected to sustain domestic demand. Under the benign global baseline scenario, growth is forecast to soften this year to just below 3 percent, with a moderate increase in 2013. Nonetheless, inflation is expected to remain under pressure from the tight labor market and lagged effects of higher prices for vehicle permits and real estate on consumer prices.

External downside risks loom large. Given Singapore’s pronounced trade and financial openness, the impact of further euro area turmoil, abrupt fiscal tightening in the United States, and/or a severe slowdown in China would be substantial. However, a more contained event could induce safe-haven inflows into Singapore, cushioning the impact on growth, but possibly at the cost of reigniting domestic credit growth and real estate prices.

The government’s policies to increase labor productivity could have important macroeconomic effects. Slower foreign worker inflows will boost real wages and, if complemented with well˗targeted incentives for technology and skills upgrading, should with time support productivity growth. The authorities also see these policies as essential to alleviate overcrowding. In the near term, the strategy is expected to reduce potential growth and increase frictional unemployment. It will also push up inflation and contribute to a permanently more appreciated real exchange rate and narrower current account surplus. If prices and unemployment rise more sharply than expected, consideration could be given to lengthening the phase˗in of the tighter limits on foreign worker inflows. Enhanced and targeted social safety nets could improve the efficiency of job search and reduce the social costs of the transition.

Policymakers confront the challenge of containing inflation expectations amid a testing environment. The tightening of monetary policy in April 2012 and the FY 2012 Budget’s moderately-restrictive stance are appropriate under the baseline scenario to keep the output gap contained as potential growth moderates. However, inflation should be permitted to rise temporarily to accommodate the increase in relative prices of labor-intensive products resulting from the tighter labor market conditions. To prevent inflation expectations from rising, other sources of inflation—including from transport costs, credit growth and asset prices—should be forcefully tackled, including through continued recourse to macroprudential tools. Consideration could also be given to further absorbing liquidity.

Singapore has ample policy space and large buffers to mitigate the effects a steeper global growth slowdown or financial turmoil. As in 2008−09, the response should focus on preserving the private sector’s economic and financial infrastructure to facilitate a rapid recovery when demand subsequently resumes, while providing an adequate social safety net.

Singapore’s dynamic financial sector has important strengths, but extensive cross˗border linkages and large exposure to domestic real property pose risks. Sizable deleveraging by European banks from Singapore since mid˗2011 has not created visible strains, but close monitoring of funding conditions at foreign bank branches should continue. Rapid outward expansion by domestic banks into the region entails currency and duration risk, and banks should continue to build up and lengthen their on˗balance sheet U.S. dollar funding. Real estate poses a concentration risk. While an escalating series of macroprudential measures, combined with deteriorating regional sentiment, halted the rise in house prices in late 2011, a prolonged period of high unemployment or fall in real wages could impair credit quality. Additional targeted macroprudential measures are called for if property prices reaccelerate.

From a multilateral perspective, Singapore’s external position is stronger than warranted by fundamentals. In addition to appropriate adjustments in other countries, achieving a more balanced external position in Singapore calls for raising private and public spending and a more even distribution of consumption across generations. Rapid population aging, tighter restrictions on foreign worker inflows, and the government’s plan to increase social and infrastructure spending over the medium term will help support this rebalancing.

Singapore: Selected Economic and Financial Indicators, 2007–13
  2007 2008 2009 2010 2011 2012 2013

Growth (percentage change)


Real GDP

8.9 1.7 -1.0 14.8 4.9 2.9 3.4

Total domestic demand

9.1 11.6 -7.0 6.9 5.4 3.4 4.3


5.9 3.9 0.9 7.4 3.4 3.0 4.0

Private consumption

6.8 3.3 0.1 6.5 4.1 3.8 4.5

Gross capital formation

16.4 27.4 -20.1 5.8 9.7 4.3 5.1

Saving and investment (percent of GDP)


Gross national saving

48.1 43.3 41.8 46.5 44.4 44.3 44.3

Gross domestic investment

22.3 29.4 25.5 22.1 22.4 22.8 23.0

Inflation and unemployment (period average, percent)


CPI inflation

2.1 6.6 0.6 2.8 5.2 4.5 4.5

Core CPI inflation

2.2 5.7 0.0 1.5 2.2 3.0 3.5

Unemployment rate

2.1 2.2 3.0 2.2 2.0 2.1 2.1

Central government budget (percent of GDP) 1/



23.1 24.3 19.6 21.0 24.1 23.3 23.0


12.4 16.4 18.3 15.5 16.8 17.6 17.8

Overall balance

10.7 7.9 1.3 5.5 7.3 5.8 5.2

Primary balance 2/

0.3 -1.7 -3.6 -1.9 -1.1 -0.7 -0.7

Money and credit (end of period, percentage change)


Broad money (M3)

14.1 11.6 10.6 8.3 10.1 ... ...

Lending to nonbanking sector

19.9 16.6 3.4 14.7 30.3 ... ...

Three-month interbank rate( percent)

2.4 1.0 0.7 0.4 0.4

Balance of payments 3/ (US$ billions)


Current account balance

45.8 26.3 30.1 55.5 57.0 58.9 61.8

(In percent of GDP)

(25.8) (13.9) (16.2) (24.4) (21.9) (21.5) (21.3)

Trade balance

57.1 41.7 47.3 63.1 67.4 69.7 72.9

Exports, f.o.b.

312.7 354.9 288.4 371.1 429.3 439.4 449.1

Imports, f.o.b.

-255.7 -313.2 -241.1 -308.0 -361.9 -369.6 -376.2

Financial account balance

-26.2 -15.5 -22.7 -12.9 -40.0 -46.9 -48.1

Overall balance

19.4 13.1 11.3 42.2 17.1 12.0 13.7

Gross official reserves (US$ billions)

163.0 174.2 187.8 225.8 237.7 249.7 263.4

(Months of imports) 4/

(4.8) (6.4) (5.5) (5.7) (5.9) (6.0) (6.1)

Exchange rate ( period average)

1.51 1.41 1.45 1.36 1.26 ... ...

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

1/ On a calendar year basis.

2/ Overall balance excluding investment income, capital revenue, interest payments, and net lending.

3/ The authorities recently migrated to the Balance of Payments Manual 6 (BPM6), which resulted in some balance of payments data revisions.

4/ In months of following year's imports of goods and services.

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.

2 The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.


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