## SINGAPORE: STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION (Content unit: 1sgpea2019007) ## Source details **Canonical URL:** [SINGAPORE: STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION (Content unit: 1sgpea2019007)](https://www.imf.org/-/media/files/publications/cr/2019/1sgpea2019007.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1sgpea2019007.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1sgpea2019007.pdf.json) --- ### Context and development achievements - GDP per capita increased from "less than US$24,000 in 2000" to "more than US$64,000 in 2018." - Income inequality rose during the 2000s but "has been on a steady decline over the last ten years." - Policy focus: - Turn Singapore into a global innovation hub; boost labor productivity via investment in human, physical, and organizational capital, and digitalization. - Emerging regional leader in fintech, supported by MAS. - Social policies updated to raise wages and standards of living for lower-skilled Singaporeans. - Financial openness and linkages: - Banks’ cross-border lending (mainly to emerging Asia) represents "about 60 percent of their total exposure." - A large part of bank funding is cross-border and intragroup in nature. ### Macroeconomic developments, outlook, and risks - Recent performance: - Real GDP growth: "2018 3.1"; growth moderated to "1.2 percent in the first quarter of 2019" (year-on-year). - MAS core inflation: "2018 1.7" (period average); slowed to "1.6 percent" year-on-year in 2019Q1. - Headline CPI inflation: "2018 0.4" (period average). - Current account: "2018 17.9" percent of GDP; surplus "declined in 2019Q1 from a year ago but remains large as a share of GDP." - Staff baseline projections (selected): - Real GDP growth: "2019 2.0", "2020 2.3" - Total domestic demand growth: "2019 3.3", "2020 2.0" - MAS core inflation (period average): "2019 1.5", "2020 1.7" - CPI inflation (period average): "2019 1.0", "2020 1.3" - Unemployment rate (period average): "2019 2.0", "2020 2.0" - Current account balance (US$ billions): "2019 58.7", "2020 61.2" - Current account balance (In percent of GDP): "2019 15.8", "2020 15.8" - Risks (tilted to the downside; mainly external): - Tightening of global financial conditions. - Escalation of sustained trade tensions (notably U.S.–China). - Deceleration of global growth; scenarios include diversion of Chinese imports or a larger-than-expected global growth slowdown. - Other risks: disorderly Brexit, delays in productivity gains, domestic large property correction. - Near-term staff assessment: - With less support from external demand, growth drivers projected to shift back to domestic demand. - Investment expected to pick up with digitalization and industry projects. - MAS core inflation expected to slightly edge down as the output gap closes; headline inflation expected to rise as accommodation and private road transport cost drags recede. ### External sector assessment - Current account assessment: - Staff assesses the external position to be substantially stronger than warranted by fundamentals and desired policies: current account balance gap estimated at "1.1-7.1 percent of GDP." Staff CA Gap "4.1." - Staff assesses the REER to be undervalued by "2.2-14.2 percent." - Real effective exchange rate (REER) depreciated in 2018 by "0.5 percent"; nominal effective exchange rate appreciated by "1 percent" in 2018. - External balance drivers: - Financial center status, sustained fiscal surpluses, assets under mandatory pension scheme (CPF), and high competitiveness. - Reserves and NIIP: - Official reserves (US$ billions): "2018 287.7"; gross official reserves "2018 287.7", "2019 260.9", "2020 270.9". - NIIP: "223.0" percent of GDP in 2018. ### Fiscal stance, budgets, and medium-term spending pressures - FY2019 and fiscal space: - FY2019 budget projects overall surplus excluding land sales expected to reach "0.8 percent of GDP." - Fiscal stance in FY2018 was expansionary; overall fiscal surplus excluding land sales estimated at "0.6 percent of GDP in FY2018" (overall surplus including land sales was "3.6 percent of GDP in 2018"). - Authorities intend to raise the GST from "7 percent to 9 percent sometime in 2021-25." - Singapore has substantial fiscal space; staff supports use of fiscal space over medium/long term to address age-related spending, climate change, infrastructure renewal, and programs to help workers and firms adapt to technological change while preserving adequate fiscal buffers. - Government assets and borrowing: - Net investment returns contribution: about "one-fifth of revenues in 2018." - Government net assets: deposits at MAS "8.5 percent of GDP at end-FY2018"; funds managed by Temasek "66 percent of GDP at end-FY2017"; GIC holdings undisclosed but "well over US$100 billion"; government gross debt "114 percent of GDP at end-FY2018." - Staff supports greater infrastructure spending and financing through debt given low sovereign borrowing costs and role of government paper in deepening the domestic debt market. - Public finances (percent of GDP, selected): - Revenue: "2018 18.5", "2019 18.1", "2020 18.2" - Expenditure: "2018 14.4", "2019 14.1", "2020 14.2" - Net lending/borrowing: "2018 4.0", "2019 4.0", "2020 4.0" - Primary balance 1/ (2018−2020): "2018 -2.3", "2019 -2.7", "2020 -2.9" ### Monetary policy framework and stance - Framework and recent actions: - MAS operates a basket, band, crawl (BBC) exchange rate-based framework with the NEER as the short-term instrument since 1981; de facto arrangement reclassified to “crawl-like” effective February 9, 2018. - MAS tightened monetary policy in 2018: in April and October 2018 the slope of the S$NEER policy band was slightly increased; center-point and width unchanged. - In April 2019 MAS kept unchanged the rate of appreciation of the S$NEER policy band, with no change to width or center. - MAS announced on May 8, 2019 decision to disclose semi-annual data on net purchases of foreign exchange (starting with H2 2019 data with a six-month lag). - MAS transferred S$45 billion from official foreign reserves to the Government for management by GIC; reserves remain adequate (about "200 percent of the Fund’s Adequacy of Reserves metric"). - Guidance: - Current monetary stance described as broadly neutral; monetary policy should remain data dependent. - If downside risks materialize, fiscal policy should be first line of defense; macroprudential policy could be eased while maintaining caution on financial stability. ### Financial sector soundness, liquidity risks, and FSAP findings - Banking sector and systemic buffers: - Bank capital ratios exceed regulatory minima with comfortable margins; NPLs low: "1½ percent for local banks at end-2018." - Loan-to-deposit ratio in domestic currency: "88 percent at end-2018"; FX loan-to-deposit ratio: "128 percent" (systemwide FX loan-to-deposit ratio also cited at "129 percent" in some tables). - Household debt stable at about "70 percent of GDP"; household net asset positions about "380 percent of GDP." - Corporate debt stabilized at about "150 percent of GDP." - Liquidity vulnerabilities: - FSAP liquidity stress tests reveal vulnerability in U.S. dollar liquidity; major banks’ foreign currency liquidity coverage is a priority to bolster. - Staff recommends strengthening banks’ foreign exchange liquidity given importance of dollar funding. - FSAP main preliminary conclusions and recommendations (selected): - Enhance the resolution framework, including extending new bail-in powers to senior unsecured creditors. - Strengthen MAS’ Resolution Unit and develop guidelines/playbooks for new resolution tools. - Increase staffing for oversight of the MAS Electronic Payments System. - Singapore’s buffers large: robust macro framework, strong public finances, effective supervision, and international reserves. - Emerging risks: amplified cyber risk; FSAP notes analytical and policy challenges to mitigate evolving cyber threats. ### Housing market, macroprudential measures, and systemic risks - Market developments: - Signs of housing market overheating in 2017−18: average monthly transactions increased "35 percent" year-through June 2018; prices increased "9.1 percent year-on-year in 2018Q2." - Private residential price change: "Private residential (end of period) 2018 7.9" (real estate prices percent change y/y). - House price-to-income and house price-to-rent ratios increased in 2018; transactions fell in 2018, especially in private market. - Private housing market: house prices declined "0.7 percent in Q1 2019 compared to Q4 2018." - Mortgage credit growth slowed to "0.9 percent in March 2019" from "4.4 percent one year earlier." - Household mortgages exceed "50 percent of GDP" and represent over three-quarters of total household debt. - Macroprudential policy steps: - July 2018 measures: LTV limits lowered for all mortgages; ABSD rates raised by 5 percentage points for most buyer types; for non-individuals LTVs lowered and ABSD raised by 10 percentage points with an additional 5 percentage points for housing developers; residency differentiation in ABSD maintained. - Staff recommendation: maintain structural macroprudential policies (TDTR and LTV caps) and cyclical measures such as ABSD; eliminate residency-based differentiation in ABSD by unifying rates, then phase out ABSD once systemic risks dissipate. - Risk assessment: - Large and disorderly property price correction is a domestic downside risk with potential adverse wealth effects and financial stability implications given banks’ mortgage exposures. ### Structural reforms, labor market, and social impact - Structural agenda: - Objectives: raise productivity and transform Singapore into a global innovation hub through automation and innovation incentives. - Sectoral transformation: 23 Industry Transformation Maps covering "80 percent of the economy." - Programs: lifelong learning, technological adoption, SkillsFuture, Productivity Solutions Grant, SMEs Go Digital, Professional Conversion Programmes. - Labor and inclusivity policies: - FY2019 budget: two-step reduction of service sector DRCs for mid- and semi-skilled foreign workers from "40 percent to 35 percent"; two-step reduction of quota for mid-skilled workers from "15 percent to 10 percent by 2021." - Active labor market programs: place-and-train, attach-and-train, salary subsidies, Professional Conversion Programme; examples preserve exact subsidy structures and caps as provided. - Low-skilled worker vulnerabilities: - In 2018, "50 percent of resident non-PMET workers were above 50 years old" and only "5 percent held a degree." - About "70 percent of non-PMETs earn less than 2/3 of the median income of full-time employed residents in 2018." - Gender and automation risk (Box 2): - Probability of automation among women in Singapore estimated at "36 percent", "6 percent higher" than among men. - Close to "10 percent" of women in Singapore are at high risk for automation (probability >=0.7) versus "5 percent" of men. - Social policy recommendations: - Monitor social impact of economic transformation and incentivize uptake of programs, especially among those at risk of displacement by automation. - Ensure labor market policies remain nimble and raise participation among vulnerable groups (including prime working age women). ### Aging, healthcare spending, and long-term fiscal implications - Health outcomes and current spending: - Healthy Life Expectancy (HALE) at birth: "76.3 years" in 2016. - Total health expenditure in 2016: "4.5 percent of GDP." - Total health expenditure per capita in 2016: "about US$2,500." - Public health expenditure share: "about half of total spending." - Household out-of-pocket payments: "considerably higher than peers." - Demographics and utilization: - Persons aged "65 and over" accounted for "more than 50 percent" of total hospitalization days in 2017 while comprising only "13 percent" of the resident population. - Population growth expected to turn negative in "2030-35"; UN projection old-age dependency ratio expected to increase to "61 percent in 2050." - Projections and fiscal pressure: - Staff estimates project total healthcare spending could rise to "8.6 percent of GDP in 2050" from "4.4 percent in 2015." - Net present value of such a healthcare spending change is "close to 60 percent of GDP." - Comparable estimate by Tan (2015): total health expenditure would reach "8.7 percent of GDP." - Financing responses: - Authorities intend to raise the GST from "7 to 9 percent" between "2021-25," which would raise revenue by "0.7 percent of GDP per year." - Staff suggests greater use of net returns on government assets could be explored. ### Climate policy and carbon pricing - Carbon tax and targets: - Carbon tax in effect January 2019 at "S$5 per ton of GHG" from 2019 to 2023; reviewed by 2023 with intention to increase to "between S$10 and S$15 per ton of GHG emissions by 2030." - Carbon tax covers about "40 companies" that contribute to some "80 percent of total emissions." - NCCS estimates electricity tariffs to increase by about "1 percent" due to the carbon tax. - Transitional assistance: "S$20 per year from 2019 to 2021" for households in public housing. - Carbon tax revenue estimated at about "S$1 billion over 5 years (0.2 percent of GDP cumulatively)." - Other measures: - Natural gas represents over "95 percent" of the energy mix; solar deployment targets from "200 MWp in 2018 to 350 MWp by 2020 and 1000 MWp beyond 2020." - Excise duties on diesel, petrol and CNG used as complementary measures; excise duty on diesel doubled from "$0.1 per liter to $0.2 per liter as of February 2019." ### Key selected indicators (highlights preserved exactly) - Nominal GDP (2018): "US$364 billion" - Population (2018): "5.64 million" - GDP per capita (2018): "US$64,567" - Main goods exports (2018, percent of total exports): Electronic products ("30 percent"); mineral fuels ("19 percent"); chemical products ("14 percent"). - Top three destinations for goods exports (2018, percent of gross goods exports): China ("12.2 percent"); Hong Kong SAR ("11.8 percent"); Malaysia ("10.9 percent"). - Real GDP growth: "2018 3.1", "2019 2.0", "2020 2.3" - MAS core inflation (period average): "2018 1.7", "2019 1.5", "2020 1.7" - CPI inflation (period average): "2018 0.4", "2019 1.0", "2020 1.3" - Unemployment rate (period average): "2018 2.1", "2019 2.0", "2020 2.0" - Current account balance (US$ billions): "2018 65.1", "2019 58.7", "2020 61.2" - Current account balance (In percent of GDP): "2018 17.9", "2019 15.8", "2020 15.8" - Gross official reserves (US$ billions): "2018 287.7", "2019 260.9", "2020 270.9" - Household assets amounted to "448 percent of GDP in 2019Q1." - Household total net worth about "380 percent of GDP." ### Executive Board and staff policy recommendations (summary) - If downside risks materialize, fiscal policy should be the first line of defense given large buffers. - Deploy more fiscal space to meet medium- and long-term challenges: age-related spending, aging infrastructure, climate change, and technological change. - Maintain the current broadly neutral monetary policy stance; monetary policy should remain data dependent. - Continue strong system oversight of the financial sector; prioritize strengthening banks’ foreign exchange liquidity. - Maintain and calibrate macroprudential and property-related measures until systemic risks subside; consider eliminating residency-based differentiation in the ABSD and phasing out the measure once risks dissipate. - Balance promotion of financial innovation with preservation of financial stability, investor protection, and financial integrity; remain vigilant on ML/TF and cyber-risk. - Monitor social impact of economic transformation and incentivize greater uptake of support and training programs, especially among workers at risk of displacement and SMEs. *Source: IMF staff report for the 2019 Article IV Consultation (content unit 1sgpea2019007).* ### 2018. MAS core inflation slowed slightly to 1.6 percent on year-on-year basis in 2019Q1, largely ### SINGAPORE: STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION ### CONTEXT - GDP per capita increased from "less than US$24,000 in 2000" to "more than US$64,000 in 2018." - Income inequality rose during the 2000s but "has been on a steady decline over the last ten years." - Policy focus: - Turn Singapore into a global innovation hub. - Boost labor productivity via investment in human, physical, and organizational capital, and digitalization. - Emerging regional leader in fintech, supported by MAS. - Social policies updated to raise wages and standards of living for lower-skilled Singaporeans. - Openness and cross-border financial linkages: - Banks’ cross-border lending (mainly to emerging Asia) represents "about 60 percent of their total exposure." - A large part of bank funding is cross-border and intragroup in nature. ### ECONOMIC DEVELOPMENTS, OUTLOOK, AND RISKS - Recent performance and outlook: - MAS core inflation slowed slightly to "1.6 percent" on a year-on-year basis in 2019Q1, largely reflecting the decline in electricity prices and lower global oil prices. - The current account surplus "declined in 2019Q1 from a year ago but remains large as a share of GDP." - Growth is expected to slow to "2 percent in 2019." - Over the medium term, growth should stabilize around "2½ percent," increasingly driven by modern services alongside other trade-related sectors. - Drivers and dynamics: - With less support from external demand, growth drivers are projected to shift back to domestic demand. - Investment is expected to pick up with the push for digitalization and new industry-related projects. - MAS core inflation is expected to slightly edge down as the output gap closes; headline inflation is expected to rise as the drag from accommodation and private road transport costs recede. - Risks: - Risks to the outlook are tilted to the downside and mainly stem from external sources, including: - a tightening of global financial conditions, - escalation of sustained trade tensions, and - deceleration of global growth. - Recent trends: - Growth moderated to "3.1 percent in 2018" (2017: "3.7 percent"). - Growth further moderated to "1.2 percent in the first quarter of 2019" compared to the corresponding period of 2018. - Trade-related sectors remained the main driver of growth despite manufacturing slowdown in late 2018; modern services growth remained firm and construction is recovering. ### EXECUTIVE BOARD ASSESSMENT - Overall appraisal: - Directors commended sound macroeconomic management and strong policy frameworks, contributing to robust and resilient economic performance and reduced income inequality. - Noted that economic growth is expected to continue to moderate in 2019 as export momentum slows. - Current account surplus remains large as a share of GDP; near-term risks are tilted to the downside and arise primarily from the external environment. - Fiscal policy guidance: - Directors supported use of Singapore’s ample fiscal space over the medium and long terms to address age-related spending, climate change, expansion and renewal of infrastructure, and programs to help workers and firms adapt to technological change, while preserving adequate fiscal buffers. - Recognized that higher government spending would support external rebalancing given significant leakages through trade and remittances. - A few Directors called for greater use of fiscal policy for a more balanced growth. - Monetary and macroprudential stance: - Supported the broadly neutral monetary policy stance and recommended monetary policy remain data-dependent. - If downside risks materialize, fiscal policy should be the first line of defense and macroprudential policy could be eased while maintaining caution on financial stability. - Welcomed commitment to begin publishing foreign exchange intervention data to improve transparency. - Financial stability and FSAP: - Welcomed FSAP findings and supported main recommendations. - Noted the financial system is resilient, underpinned by a strong regulatory and supervisory framework. - Liquidity stress tests reveal vulnerability in U.S. dollar liquidity; Directors encouraged bolstering banks’ foreign exchange liquidity. - Urged more resources for MAS’s resolution unit to enhance the bank resolution framework. - Took positive note of reforms to reinforce payment system safety. - Housing and macroprudential measures: - Welcomed proactive use of macroprudential and other property-related measures; commended monitoring and adjustment of such measures. - Suggested eliminating residency-based differentiation for the Additional Buyer’s Stamp Duty (ABSD), and then phasing out the measure once systemic risks dissipate. - Financial innovation and risks: - Supported balancing promotion of financial innovation against preserving financial stability, investor protection, and financial integrity. - Called for continued vigilance on money laundering/terrorism financing (ML/TF), cyber-risk, and reputational risk. - Structural reforms and social impact: - Commended structural reform agenda to raise productivity and transform Singapore into a global innovation hub via incentives to automate and innovate. - Noted programs to drive digitalization, technological adoption, lifelong learning, and skill enhancement. - Called for continued monitoring of the social impact of economic transformation and greater efforts to incentivize uptake of existing programs, especially among those at risk of displacement by automation. - Emphasized that labor market policies should remain nimble to the rapidly changing nature of work. - Welcomed authorities’ efforts to reduce Singapore’s carbon emissions. ### MAIN POLICY RECOMMENDATIONS (KEY ISSUES) - If downside risks materialize, fiscal policy should be the first line of defense given the large buffers. - Deploy more of Singapore’s fiscal space to meet medium- and long-term challenges arising from: - age-related spending, - aging infrastructure, - climate change, and - technological change. - Maintain the current broadly neutral monetary policy stance; monetary policy should remain data dependent. - Continue to enhance strong system oversight of the financial sector and remain vigilant in balancing supervision with promotion of financial innovation. - Keep monitoring the social impact of Singapore’s economic transformation and incentivize uptake of support programs for those at risk of displacement. ### SELECTED ECONOMIC AND FINANCIAL INDICATORS (HIGHLIGHTS) - Nominal GDP (2018): "US$364 billion" - Population (2018): "5.64 million" - GDP per capita (2018): "US$64,567" - Main goods exports (2018, percent of total exports): Electronic products ("30 percent"); mineral fuels ("19 percent"); chemical products ("14 percent"). - Top three destinations for goods exports (2018, percent of gross goods exports): China ("12.2 percent"); Hong Kong SAR ("11.8 percent"); Malaysia ("10.9 percent"). - Projections (selected entries): - Real GDP growth: "2018 3.1", "2019 2.0", "2020 2.3" - Total domestic demand growth: "2018 1.1", "2019 3.3", "2020 2.0" - MAS core inflation (period average): "2018 1.7", "2019 1.5", "2020 1.7" - CPI inflation (period average): "2018 0.4", "2019 1.0", "2020 1.3" - Unemployment rate (period average): "2018 2.1", "2019 2.0", "2020 2.0" - Current account balance (US$ billions): "2018 65.1", "2019 58.7", "2020 61.2" - Current account balance (In percent of GDP): "2018 17.9", "2019 15.8", "2020 15.8" - Gross official reserves (US$ billions): "2018 287.7", "2019 260.9", "2020 270.9" - Public finances (percent of GDP): - Revenue: "2018 18.5", "2019 18.1", "2020 18.2" - Expenditure: "2018 14.4", "2019 14.1", "2020 14.2" - Net lending/borrowing: "2018 4.0", "2019 4.0", "2020 4.0" - Primary balance 1/ (2018−2020): "2018 -2.3", "2019 -2.7", "2020 -2.9" - Money and credit: - Broad money (M2): "2018 5.1", "2019 3.3", "2020 3.6" - Credit to private sector: "2018 4.9", "2019 2.0", "2020 2.3" - Memorandum: - Nominal GDP (in billions of Singapore Dollars): "2018 491.2", "2019 507.2", "2020 525.6" - Growth (%) of nominal GDP: "2018 5.1", "2019 3.3", "2020 3.6" *Source: IMF staff report for the 2019 Article IV Consultation (presenting historical data and staff’s macroeconomic projections based on information available as of June 6, 2019).* ### 5. Singapore’s strong trade performance weakened towards end 2018. Export volumes ### 5. Singapore’s strong trade performance weakened towards end 2018. Export volumes ### Trade and external sector developments - Export volumes were robust in the first three quarters of 2018 supported by the re-exports of machinery and equipment, while domestic exports were weak. - The last quarter of 2018 saw a dip in export growth due to a slowdown of exports to ASEAN and a fall in exports to China. - The weakness in exports continued through April 2019. - The current account surplus increased from 16.4 percent of GDP in 2017 to 17.9 percent of GDP in 2018, driven by a narrowing of the services balance deficit which offset a wider oil trade deficit. - Staff assesses the external position to be substantially stronger than warranted by fundamentals and desired policies: the current account balance gap is estimated at 1.1-7.1 percent of GDP. Domestic policy gaps, largely due to the fiscal surplus, explain 0.9 percentage points of the overall gap. - The real exchange rate was assessed to be undervalued by 2.2-14.2 percent. The real effective exchange rate (REER) depreciated in 2018 by 0.5 percent; the nominal effective exchange rate appreciated by 1 percent in 2018. ### Inflation and labor costs - MAS core inflation averaged 1.7 percent in 2018 (2017: 1.5 percent). - Price pressures largely stemmed from external sources, including higher energy prices. Food price inflation remained benign. - Unit labor costs slightly picked up by about ½ percent in 2018. - Headline inflation was below ½ percent in 2018 (2017: 0.6 percent) due to a drag from the costs of accommodation and private road transport. - MAS core inflation slowed to 1.6 percent year-on-year in Q1 2019 largely reflecting the decline in electricity prices due to the liberalization of the retail electricity market and lower global oil prices. - Staff projects MAS core inflation to slightly edge down to 1.5 percent in 2019. ### Fiscal stance and public finances - The fiscal stance in FY2018 was expansionary. - The overall fiscal surplus excluding land sales is estimated at 0.6 percent of GDP in FY2018, compared to 2 percent of GDP in FY2017. - The structural primary balance fell by 0.9 percent of potential GDP largely due to lower revenues from vehicle quota premiums and a modest increase in development expenditure, notwithstanding the suspension of the Kuala Lumpur-Singapore High Speed Rail (HSR) project. - Note: Fiscal year 2018 corresponds to April 1, 2018 to March 31, 2019. The overall surplus including land sales was 3.6 percent of GDP in 2018 (land sales are excluded from the fiscal aggregate used in policy discussions). ### Monetary policy and financial conditions - MAS tightened monetary policy in 2018 in response to above-potential growth, a positive output gap, and expected upward pressure on core inflation. - In April and October 2018, the slope of the S$NEER policy band was slightly increased; the center-point and width remained unchanged. - In April 2019, MAS kept unchanged the rate of appreciation of the S$NEER policy band, with no change to its width and the level at which it is centered. - In tandem with global interest rates, money market and short-term real rates have generally increased, while long term real rates remained flat. - Private sector credit has continued to grow broadly in line with nominal GDP and the credit gap is nearly closed. - The Financial Conditions Index indicates tightening of financial conditions over the period shown. ### Housing market, macroprudential measures, and risks - The private housing market showed signs of overheating in 2017-18: - Average monthly transactions increased by 35 percent in the year through June 2018, compared to the previous two years. - Prices increased by 9.1 percent year-on-year in 2018Q2. - Developer land purchase activity, including en-bloc purchases in 2016-2018H1, led to high bidding activity. - The number of foreigners purchasing properties and transactions values increased significantly in 2017 and early 2018. - The FSAP analysis found that foreigner residential property purchases had an upward effect on property prices. - Authorities tightened macroprudential measures in July 2018 to cool off a rapid increase in real estate prices: - For individuals: loan-to-value (LTV) ratio limits were lowered for all mortgages, and Additional Buyer’s Stamp Duty (ABSD) rates were raised by 5 percentage points, except for Singaporeans and permanent residents buying first properties. - For non-individuals: LTVs were lowered and the ABSD was raised by 10 percentage points, with an additional 5 percentage points for housing developers. - The differentiation between residents and non-residents in the ABSD was maintained. - In response, house price growth slowed, transactions declined (especially in the private market), and mortgage credit edged down (though remaining high as a share of GDP). Nonetheless, property prices remained moderately overvalued. - A large and disorderly property price correction is identified as a domestic downside risk with potential adverse wealth effects and financial stability implications given banks’ mortgage exposures. ### Financial sector soundness and fintech - Financial sector performance has been strong: - Bank capital ratios continued to exceed regulatory minima with comfortable margins. - Non-performing loans remained low and stable: 1½ percent for local banks at end-2018. - The loan-to-deposit ratio in domestic currency stood at 88 percent at end-2018; the FX loan-to-deposit ratio remained significantly higher at 128 percent. - Household debt was stable at about 70 percent of GDP; household net asset positions were about 380 percent of GDP. - Corporate debt is high but stabilized at about 150 percent of GDP; corporate debt-service capacity is supported by sizeable cash buffers. - Singapore has become an important hub for financial innovation: - MAS has promoted fintech via regulatory sandboxes, financial grants, training, and conferences. - Several crypto-exchanges trading payment tokens operate in Singapore; their number may increase following the enactment of the Payment Services Act (PS Act) in February 2019. - The Payment Services Act brings cryptocurrency dealing or exchange services under the supervision of the MAS. - To date, crypto-asset investments by Singaporean investors are relatively limited. ### Savings, balance sheets, and external position drivers - Household assets amounted to 448 percent of GDP in 2019Q1. - Mandatory savings under the Central Provident Fund (CPF) built a stock of about 80 percent of GDP; the household sector held 175 percent of GDP worth of additional financial assets at end 2019Q1. - Main drivers of Singapore’s strong external position: status as a financial center, sustained fiscal surpluses, build-up of assets under the mandatory defined-contribution pension scheme, and high competitiveness. - Staff assessment: the external position is substantially stronger than fundamentals/desired policies would warrant; over the medium term, higher government spending related to aging, infrastructure, and structural transformation should help move Singapore toward external balance. ### Outlook and risks - Growth outlook: - With less support from external demand, growth is expected to slow in 2019 to 2 percent, below potential (estimated at 2½ percent in the medium term) as the output gap closes. - Investment is expected to pick up with the push for digitalization and new industry-related projects. - Consumption growth is expected to benefit from fiscal measures (including the one-off Bicentennial Bonus and targeted healthcare initiatives). - The current account is expected to edge down to about 16 percent in 2019 due to weak external demand. - Over the medium term, growth should stabilize around 2½ percent, with modern services becoming an increasingly important driver. - Over the longer-term, aging will pose challenges to growth. - Inflation: headline inflation is expected to rise as the drag from accommodation and private road transport costs recede; MAS core inflation projected to slightly edge down to 1.5 percent in 2019. - Risks are tilted to the downside and mainly external: - Tighter or more volatile global financial conditions could lead to stress on leveraged firms and households, capital account pressures, and an economic downturn. - FSAP analysis highlights exposure to potential inward spillovers from Japan, Hong Kong S.A.R., and the United States; Singaporean banks can be an important source of spillovers mainly to other ASEAN countries. - Trade tensions between the U.S. and China pose important risks given Singapore’s large goods exposure to China; scenarios include adverse impacts from diversion of Chinese imports or a larger-than-expected global growth slowdown if tensions escalate. - One-year-ahead estimates of growth at risk suggest a higher chance of recession in 2019 compared to last year. - Other risks: a disorderly Brexit, delays in productivity gains, and domestic large property correction. - Domestic vulnerabilities: delays in generating productivity gains are additional domestic medium-term risks to growth. ### Authorities’ views - Authorities broadly agreed with staff assessment: after several quarters of above-potential growth, Singapore transited to slower growth due to decelerating global trade and the electronics cycle. - Authorities expect moderate growth given the weak external outlook, with domestic demand holding up underpinned by supportive labor market conditions. - MAS assesses domestic credit growth remains in line with economic conditions and does not observe broad-based domestic credit overheating. - Authorities emphasize structural features explaining saving-investment balance: - High corporate saving driven by multinational corporations using Singapore as a regional hub. - High household saving reflects demographics with two-thirds of the population in prime working age and active retirement saving behavior. - Government saving reflects fiscal prudence anticipating rising healthcare and infrastructure spending and is guided by the balanced budget rule over each term of Government. - Authorities identify escalation of trade tensions and slower-than-expected growth in China as main near-term downside risks; also note aging, technological transformation, and climate change as medium- to long-term challenges. ### Policy guidance and priorities - Policies should address challenges from shifts in the global economy, aging, and technological change to promote growth and external rebalancing. - Monetary policy should continue to be data-dependent. - Given the importance of dollar funding and liquidity for Singapore’s banks and economy, strengthening banks’ foreign exchange liquidity should be a priority. - Authorities should be ready to deploy fiscal space to address impending challenges related to aging, infrastructure, and structural transformation. - As the authorities implement structural reforms to turn Singapore into a global innovation hub, they should continue to monitor the social impact. *IMF staff summary based on the provided chapter content.* ### 22. The FY2019 budget projects a continued surplus while incorporating measures to help ### 1sgpea2019007 - 22. The FY2019 budget projects a continued surplus while incorporating measures to help ### Fiscal outlook and budget measures - Overall surplus excluding land sales expected to reach 0.8 percent of GDP on account of lower development expenditure (including the suspension of the HSR), and despite the moderation in stamp duties. - Measures directed at businesses, particularly SMEs, are largely designed to foster investment, use of technology, and innovation. - Inclusiveness measures include the Bicentennial Bonus, expansion of healthcare schemes, and measures to encourage employment of older workers. - The budget reiterates the authorities’ intention to raise the goods and services tax (GST) from 7 percent to 9 percent sometime in 2021-25, in response to impending healthcare spending increases. - The FY2019 budget implies a mildly contractionary fiscal stance; authorities should remain ready to provide fiscal stimulus if downside risks materialize. ### Bicentennial Bonus (components and costs) - Additional payments to lower-income Singaporeans from the GST Voucher and Workfare Income Supplement schemes (cost of about S$500 million). - Personal Income Tax Rebate of 50 percent of tax payable, capped at $200 per taxpayer (cost of about S$280 million). - One-off top-ups to Edusave Accounts and Post-Secondary Education Accounts (cost of about S$140 million). - Top ups to the Central Provident Fund accounts of older Singaporeans with lower retirement savings (cost of about S$230 million). ### Fiscal space and external rebalancing - Singapore has tended to overperform with respect to its fiscal rule of a balanced budget over the political cycle, contributing to a large buildup of net assets, suggesting that Singapore has substantial fiscal space. - Fiscal space could be used to support growth in the short run without compromising long-term objectives; higher spending would support external rebalancing given significant leakages through trade and remittances. - Nonresident workers account for about 37 percent of employment. - Monetary policy would need to take higher fiscal spending into account as needed to maintain internal balance. ### Government assets, returns, and borrowing - Net investment returns contribution is the largest contributor to government revenues, accounting for about one-fifth of revenues in 2018 (double the share in 2005), and Singapore runs a structural primary deficit. - Government net assets include deposits at MAS (8.5 percent of GDP at end-FY2018), funds managed by Temasek (66 percent of GDP at end-FY2017), and funds managed by GIC (total amount is undisclosed, but it is well over US$100 billion), minus government gross debt (114 percent of GDP at end-FY2018). - Staff supports greater infrastructure spending and its financing through debt, given low sovereign borrowing costs and the role of government paper in deepening Singapore’s debt market. - Authorities are studying the option of using government debt as part of the financing mix for major infrastructure projects where benefits span several generations; since the early 1990s, proceeds from central government borrowing have not been used to finance the budget. ### Medium- and long-term spending pressures - Key challenges requiring spending include: - (1) a sharp increase in age-related spending needs due the rapidly aging population, in particular on healthcare; - (2) fundamental threats including climate change given Singapore’s low-lying areas; - (3) the lumpiness in the need to rejuvenate the public housing stock and expand or renew other infrastructure (such as rail lines, the airport, and drainage); - (4) spending needs to raise productivity and help ease transition costs for firms and workers as Singapore embraces technological change and structural transformation. - Better grasp of combined magnitude of these challenges would help assess desired asset levels, targeted fiscal balance, plans for government borrowing, and need for revenue mobilization, including the announced GST increase. ### Demographics, pensions, and healthcare cost projections - Mandatory defined-contribution pension system is financially sustainable; government outlays are needed to supplement pensions for Singaporeans with inadequate CPF savings. - Life expectancy at age 65: 21 years. - Healthy life expectancy (HALE) at birth in 2016: 76.2 years. - Total spending on healthcare: 4.5 percent of GDP (current). - Staff estimates suggest total healthcare spending in Singapore could double by 2050, to more than 8 percent of GDP. Costs would be even higher if age-specific utilization rates continue rising, in particular for long-term care. - Government would face substantial pressure to take on a larger share of the burden to preserve affordability. ### Climate policy and carbon pricing - Singapore accounted for 0.1 percent of global greenhouse (GHG) emissions in 2015. - Singapore is on track to fulfill its Nationally Determined Contribution (NDC). - Electricity generation shifted from fuel oil to natural gas, which now represents over 95 percent of the energy mix. - In 2019, a carbon tax at S$5 per ton of GHG came into effect in January 2019, targeting direct emissions from large emitters, without exemption for any sector. - Singapore also imposes excise duties on petrol, diesel and compressed natural gas, and periodically reviews them to meet car usage, health and environmental objectives. ### Monetary policy framework and stance - Since 1981, MAS has operated a basket, band, crawl (BBC) exchange rate-based monetary policy framework with the nominal effective exchange rate (NEER) as the short-term policy instrument. - The de facto exchange rate arrangement was reclassified to “crawl-like” from “stabilized”, effective February 9, 2018. - MAS announced on May 8, 2019 a decision to disclose further information about its monetary policy operations: beginning with the data for the second half of 2019, MAS will release semi-annually data on net purchases of foreign exchange on a six-month aggregated basis, with a six-month lag from the end period. - MAS also announced the transfer of S$45 billion from the official foreign reserves to the Government for management by GIC, to be invested on a longer-term basis with expected higher returns. After the transfer, foreign reserves remain adequate (at about 200 percent of the Fund’s Adequacy of Reserves metric). - Current monetary policy stance is broadly neutral; MAS’ decision on April 12 to keep monetary policy on hold was appropriate given closed output gap, moderating growth, and stabilized core inflation. - Going forward, monetary policy should continue to be data dependent; as downside risks materialize, fiscal policy should be the first line of defense given the large buffers, and macroprudential policy could be eased while maintaining caution vis-à-vis financial stability. ### Financial sector resilience and liquidity risks - 2019 FSAP findings highlight the strength of policies and oversight frameworks supporting the financial sector. - FSAP solvency stress testing suggests major Singaporean banks can absorb sharp increases in credit losses in severe but plausible scenarios. - Major banks’ overall liquidity position is mixed: domestic currency liquidity is comfortable, but liquidity stress tests reveal vulnerability in U.S. dollar liquidity. - Given importance of dollar funding and liquidity for Singapore’s banks and economy, strengthening banks’ foreign exchange liquidity should be a priority. ### Housing market, macroprudential policy, and systemic risks - Private housing market: house prices declined by 0.7 percent in Q1 2019 compared to Q4 2018. - Mortgage credit growth slowed to 0.9 percent in March 2019 from 4.4 percent one year earlier. - Staff analysis suggests private residential prices were higher than warranted by fundamentals in 2018. - Household mortgages exceed 50 percent of GDP and represent over three-quarters of total household debt. - Property market cooling measures should be maintained until systemic risks subside. - Recommendations: - Maintain structural macroprudential policies (total debt servicing ratio and loan-to-value caps) and cyclical measures such as the ABSD. - Eliminate residency-based differentiation in the ABSD by unifying rates, and then phase out the measure once systemic risks from the housing market dissipate. ### Financial innovation, outsourcing, and AML/CFT risks - MAS has managed to strike a balance between promoting financial innovation and preserving financial stability, investor protection, and financial integrity, but continued vigilance is required, especially regarding cyber-risk and reputational risk. - Banks’ outsourcing of critical functions has become more important with fintech growth; MAS should clarify that it may require pre-notification of material outsourcing arrangements where it is not satisfied that a bank has managed its outsourcing risk adequately. - Singapore should continue to mitigate transnational money-laundering/terrorism-financing (ML/TF) risks associated with certain legal entities and arrangements that may be formed or administered in Singapore, such as shell companies established by non-residents, which may be susceptible to misuse for tax evasion and other financial crimes. - As digitization deepens, continued vigilance will be needed to address ML/TF risks. ### Authorities’ views (summarized) - Fiscal policy has focused on medium to long-term restructuring rather than smoothing the economic cycle; authorities stand ready to provide fiscal stimulus in the event of an economic downturn. - Possible stimulus measures would be targeted subsidies to preserve employment, tax breaks and grants to enhance business cash-flow, transfers to lower income households, and bringing forward smaller infrastructure projects. - The external balance is not a consideration when determining the policy mix; monetary and fiscal policies focus on low and stable inflation, strong inclusive growth, resilient labor market outcomes, and fiscal sustainability. - Singapore’s fiscal reserves serve multiple objectives: (1) a rainy-day fund; (2) an endowment fund to provide a steady stream of income to supplement the government budget across generations; and (3) a stability fund to maintain confidence in the exchange rate-centered monetary policy. - Meeting future spending pressures calls for a combination of raising tax revenue for recurrent spending (such as healthcare) and borrowing for critical major infrastructure projects that benefit multiple generations. *Source: IMF staff summary of the FY2019 budget and related analysis as presented in the provided content unit.* ### 38. On the monetary and financial policy discussions, the authorities broadly agreed with ### 1sgpea2019007 - 38. On the monetary and financial policy discussions, the authorities broadly agreed with ### Monetary and financial policy findings - The policy stance is consistent with a modest and gradual appreciation path of the S$NEER policy band that will ensure medium-term price stability. - MAS’ latest stress tests across the banking, corporate and household sectors indicate that the overall system is resilient. - Property market cooling measures in July 2018 have moderated the pace of price increases and transaction activity, contributing to stronger household balance sheet positions over the medium term. - The initiative to disclose net purchases of foreign exchange will provide market participants a better indication of the actions that MAS has undertaken to implement its monetary policy stance, while preserving its operational effectiveness. - MAS’ foreign exchange intervention operations will remain focused on keeping the S$NEER within its policy band, to keep inflation low over the medium term. - Banks prudently rely mostly on deposits for funding, but need to actively monitor and manage foreign currency liquidity risks as they expand cross-border lending activities. ### Financial sector risks and resilience - MAS’ stress tests suggest the overall system is resilient across banking, corporate, and household sectors. - Major banks’ overall liquidity position is mixed—domestic currency liquidity is comfortable, but U.S. dollar liquidity coverage is vulnerable to stress conditions. - Systemwide loan-to-deposit ratio in foreign currency remains high at 129 percent though it has declined for the largest banks. - Given the importance of dollar funding and liquidity for Singapore’s banks and economy, strengthening banks’ foreign exchange liquidity should be a priority. - Continued vigilance is needed to guard against ML/TF and cyber-risk and to minimize potential reputational risk. ### Structural reform agenda and labor market policies - Structural reform objectives: raise productivity and turn Singapore into a global innovation hub through incentives to automate and innovate. - Government programs launched guided by the Committee of the Future Economy (2017): - Individuals: lifelong learning and skill enhancement programs. - Businesses: measures to drive digitalization and technological adoption. - Government: digitizing government services. - Sectoral transformation: design of 23 Industry Transformation Maps that together cover 80 percent of the economy. - Tripartite emphasis: government-businesses-workers partnership, with government leading planning, selection, and design; SME engagement appears limited. - Recommendation: greater efforts needed to raise awareness and incentivize uptake of existing programs, especially among SMEs and workers most at risk of displacement from automation. ### Foreign labor policy adjustments - FY2019 budget announced a two-step reduction of the service sector’s dependency ratio ceiling (DRC) for mid- and semi-skilled foreign workers from 40 percent to 35 percent. - A two-step reduction of the quota for mid-skilled workers from 15 percent to 10 percent by 2021. - Definitions retained from source: - DRC refers to the maximum permitted ratio of S Pass and Work Permit holders to the total workforce that a company can employ. - S Pass: work pass for mid-skilled foreign workers, earning at least S$2,300 a month. - Work Permit: for semi-skilled foreign workers. - Employment Pass: for foreign professionals, managers, and executives earning at least $3,600 a month and not subject to DRC controls. - To help businesses transition, the government will provide grants and digital solutions support through the Lean Enterprise Development Scheme. ### Active labor market programs and social policy - Public employment services reduce frictional unemployment and improve career matching; employment subsidies promote training. - Enhanced subsidies targeted at PMETs who have been unemployed for 6 months or more, or are age 40 and above. - Targeted support for low-skilled workers includes supplements to work income and retirement savings. - Outcome indicators: high labor force participation, low unemployment, and low incidence of long-term unemployment (Appendix VIII referenced). - Social mobility indicator: about 14 percent of children born to parents in the bottom 20 income percentile reach the top 20 percentile among their own cohort, compared with 7.5 percent in the U.S. - Authorities increasing spending on early childhood education. - Recommendation: monitor social impact of economic transformation, ensure programs remain nimble, and increase participation among those most at risk from automation (including women). ### Staff appraisal: macroeconomic outlook and policy recommendations - Macroeconomic performance: GDP per capita more than doubled in the last twenty years and income inequality has been declining since the GFC. - Growth outlook: Singapore’s growth is expected to continue to moderate as export momentum slows; with less support from external demand, real GDP growth is projected to fall below potential. - Inflationary pressures remain modest. - External position: developments in 2018 suggest Singapore’s external position remains substantially stronger than warranted by fundamentals and desired policies. - Over the medium term, modern services are expected to become increasingly important in driving growth. - Fiscal policy: - Authorities should stand ready to provide fiscal stimulus as downside risks materialize; fiscal policy should be the first line of defense given the large buffers. - Macroprudential policy could be eased while maintaining caution vis-à-vis financial stability. - Higher government spending could support external rebalancing, given significant leakages through trade as well as remittances. - Fiscal space: more of Singapore’s fiscal space could be deployed to meet medium- and long-term challenges—mounting age-related spending (in particular healthcare), capital spending to rejuvenate aging infrastructure and address climate change, and programs to help firms and workers adapt to technological change. - Monetary policy: stance is appropriately supportive of price stability; monetary policy should continue to be data dependent. - Transparency: staff welcomes the announcement to release data on net purchases of foreign exchange. - Property market policy: cooling measures should be maintained until systemic risks subside; staff recommends eliminating residency-based differentiation in the ABSD by unifying rates, and then phasing out the measure once systemic risks from the housing market dissipate. - Financial sector monitoring: priority to strengthen banks’ foreign exchange liquidity; maintain balance between promoting financial innovation and preserving financial stability, investor protection, and financial integrity. - Consultation cycle recommendation: next Article IV consultation with Singapore be held on the standard 12-month cycle. ### Box 1 — 2019 FSAP Main Preliminary Conclusions (key points) - The 2019 FSAP covered crisis management, the macroprudential policy framework, adequacy of buffers, and Fintech issues. - Policy and regulatory recommendations: - Enhance the resolution framework, including extending new bail-in powers to senior unsecured creditors. - Strengthen the MAS’ Resolution Unit and develop guidelines and playbooks for the new resolution tools. - Increase staffing resources for oversight of the MAS Electronic Payments System. - Vulnerabilities and buffers: - Singapore’s buffers are large: robust macroeconomic policy framework, strong public finances, effective supervision, and international reserves. - Major banks’ capital buffers and profitability allow absorption of sharp increases in credit losses in severe but plausible solvency stress tests. - Insurance companies have strong capital positions, though stress tests point to vulnerabilities in parts of the sector. - Banks prudently rely mostly on deposits for funding; however, systemwide loan-to-deposit ratio in foreign currency is 129 percent. - Households and corporates appear resilient: - Only a small segment of households could face repayment difficulties under stress, partly because of holdings of liquid financial assets. - Median cash-to-debt ratio in the corporate sector is 50 percent. - Foreign currency denominated debt accounts for a substantial share of corporate debt, but natural and financial hedges reduce risks. - Emerging risks: - Financial innovation has amplified cyber risk; the 2018 Cybersecurity Act promotes cyber security and banks are taking steps to strengthen systems. - Mitigating evolving cyber risks remains an analytical and policy challenge. *Source: IMF staff report excerpt (1sgpea2019007).* ### Box 2. How Vulnerable are Women’s Jobs to Displacement by Technology in Singapore? ### Box 2. How Vulnerable are Women’s Jobs to Displacement by Technology in Singapore? ### Overview - Digitalization, artificial intelligence, and machine learning can raise productivity and growth, but are eliminating many low- and middle-skill routine tasks through automation and artificial intelligence. - Women tend to perform more routine tasks than men, increasing their exposure to automation. The assessment draws on individual-level data on task composition at work for 30 countries from Brussevich and others (2018). ### Routine Task Intensity (RTI) - The RTI index is constructed at the individual level using task composition at work of each PIAAC respondent, evaluating the relative importance of abstract skills (such as reasoning and interpersonal communication) and of non-routine manual skills against the importance of routine tasks that can be easily automated. - In contrast to most existing studies that construct RTI at the occupational level, this individual-level approach allows for: - workers to perform different tasks within occupations across countries; and - workers to have access to different technologies across countries to perform their tasks. - Finding: In Singapore, the routine task intensity (RTI) index level of female workers is considerably higher than in other countries in the sample. ### Probability of Automation and High-Risk Exposure - The probability of automation is estimated at the level of each individual worker using detailed information on worker characteristics and task composition at work. - Findings for Singapore: - The probability of automation among women is estimated at 36 percent. - This is 6 percent higher than among men. - Close to 10 percent of women in Singapore are at high risk for automation (workers with more than 70 percent probability of automation), compared to 5 percent in the case of men. - While the share of workers with high automatability is relatively lower in Singapore, the gender difference is larger than in other countries in the sample. ### Methodology Notes - The RTI gap reported is the average RTI for women as a share of the average RTI for men, by country. - The probability of automation is estimated by Brussevich and others (2018) using an expectation-maximization algorithm that relates the individual characteristics (age, education, training, among others) and job characteristics to occupation level risk of automation. - High automatability is defined as having probability of automation >=0.7. - Difference in automatability = (share of females with high automatablity)/(share of males with high automatability). *Source: Brussevich, M., E. Dabla-Norris, C. Kamunge, P. Karnane, S. Khalid, and K. Kochar, “Gender, Technology and Future of Work”, IMF Staff Discussion Note No. 18/07.* ### 8.9 percent of GDP in 2018. ### 8.9 percent of GDP in 2018. ### Financial services and banking sector developments - Growth in financial services moderated in H2 2018, as global risk sentiment worsened. - Financial services activity in Singapore has been usually correlated with economic activity in ASEAN-5 countries. - Cross-border banking activity in Singapore is dominated by East-Asian and European regions. - Net lending to nonbank customers in East Asia was stable in 2018. - Banking sector assets growth has moderated in H2 2018. - Non-bank deposits and interbank funding from outside Singapore are important funding sources for banks. - Property-market related loans (housing loans and loans to the building and construction sectors) account for about 30 percent of total domestic non-bank loans. - Business loans to the construction sector grew fast in 2018 while loans to other sectors were stable. - Cross-border loans to nonbanks in US and East Asia slowed in 2018, while the demand from EU remained strong. - The banking sector’s foreign currency loan to deposit ratio continued to increase moderately. ### Housing market developments - The house price-to-income ratio inched up in 2018, with the turnaround of property prices since end-2017. - The house price-to-rent ratio has also increased. - Transactions fell in 2018, especially in the private market. - The vacancy ratio in the private market fell in 2018. - Supply bottlenecks owing to rapid population growth have somewhat eased. - Housing supply is expected to ease further. - Household debts, including housing loans, have stabilized since 2015. - Though household debt-to-GDP ratio is elevated, households’ balance sheet is strong with their total net worth standing at about 380 percent of GDP, and liquid financial assets are enough to cover current debt outstanding in aggregate. - Banks’ exposure to private housing loans has been stable. The quality of housing loans remains relatively strong. ### External sector, NIIP, and reserves - The current account surplus has averaged about 17 percent of GDP over 2015-18, lower than its post-GFC peak of 23 percent in 2010. - NIIP amounts to 223 percent of GDP in 2018, lower than in 2017 due to negative valuation effects. - Singapore has a net position in portfolio assets and a net liability position in FDI holdings. - Gross official reserves continued to increase moderately, while MAS’ net long FX position in the forwards and futures market was broadly stable. - The financial account is characterized by net FDI inflows and net portfolio outflows. Net FDI inflows narrowed in 2018. Official flows account for most of the financial outflows. - NIIP 223.0 Gross Assets 1053.4 Debt Assets 504.0 Gross Liab. 830.4 Debt Liab. 354.2 - Official reserves held by the Monetary Authority of Singapore (MAS) reached US$ 288 billion (79 percent of GDP) in 2018; S$ 45 billion was transferred to the government in May for management by GIC. ### Spillovers, cross-border exposures, and funding sources - Singapore depends mainly on foreign final demand from the EU, China and the US, while Malaysia and Indonesia are important partners in the region. - FDI stocks are dominated by the EU and the US and are mainly concentrated in the finance and insurance sector. - Singapore has large portfolio assets, making its external balance sheet vulnerable to shocks in the US and several regional economies such as China and India. - Major sources of funding for Singapore’s financial center include East Asian and European banks. - East Asia is the largest user of funds and likely to experience outward spillovers from Singapore, in the event of a banking sector stress in Singapore. - Cross-border exposures of domestic banks to Greater China and other Asian economies remain near their post-GFC highs, exposing Singapore to the risk of regional spillover. - ACU Funding Sources by Region, Apr 2019 (In percent of total): - East Asia - Deposits from non-banks 14% - East Asia - Amounts due to banks 33% - Europe - Deposits from non-banks 3% - Europe - Amounts due to banks 18% - Rest of world - Deposits from non-banks 16% - Rest of world - Amounts due to banks 16% - ACU Use of Funds by Region, Apr 2019 (In percent of total): - East Asia - Amounts due from banks 26% - East Asia - Loans to non-banks 19% - East Asia - Securities 6% - Europe - Amounts due from banks 10% - Europe - Loans to non-banks 4% - Europe - Securities 1% - Rest of world - Amounts due from banks 8% - Rest of world - Loans to non-banks 19% - Rest of world - Securities 7% ### Demographic transition, labor, and investment - Old-age dependency is projected to increase significantly in the medium to long term. - Singapore’s aging speed is among the highest in the region and advanced economies across the world. - The average number of children per woman is among the lowest in the world. - Labor force participation rates have risen over the years, particularly for the elderly and women in prime working age. There is scope for further increase in participation rates for prime working age women. - Labor force growth picked up in 2018, following a trend deceleration in recent years. - Investment, both private and public, fell in 2018. ### Social and equality indicators - Industry-wide total wages continued to steadily increase, by 4.6 percent in 2018. - Median wages for workers at all skill levels rose steadily. The rise was fastest among low-skilled workers. - Median household income continues to rise. - Real incomes of lower income groups increased at a faster pace in the last decade (after largely stagnant during 2000−06). - Lower rate of inflation has helped everybody, but the bottom 20 percent has gained the most in recent years. - Government policies (taxes and benefit payments) have also contributed to a reduction in inequality. - Inflation by income group (year-on-year percent change) for 2018: - Lowest 20 percent 0.5 - Middle 60 percent 1.0 - Highest 20 percent 1.5 ### Key macroeconomic and financial indicators (selected) - Nominal GDP (2018): US$364 billion - Population (2018): 5.64 million - Main goods exports (2018, percent of total exports): Electronic products (30 percent); mineral fuels (19 percent); and chemical products (14 percent). - Top three destinations for goods exports (2018, percent of gross goods exports): China (12.2 percent); Hong Kong SAR (11.8 percent); and Malaysia (10.9 percent). - Real GDP growth: 2018 3.1; 2019 projection 2.0; 2020 projection 2.3. - Current account balance (US$ billions): 2018 65.1; (In percent of GDP) 2018 17.9. - Gross official reserves (US$ billions): 2018 287.7. - Net international investment position: 2018 In percent of GDP 223. - Household total net worth about 380 percent of GDP. ### Indicators of vulnerability and financial soundness - Broad money (M2, percent change, y/y, end of period) 2018 5.1. - Private sector credit (percent change, y/y, end of period) 2018 4.9. - Credit to the property sector (percent change, y/y, end of period) 2018 5.9. - Share of property sector credit in total nonbank credit (percent, end of period) 2018 50.6. - Credit rating of local banks (S&P) 2018 AA-. - Three-month S$ SIBOR (percent, end of period) 2018 1.9. - NPL ratio (local banks, percent, latest available) 2018 1.5. - Capital adequacy ratio of local banks (percent, latest available) 2018 16.5. - Real estate prices (percent change, y/y) Private residential (end of period) 2018 7.9. ### Overall assessment and potential policy responses - Overall assessment: The external position in 2018 was substantially stronger than what is consistent with fundamentals and desirable policies. Singapore’s very open economy and position as a global trading and financial center makes the assessment more uncertain than usual. - Assessment details: - CA Assessment 2018: Staff assesses the 2018 CA as substantially higher than the level consistent with fundamentals and desirable policies, by 1.1-7.1 percent of GDP. Staff CA Gap 4.1. - Real exchange rate: Staff assesses that the REER is 2.2-14.2 percent below the level implied by fundamentals and desirable policies. - Capital and financial accounts: The financial account is likely to remain in deficit as long as the trade surplus remains large. - FX intervention and reserves: Current level of official external assets appear adequate, and there is no clear case for further accumulation for precautionary purposes. - Potential policy responses: - Higher public investment addressing aging and digital transition, including spending on healthcare, investments in physical infrastructure and human capital, would help moderate the CA imbalances over the medium term by lowering net public saving. - Structural reforms are necessary to improve productivity, which would support a trend real exchange rate appreciation. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Appendix I. External Sector Report ### Appendix I. External Sector Report ### Technical background notes and external position - Singapore has a negative income balance despite its large positive NIIP position reflecting the lower rates of return on its foreign assets relative to returns paid on its foreign liabilities, possibly due to the fact that the composition of Singapore’s assets is tilted toward safer assets with lower returns. - Nonstandard factors make quantitative assessment of Singapore’s external position difficult and subject to significant uncertainty. Singapore is not included in the sample used to estimate the EBA models because it is an outlier along several dimensions (e.g., large external asset and liability positions, highly positive NFA position). Estimates are guided by the EBA CA framework, which suggest that Singapore’s CA norm is mainly explained by its large NFA position, the high level of income per working age population, rapid population aging, and high public health spending efficiency. - Staff estimated CA gap is around 4.1 percent of GDP, although this carries a high degree of uncertainty. The fiscal policy gap contributed about 1 percent of GDP to the overall model identified policy gaps. - The reserves-to-GDP ratio is also larger than in most other financial centers, but this may reflect in part that most other financial centers are in reserve-currency countries or currency unions. External assets managed by the government’s investment corporation and wealth fund (GIC and Temasek) amount to at least 70 percent of GDP. ### Staff policy advice from the 2017 and 2018 Article IV Consultations — fiscal, monetary, and structural policy actions - Fiscal Policy - As expenditures rise, consideration could be given to using a larger share of the government’s investment returns for budget financing. (2018/17) - The Constitution allows the government to spend up to half of the expected long-term real returns from the net assets invested by MAS, GIC, and Temasek, known as the Net Investment Returns Contribution (NIRC). The NIRC is already the largest single contributor to revenues in the government budget, and its share has been growing in recent years. - Singapore intends to meet the medium-term expenditure pressures via a differentiated fiscal strategy: to raise broad-based recurrent tax revenue for recurrent spending, and to use borrowing (backed by government’s reserves) for critical major infrastructure that benefit multiple generations. - Long-term infrastructure investment that will benefit future generations calls for borrowing to spread the costs across current and future generations. (2018) - Budget 2019 reiterated the authorities’ intention to study the option of using government debt as part of the financing mix for long-term infrastructure projects where benefits span several generations. - Consideration could be given to gearing the fiscal rule to the business cycle rather than the political cycle. (2017) - The Singapore Government operates on a balanced budget over each term of government and is not allowed to spend surpluses accumulated from previous terms of government. However, should the need arise for a more decisive countercyclical action, Singapore’s fiscal rule allows the Government to seek the President’s approval to draw on past reserves. - Monetary, Exchange Rate, and Financial Policies - Under the baseline, further normalization of monetary policy is likely in order. (2018) - MAS tightened monetary policy in 2018 in response to above-potential growth, a positive output gap, and rising inflation expectations. - Property market cooling measures should be maintained given the elevated financial risks. However, staff recommends eliminating ABSD residency-based differentiation once systemic risks from the housing market dissipate. (2018) - Given latent demand for housing, both from domestic and foreign sources, both structural macroprudential policies and the ABSD have been maintained. - Staff encourages the authorities to continue to monitor the supply side to ensure that sufficient land is reserved and released in a timely manner through the government land sales program. In addition, other supply-side measures such as the process of building approval could be targeted to meet housing demand. (2018) - An interagency taskforce on the property market serves as a platform for regular sharing of data and surveillance insights across the Ministry of Finance, the MAS, and the Ministry of National Development. - Domestic private sector balance sheets remain strong overall, but elevated levels of debt warrant continued monitoring of pockets of vulnerability. (2018) - MAS closely monitors household vulnerabilities through a sophisticated framework for systemic risk monitoring and has improved oversight of credit risk at banks through multi-year on-site inspection initiatives, guidance on credit underwriting and credit review, and rollout of analytical tools. - Banking sector liquidity risks are contained, but U.S. dollar funding (US$) conditions need careful monitoring. (2018) - MAS has introduced minimum Liquidity Coverage Ratio (LCR) and Net Stable Funding Requirements (NSFR) for D-SIBs in all currencies and in Singapore dollars. - Structural Policies - Staff encourages the authorities to adopt broader social insurance arrangements, including unemployment insurance. (2017/18) - The authorities note existing social security arrangements: active labor market policies, wage supplements for low-wage Singaporean workers, means-tested retirement income supplement, MediShield Life, and CareShield Life (national insurance scheme for long-term care costs in the event of severe disability from 2020). The FY 2019 budget included additional healthcare benefits for the elderly, enhancement of the income supplement program for low-wage Singaporean workers, and expansion of training programs. - Careful calibration and frequent review of training programs would ensure they provide the intended sharp incentives for investments in skills useful to the future economy. (2017) - The authorities internally monitor program effectiveness and periodically make changes and enhancements. - Singapore can play an active role in diffusing innovation in ASEAN. (2017) - Singapore chaired ASEAN in 2018 and launched initiatives including the ASEAN Smart Cities Network. ### Risk Assessment Matrix (selected risks, likelihood, expected impact, and recommended policy responses) - External risks - Sharp tightening of global financial conditions - Likelihood: Low/Medium - Expected impact: High - Transmission: higher debt service and refinancing risks; stress on leveraged firms, households, and vulnerable sovereigns; capital account pressures; broad-based downturn. - Recommended policy response: maintain prudent risk management practices and adequate liquidity and capital buffers (as recommended in the 2019 FSAP); maintain close links with home country supervisors; ease macro-prudential policies to mitigate financial sector stress; use strong official reserve position or swap lines with other central banks in extreme events. - Rising protectionism and retreat from multilateralism - Likelihood: High - Expected impact: High - Transmission: escalating trade actions threaten global trade system and regional integration, reduce growth and increase financial market volatility; medium-term economic fragmentation. - Recommended policy response: continue structural reforms to transform into knowledge-based innovation-driven economy; use temporary and targeted fiscal stimulus, loosen monetary policy (including re-centering the NEER band if the shock is large), and ease macro-prudential policy as necessary while maintaining financial stability. - Weaker-than-expected global growth (U.S., Europe, China) - Likelihood: (components assessed as Medium to High) - Expected impact: Medium to High - Transmission: large spillovers given Singapore’s role as financial center and trading hub; a significant slowdown in China would have direct effects and indirect regional impacts; financial stress in China would raise NPLs and reduce investor sentiment, pullback of funding from the region, and deteriorate regional exposures of banks in Singapore. - Recommended policy response: preferred response is temporary and targeted fiscal support. - Large swings in energy prices - Likelihood: Medium - Expected impact: Medium - Transmission: as a trading hub and center for oil services, past oil price declines (2014–16) increased NPLs in exposed sectors. - Recommended policy response: maintain adequate capitalization, risk management and liquidity buffers. - Cyber-attacks - Likelihood: Medium - Expected impact: Medium to High - Transmission: attacks on interconnected financial systems could trigger systemic financial instability or widespread socio-economic disruption. - Recommended policy response: assess adequacy of IT risk management practices, prepare contingency plans, coordinate with global financial regulators; provide temporary and targeted emergency liquidity support and/or fiscal support if disruptions occur. - Domestic risks - Disorderly correction in property prices - Likelihood: Low - Expected impact: Medium - Transmission: decline in collateral values and wealth effects could trigger reductions in economic activity and bank lending. - Recommended policy response: ease macro-prudential policies while safeguarding financial stability; use targeted assistance measures to households whose debt servicing capacity is adversely affected. - Low growth in productivity and investment - Likelihood: Medium - Expected impact: Medium - Transmission: sharp increase in unit labor costs and loss of competitiveness; tighter immigration policy may reduce competitiveness and investment; higher transitional costs (frictional unemployment). - Recommended policy response: adjust foreign worker policies to relax tightness in labor markets; provide targeted and temporary fiscal stimulus in areas of education and skills training. ### Public Debt Sustainability Analysis — key findings and projections - Background and structure - Singapore is a low scrutiny country in the DSA framework for market access countries. - Singapore government’s gross debt stood at about 113.6 percent of GDP as of end of FY2018. All debt is held domestically and issued in local currency. - Debt accumulation in Singapore is unrelated to deficit financing. The Constitution mandates a balanced budget over the 5-year political cycle. The issuance of government debt securities is to deepen the domestic debt market, to meet the investment needs of the Central Provident Fund (CPF), and to provide individual investors with a long-term saving option that offers safe returns. - Following the Government Securities Act and the Constitutional balanced budget rule, borrowing proceeds are not used to fund government expenditures; all proceeds from Government borrowing are invested. - Macro-fiscal assumptions and projections - Real GDP growth is projected at 2 percent in 2019 and would average at 2.4 percent over 2020–24. - In staff’s baseline projections, the central government net lending/borrowing decreases from an estimated 3.6 percent of GDP in calendar year 2018 to 3.3 percent of GDP in 2024. - Staff’s projected fiscal path reflects further increases in current spending linked to aging. - Staff’s baseline currently does not include the proposal of raising the Goods and Services Tax rate after 2020. - Debt dynamics and financing needs - Debt is projected to rise modestly, at a slower pace than in recent years. Under the baseline, the debt-to-GDP ratio is projected to increase gradually to about 116.5 percent by 2024, an increase of 2.9 percentage points of GDP from end-2018 (increase over 2012–18: 6.9 percentage points of GDP). - The increase in debt-to-GDP ratio reflects the modest rise in investment needs by the CPF as employment growth is projected to slow, reflecting population aging. - Gross financing needs (GFN) are expected to average at about 10 percent of GDP per annum in the medium term. - A high level of financial assets mitigates the risks associated with public debt. The projected increase in debt, issued to meet CPF’s investment needs, is expected to be mirrored one-for-one with an accumulation of assets by the government. - Under the NIRC framework, only up to 50 percent of the long-term expected returns earned on net assets can be used as budget revenue, contributing to asset buildup and a sustainable revenue stream. - Key numerical projections and indicators (selected entries from the DSA table; values preserved exactly) - Nominal gross public debt (percent of GDP): 2017: 101.5; 2018: 109.5; 2019: 113.6; 2020: 114.1; 2021: 114.5; 2022: 115.0; 2023: 115.5; 2024: 116.0; 2024: 116.5. - Public gross financing needs (percent of GDP): 2017: 12.7; 2018: 3.4; 2019: 5.9; 2020: 9.4; 2021: 9.6; 2022: 10.0; 2023: 10.3; 2024: 10.4; 2024: 10.5. - Real GDP growth (in percent): 2017: 4.5; 2018: 3.9; 2019: 2.3; 2020: 2.4; 2021: 2.1; 2022: 2.5; 2023: 2.4; 2024: 2.5; 2024: 2.5. - Inflation (GDP deflator, in percent): 2017: 1.0; 2018: 1.3; 2019: 2.4; 2020: 1.1; 2021: 1.3; 2022: 1.3; 2023: 1.3; 2024: 1.4; 2024: 1.4. - Nominal GDP growth (in percent): 2017: 5.5; 2018: 5.3; 2019: 4.7; 2020: 3.5; 2021: 3.5; 2022: 3.8; 2023: 3.8; 2024: 4.0; 2024: 4.0. - Effective interest rate (in percent): 2017: 3.0; 2018: 3.3; 2019: 3.5; 2020: 3.5; 2021: 3.4; 2022: 3.4; 2023: 3.4; 2024: 3.4; 2024: 3.4. - Change in gross public sector debt (percent of GDP): 2017: 2.1; 2018: 2.6; 2019: 4.1; 2020: 0.5; 2021: 0.5; 2022: 0.5; 2023: 0.5; 2024: 0.5; cumulative: 2.9. - Identified debt-creating flows (percent of GDP, cumulative): -9.9; -10.7; -8.6; -8.0; -7.8; -7.8; -7.6; -7.8; -7.7; cumulative: -46.7. - Primary deficit (percent of GDP): 2017: -7.6; 2018: -8.7; 2019: -7.2; 2020: -7.9; 2021: -7.7; 2022: -7.4; 2023: -7.2; 2024: -7.2; 2024: -7.1; cumulative: -44.6. - Revenue and grants (percent of GDP): 2017: 17.1; 2018: 19.2; 2019: 18.2; 2020: 18.1; 2021: 18.3; 2022: 18.3; 2023: 18.4; 2024: 18.6; 2024: 18.8; cumulative: 110.6. - Primary (noninterest) expenditure (percent of GDP): 2017: 9.6; 2018: 10.5; 2019: 11.0; 2020: 10.2; 2021: 10.5; 2022: 10.9; 2023: 11.2; 2024: 11.5; 2024: 11.7; cumulative: 66.0. - Automatic debt dynamics (percent of GDP): -2.4; -2.0; -1.3; -0.1; 0.0; -0.4; -0.4; -0.6; -0.6; cumulative: -2.2. - Residual, including asset changes (percent of GDP): 12.0; 13.4; 12.7; 8.5; 8.2; 8.3; 8.1; 8.3; 8.2; cumulative: 49.6. *Source: IMF staff.* ### Appendix V. Aging and Healthcare Spending ### Appendix V. Aging and Healthcare Spending ### A. Health outcomes and expenditure: comparison to peers - Healthy Life Expectancy (HALE) at birth: "76.3 years" in 2016 (World Health Organization), "the highest in the world." - HALE increased by "5 years" since 2000, "one of the largest improvements among advanced economies." - Singapore ranked first in the Institute for Health Metrics and Evaluation (IHME) measurement of health-related Sustainable Development Goals (IHME, 2017). - Total health expenditure in Singapore in 2016: "4.5 percent of GDP" (compared to more than "9 percent of GDP" on average for advanced countries in Asia and among advanced OECD countries). - Total health expenditure per capita in 2016: "about US$2,500." - Public health expenditure share: "about half of total spending" in Singapore, compared to "¾" in advanced countries in Asia and among advanced OECD countries. - Household out-of-pocket payments: "considerably higher than peers." - Old-age dependency ratio in 2015 (population 65+/population 15–64): "16 percent" in Singapore, compared to "29 percent" in advanced countries in Asia and "26 percent" on average for advanced OECD countries. ### B. Singapore’s healthcare system (structure and financing) - System principles (shared responsibility): (1) individuals/families responsible for healthy living and saving for healthcare expenses; (2) providers responsible for efficient delivery of cost-effective care; (3) insurers responsible for mitigating financial risk; (4) government responsible for the safety net to channel subsidies to the poor and sick. - Key components: - Means-tested subsidies: patient self-selection and means testing for inpatient services, day surgery, and specialist outpatient treatments in government hospitals (five ward classes: A, B1, B2, B2+, C). Polyclinic subsidies range from "50 to 87.5 percent." MediFund provides a safety net. - Mandated savings: MediSave within the Central Provident Fund (CPF). CPF payroll contributions: employers "up to 17 percent of wage" and employees "up to 20 percent of wage." Of CPF contributions, "8 to 10.5 percentage points" are allocated for MediSave. MediSave withdrawals are subject to limits and restricted to inpatient, day surgery, and selected outpatient services. - Government catastrophic insurance: MediShield Life and CareShield Life provide risk pooling with deductibles and co-insurance; MediShield Life sized for subsidized treatment in public hospitals and pegged at B2/C-type wards. - Private medical insurance: Integrated Shield Plan (IP) augments MediShield Life; "Two-thirds of Singaporeans have bought private insurance." MediSave can be used to pay premiums, but with limits. - Service delivery: - Primary care: private sector provides "80 percent" of primary care services; "18 government polyclinics" account for the remaining "20 percent." - Chronic conditions: about "45 percent" of those with chronic conditions use polyclinics. - Hospitals: "80 percent" of people chose public hospitals; most choose a "“B” level" hospital ward. Only "20 percent" chose private hospitals. About half of care in private hospitals is to noncitizens. - Government cost-control measures: - Private hospitals compete with incentives/subsidies in public hospitals. - Government fixes proportions of hospital ward classes and guidelines for charges, bulk-buys drugs, decides investment in new technology, and determines numbers of medical students and licensed doctors. ### C. Challenges ahead: aging, spending trends, and projections - Demographics: - Population growth expected to turn negative in "2030-35" (United Nations, 2017). - UN projection: old-age dependency ratio expected to increase to "61 percent" in 2050. - Utilization and intensity: - Persons aged "65 and over" accounted for "more than 50 percent" of total hospitalization days in 2017 while comprising only "13 percent" of the resident population. - Average length of stay for 65+ was "9.3 days" versus "4.8 days" average across all patients. - Recent spending trends: - Total healthcare expenditure rose by "1.1 percent of GDP" between 2000 and 2016. - Excess cost growth (non-demographic factors) explains "close to half" of the increase in total healthcare expenditure. - Government healthcare spending doubled from "1 percent of GDP" in 2008 to "2.2 percent of GDP" in 2018; most increase explained by rising operating expenditure from MediShield Life introduction, enhanced outpatient and long-term care subsidies, means-tested premium subsidies, and cohort-based packages. - Long-run projections: - Staff estimates (methodology of Soto, Shang, and Coady (2012)) project total healthcare spending could rise to "8.6 percent of GDP in 2050" from "4.4 percent in 2015," driven roughly equally by population aging and excess cost growth. - Net present value of such a healthcare spending change is "close to 60 percent of GDP." - Comparable estimate by Tan (2015): per capita healthcare expenditure will double by 2060 and total health expenditure would reach "8.7 percent of GDP." - Upside risks to costs: - Higher age-specific utilization if chronic disease prevalence rises amid longer life expectancy. - Rising affluence increasing healthcare consumption and expectations for higher-quality care. - Supply-side pressures: wage inflation in the healthcare sector as the labor force shrinks. - Medical technology advancement and experimental treatments raising costs. ### D. Policy direction and financing implications - Ministry of Health strategic vision emphasizes three shifts: - "Beyond healthcare to health": invest upstream in health promotion, disease prevention, and screening (e.g., Screen for Life, National Steps Challenge). - "Beyond hospital to community": transform care models and strengthen financing to right-site patients away from acute settings to more cost-effective community care (e.g., primary care networks and Telemedicine). - "Beyond quality to value": focus on cost-effective treatments and value-driven care; improve productivity through innovation and collaboration with industry (e.g., supply chain management across public healthcare institutions). - Fiscal and financing considerations: - Given projected cost increases and the need to maintain access, the government will need additional funding sources. - Authorities have announced intention to raise the Goods and Services Tax from "7 to 9 percent" sometime between "2021-25," which would raise revenue by "0.7 percent of GDP per year." - Staff view: greater use of the net returns on government assets could also be explored. ### E. Key schemes and eligibility (high-level) - Mandated savings: - MediSave: funded from CPF; any CPF member who contributes to MediSave and has a positive MediSave balance; withdrawals subject to limits. - Government insurance plans: - MediShield Life: financed by MediSave, with means-tested premium subsidies "of up to 50 percent"; eligibility: Singaporean citizens (SC) and Permanent Residents (PR). - CareShield Life (new in 2020): financed by MediSave, means-tested premium subsidies "of up to 30 percent"; eligibility: SC and PR born 1980 or later (cohorts born in 1979 or earlier may join from 2021 if not severely disabled). - ElderShield: Medisave-funded severe disability insurance; monthly cash benefits of "$400 for 72 months or $300 for 60 months"; CPF members automatically enrolled at age 40 unless they opt out. - Government subsidies and assistance: - MediFund: government endowment fund providing safety net; eligible: SC. - Community Health Assist Scheme (CHAS): subsidies for medical/dental care for lower- to-middle income households and all Pioneers and Merdeka Generation seniors; eligibility: SC and household monthly income per person is "$1,800 or below." - ElderFund (new in 2020): cash benefits up to "$250 per month" for severely disabled lower-income Singaporeans aged 30 and above who are not able to join CareShield Life or have low MediSave balances; eligibility: SC. - Other schemes include means-tested drug subsidies, Enhanced Screen for Life, subsidies for Government-Funded intermediate and long-term care services (eligibility: SC and PR), FDW Levy Concession for Persons with Disabilities, Seniors’ mobility and Enabling Fund, Foreign Domestic Worker Grant. - Private medical insurance: - Integrated Shield Plan: combines MediShield Life and private insurance coverage; MediSave may be used up to Additional Withdrawal Limits; eligibility: SC and PR. *Source: Appendix V. Aging and Healthcare Spending (IMF staff, prepared by Laura Jaramillo).* ### References ### References and Selected Appendices (Content Unit: 1sgpea2019007) ### References (bibliographic entries from the source) - Carroll, Aaron E., 2019, “What Can the U.S. Health System Learn From Singapore?”, New York Times, April 22, 2019. https://www.nytimes.com/2019/04/22/upshot/singapore-health-system-lessons.html - Haseltine, William A. 2013, Affordable Excellence: The Singapore Healthcare Story, Washington DC: Brookings Institution Press. - Institute for Health Metrics and Evaluation, 2017, “Measuring progress and projecting attainment on the basis of past trends of the health-related Sustainable Development Goals in 188 countries: an analysis from the Global Burden of Disease Study 2016”, Global Health Metrics, Volume 390, Issue 10100, P1423-1459. https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(17)32336-X/fulltext#seccestitle10 - Lim, J., 2017, “Sustainable Health Care Financing: The Singapore Experience”, Special Issue: Health Care Policy, Resource Allocation and Financial Sustainability, Global Policy, Volume 8, Supplement 2, March 2017, Pages 103-109 https://onlinelibrary.wiley.com/doi/full/10.1111/1758-5899.12247 - Ministry of Finance, 2008, Budget Highlights FY2008: Creating a Top Quality Economy, Building a Resilient Community. https://www.singaporebudget.gov.sg/budget_2008/speech_toc/downloads/FY2008_Budget_Highlights.pdf - Ministry of Health, 1993, Affordable Health Care—A White Paper. Singapore: Singapore national Printers for the Ministry of Health. http://eservice.nlb.gov.sg/data2/BookSG/publish/4/4c3b0b9a-60e4-4a08-a575-2b731e4973bc/web/html5/index.html?opf=tablet/BOOKSG.xml&launchlogo=tablet/BOOKSG_BrandingLogo_.png&pn=9 - Soto, M. B. Shang, and D. Coady, 2012, “New Projections of Public Health Spending, 2010-50”, The Economics of Public Health Care Reform in Advanced and Emerging Economies, edited by B. Clements, D. Coady and S Gupta. Washington DC: International Monetary Fund. - Tan, K. B., 2015, “Fiscal sustainability of healthcare financing in Asia: Challenges and Responses” Presentation by Dr Kelvin Bryan Tan, Director Policy, Research and Economics Office, Ministry of Health, Singapore, at the 12th Health and Ageing Conference, "Insuring Health Care for the Elderly in Asia", 16-17 November 2015, Singapore. - United Nations, 2017. World Population Prospects: The 2017 Revision, June 2017. - Yoong, J., W. Y. Lim, L. Lin, 2018, “Chapter 8. Singapore”, in Resilient and people-centred health systems: Progress, challenges and future directions in Asia, edited by Legido-Quigley, H. and N. Asgari-Jirhandeh. World Health Organization. Regional Office for South-East Asia. http://www.who.int/iris/handle/10665/276045 License: CC BY-NC-SA 3.0 IGO - IMF, 2019, “Fiscal Policies for Paris Climate Strategies—From Principle to Practice”, IMF Policy Paper. May 2019 - Parry, I., D. Heine, E. Lis, and S. Li, 2014, Getting Energy Prices Right: From Principle to Practice. Washington DC: International Monetary Fund. - Singapore's Fourth National Communication and Third Biennial Update Report, 2018. December. https://www.nccs.gov.sg/docs/default-source/default-document-library/singapore's-fourth-national-communication-and-third-biennial-update-repo.pdf - UNFCCC, 2018, INDCs as communicated by Parties, United Nations Framework Convention on Climate Change (New York City, NY). Available at: http://www4.unfccc.int/submissions/INDC/Submission%20Pages/submissions.aspx ### Appendix VI — Global Greenhouse Gas Emissions and Carbon Taxation - Key findings about Singapore’s GHG emissions and mitigation actions: - Singapore accounted for about 0.1 percent of global emissions in 2012. - GHG emissions per capita in Singapore, at 10.5 tons of CO2 equivalent, are lower than in other advanced countries in Asia. - Power generation accounts for 39 percent of emissions; industry accounted for 46 percent; transport at 14 percent (Table 1). - Fuel sources are mainly oil and natural gas, with coal only having a minimal contribution. - Singapore population density: 7,804 people per km2. - Natural gas represented 95 percent of the energy mix in 2017. - Solar-PV capacity increased from less than 5 MWp in 2010 to more than 200 MWp in 2018. - Emissions intensity decreased by 37 per cent from 2000 to 2014; energy intensity decreased by 33 per cent (National Environment Agency). - Paris Agreement commitments and policy: - Singapore’s NDC: reduce emissions intensity (GHG emissions per unit of GDP at 2010 prices) by 36 percent from 2005 levels by 2030 and to stabilize total GHG emissions with the aim of peaking around 2030. - Singapore adopted a carbon tax in 2019 effective January 2019: - Carbon tax starting rate: S$5 per ton of GHG emissions from 2019 to 2023. - Reviewed by 2023 with the intention of increasing it to between S$10 and S$15 per ton of GHG emissions by 2030. - The tax covers about 40 companies that contribute to some 80 percent of total emissions, including refining, petrochemicals, and power sectors. - Applied uniformly without exemptions. - Expected impacts and mitigation measures: - NCCS estimates electricity tariffs to increase by about 1 percent due to the carbon tax. - For households in public housing, the carbon tax is estimated to result in a S$3.60 to S$13.20 per year increase in average total electricity and gas bill. - Transitional assistance: S$20 per year from 2019 to 2021 for households living in public housing to offset part of their utilities bill. - Carbon tax revenue: estimated at about S$1 billion over 5 years (0.2 percent of GDP cumulatively). Government prepared to spend more than carbon tax revenue collected over the first five years for worthwhile projects. - Sectoral emissions breakdown (Table 1, 2014): - Power: 38.49 percent - Industry: 45.95 percent - Transport: 13.56 percent - Commercial-institutional: 0.96 percent - Residential: 0.41 percent - Waste: 0.63 percent - Note: Total GHG emissions for 2014 totaled 50.9 gigagram CO2-equivalent, 95.5 percent of which is from CO2. - Electricity end-use sector shares of total electricity consumption: - Industry: 42.57 percent - Commerce & Service: 36.74 percent - Household: 14.92 percent - Transport: 5.26 percent - Others: 0.51 percent - Other fiscal and regulatory measures: - Excise duties on diesel, petrol and compressed natural gas (CNG) used to manage car usage and associated impacts. - Excise duty on diesel doubled from $0.1 per liter to $0.2 per liter as of February 2019. - In 2018, government announced that an additional carbon tax would not be levied on diesel, petrol or CNG because existing excise duties already discourage use; excise duties to be reviewed periodically. - Additional mitigation goals and measures: - Solar deployment targets: increase from 200 MWp in 2018 to 350 MWP by 2020, and 1000 MWp beyond 2020. - By 2030, renewable energy could potentially contribute up to 8 percent of Singapore's peak electricity demand. - Public transport goal: by 2040, during peak times 9 out of 10 trips will be on public transportation. - Measures to achieve transport goal include doubling the rail network by 2030, increasing cycling paths, and expanding the sheltered walkway network. - Other measures: doubling water supply without using more energy, increasing overall recycling rate of water, mandatory energy labelling scheme, minimum energy performance standards for household products, and Green Mark Certification for buildings. ### Appendix VII — A Long-Term Perspective on the Monetary Policy Framework and Business and Financial Cycles in Singapore - Overall assessment: - Singapore has rapidly converged to Advanced Economy (AE) per capita GDP levels. - Since 1981, the operating instrument of the monetary policy framework has been the nominal effective exchange rate (NEER). - Real growth of GDP averaged 6.3 percent over the period referenced. - Per capita GDP growth (trend) has shown a secular decline as the gap to advanced economies closed. - Inflation and price stability: - MAS’ primary objective: promote medium-term price stability as a basis for sustainable economic growth. - Since 1980, the headline inflation rate has averaged 2 percent, somewhat lower than major AE average of 2.9 percent. - Long-term headline inflation figures (selected periods): - Singapore: 1980-89: 2.8; 1990-99: 1.9; 2000-09: 1.5; 2010-18: 1.8 (Headline inflation; In percent) - Real GDP growth per capita (HP trend): 6.9; 4.2; 3.0; 2.4 for the same successive periods. - Exchange rate regime and behavior: - Exchange rate system features: - Managed against a basket of currencies of major trading partners. - Managed float with trade-weighted exchange rate allowed to fluctuate within an undisclosed policy band. - Policy band periodically reviewed. - NEER has trend appreciated by around 140 basis points per year on average. - REER has been broadly stable over the past 40 years. - Macroprudential policy use and financial stability: - MAS has actively used macroprudential policies to target financial stability risks, particularly in the real estate sector. - Measures include limits on total debt servicing ratios, loan-to-value (LTV) ratios, stamp duties, supply-side measures, designation of domestic systemically important banks, limits to property exposures, and a counter-cyclical capital buffer framework. - Financial vs. business cycle synchronization: - Estimated financial cycle (1997-2018) constructed from an average of: (1) credit-to-GDP ratio; (2) total credit to private non-financial sector; and (3) residential property prices, filtered by the Christiano-Fitzgerald (2003) bandpass filter. - Concordance statistic with the estimated G7 financial cycle is around 0.2, indicating relatively low synchronization between domestic and global financial cycles. - The low financial cycle synchronization likely reflects rapid growth convergence, financial deepening, idiosyncratic shocks (e.g., Asian financial crisis), and policy responses including macroprudential measures. - Policy implication highlighted: - The combination of exchange-rate based monetary framework and active macroprudential policy underscores the importance of maintaining strong precautionary buffers to complement existing policy frameworks. *Source: IMF staff compilation from the content unit "1sgpea2019007 - References" and accompanying appendices in the provided PDF.* ### 7. Singapore’s business cycle shows high concordance with the global cycle, but also ### 7. Singapore’s business cycle shows high concordance with the global cycle, but also ### Business cycle: amplitude, volatility, and concordance - The business cycle in Singapore, estimated using a bandpass filter, appears to have a higher amplitude than the global cycle (proxied by United States and G7). - The standard deviation of Singapore’s business cycle is roughly twice as high as for the US. - Higher volatility likely reflects: - smaller economic size; and - high trade dependence. - Concordance with the US over the entire sample period is around 0.7. - Visual evidence (Figure 1) shows deviations from bandpass trend for: - Singapore - Business Cycle, G7 (Deviation from bandpass trend); - Singapore - Business Cycle, ASEAN-4 (Deviation from bandpass trend); and - Singapore - Business Cycle, Hong Kong SAR, Korea, Taiwan Province of China (Deviation from bandpass trend). ### Financial cycle: synchronization and differences - The financial cycle in Singapore shows less synchronization with its global counterpart, especially in the post-GFC period where global interest rates have been low. - The weaker synchronization could result from Singapore’s proactive use of macroprudential measures as part of the macroeconomic policy framework to limit excessive credit and house price growth. - Figure 1 panels include: - Singapore - Financial Cycle, G7 (Deviation from bandpass trend; normalized to 1997Q1); - Singapore - Financial Cycle, US (Deviation from bandpass trend; normalized to 1997Q1); - Singapore - Financial Cycle, G7 (Deviation from bandpass trend; normalized to 1997Q1) [additional panel]. ### Policy implications and recommendations - Maintain strong precautionary buffers in both the corporate and household sectors to manage short-term swings in the global economic cycle. - Continue to maintain a medium-term focus on price stability. - Use macroprudential policies to limit excessive credit and house price growth, contributing to lower synchronization of the financial cycle with global counterparts. ### Box 1 — Business and Financial Cycle Estimation (methodology) - General approach: use a bandpass filter to separate short-term and medium-term cyclical characteristics. - Business cycle: - Follows Franks et al (2018). - Uses the bandpass filter developed by Christiano and Fitzgerald (2003). - Business cycle defined as the short-term cyclical component of real, seasonally-adjusted GDP. - Duration of short-term cycles is set at 5 to 32 quarters. - Financial cycle: - Estimated as in Drehmann et al. (2012). - Inputs: year-on-year percentage change in the credit-to-GDP ratio, credit to the non-financial private sector, and residential property prices. - Credit data from BIS. - Credit and residential property prices are in real terms (deflated by CPI in annual growth rates, from the OECD) and in year-on-year percentage change. - Bandpass filter (Christiano and Fitzgerald (2003)) used to separate trend and cyclical components. - Financial cycle defined by the average of the medium-term cyclical component of the three time-series, with durations set at 5 to 32 quarters and 32 to 120 quarters, respectively. - Cyclical synchronization measurement: - Uses the concordance statistic following Harding and Pagan (2002). - Concordance statistic, Cxy, measures degree of co-movement; defined as: - CIx y = Σ[Ct x ∙ Ct y + (1 − Ct x) ∙ (1 − Ct y)] - Ct = {0, if x is in recession phase at time t; 1, if x is in expansion phase at time t} - Ct = {0, if y is in recession phase at time t; 1, if y is in expansion phase at time t} - Concordance statistic ranges between 0 and 1. - Equal to one: series are completely pro-cyclical. - Equal to zero: series are completely countercyclical. - A number between 0 and 1 corresponds to the fraction of time that two series are in the same phase of their respective cycles. ### Key statistics and figures cited - Concordance with the US: around 0.7 (entire sample period). - Bandpass filter short-term cycle duration: 5 to 32 quarters. - Financial cycle component durations: 5 to 32 quarters and 32 to 120 quarters. - Data sources used in figures and estimation: Haver, OECD, BIS, CEIC, Bloomberg, Fund Staff Calculations, IMF staff calculations. *Source: IMF staff calculations and supporting text in the chapter.* ### 9. For low-skilled workers, vulnerabilities ### 9. For low-skilled workers, vulnerabilities ### Key findings on low-skilled (non-PMET) workers - Workers in non-PMET occupations (clerical, sales & service workers, production & transport operators, and cleaners & laborers) tend to be older and with a lower education level. - In 2018, 50 percent of resident non-PMET workers were above 50 years old, and only 5 percent held a degree. - Job-finding speed: - 70-75 percent of the resident non-PMETs found a job within 6 months. - 60 percent among the resident PMETs found a job within 6 months. - Income vulnerability: - About 70 percent of non-PMETs earn less than 2/3 of the median income of full-time employed residents in 2018. - Policy implication: the more relevant issue for low-skilled workers is to prevent poverty and to ensure continued incentives to work despite low wages. ### Policies and programs supporting low-wage workers - Progressive Wage Models (sector-specific wage floors): - Apply to narrowly defined sectors (cleaning, security, and landscape) for Singapore citizens and permanent residents. - Provide a schedule of wage floors that increases with job functions and required level of skills. - Wage levels are reviewed to include yearly wage increases over time. - Example: for the cleaning industry, based on the latest review in 2016, employers are asked to increase the monthly wage by S$200 over the period of 2017-2019, then to increase by 3 percent each year in 2020-2022. - Workfare Income Supplement (WIS): - Targets the bottom 20-30 income percentile. - For employed low-wage Singaporean workers of age 35 or above. - Benefit composition: combination of cash grants (to supplement disposable income) and top-ups to the CPF retirement savings. - Monthly benefit can be up to S$300 depending on the worker’s age and income level (a larger amount is paid to older workers). - In 2017, about S$656 millions were paid out to total 411,000 citizens. - Interaction with Active Labor Market Programs (ALMPs) and PES: - In-work benefits such as the WIS are more effective when combined with ALMP measures promoting job search and enhancing skills. - The WIS and the strong PES in Singapore together appear to be an effective combination to encourage labor force participation, especially for older workers. - Risk noted in literature: employers may take advantage of in-work benefits and set lower wages (OECD, 2005); thus it is important to pay close attention to wage developments especially for low-wage workers. ### Challenges ahead and program design recommendations - Singapore does not have unemployment insurance; the framework focuses on supporting workers to maintain employment through ALMP programs. - The current framework appears appropriately targeted to address different vulnerabilities across workforce segments and underpins strong labor market outcomes: high labor market participation and a low unemployment rate. - Need for continuous adaptation of labor policies due to technological and demographic changes. - Recommended actions: - Periodic assessment of the effectiveness of different programs (including administrative burden, public awareness, and outcomes) to improve program design. - Ensure workers whose jobs are most at risk actively participate in available programs. - Strengthen partnerships with industry and training providers to identify shifts in technology and industry needs and to adapt policies to the rapidly changing nature of work. - Literature caution: monitor wage developments to avoid employer pass-through of in-work benefit gains into lower offered wages. ### Key training and employment incentive program features (selected highlights from the table) - Place and Train (PMET hired and undergoes training with training & wage subsidies): - Up to 70% of course fee and salaries with cap at $ 6000 / mon; 90% for PMETs who are of age 40 and above or have been unemployed over 6 months. - Attach and Train (PMET reskill with work attachment, before placement, with training subsidies and allowance): - Up to 70% of course fees (90% for trainee aged ≥40) and training allowance of 50-70% of prevailing salary funded by WSG and ≥ 10% co-funded by hosting employer. - Salary subsidies for PMETs aged ≥ 40 looking for jobs over an year: - 50% for 6 months, 30% for the subsequent 6 months, and 20% for the last 6 months. - For PMETs aged ≥ 40 looking for jobs for ≥ 6 months and < 1 year, 40% for the first 6 months, 20% for the subsequent 6 months. - For PMETs aged < 40 looking for jobs ≥ 6 months, 20% for the first 6 months and 10% for the subsequent 6 month. - Career Trial (Jobs paying ≥ $ 1500/mon, SC looking for jobs): - 3 months work train with training allowance and retention incentive & salary support. - Training allowance of $7.5-15 / hr. for up to 3 months; One-off retention (≥ 6 month) incentive for long-term unemployed SC. - Professional Conversion Programme (Jobs paying ≥ $ 1500/mon, SC looking for jobs): - 30% of salary subsidies for up to 6 months (capped at $ 5400) per hire who are long-term unemployed. - Career Support Programme (Jobs paying ≥ $ 1500/mon, SC looking for jobs): - Training and salary support up to 90% of course fees and up to 90% of salary support with cap at $3,000/ mon. - Note: PMETs represent Professionals, Managers, Executives and Technicians. SC means Singapore citizens. *Source: 1sgpea2019007 - 9. For low-skilled workers, vulnerabilities* ### 2.6 Global oil prices have corrected recently amid concerns about slowing global demand ### 2.6 Global oil prices have corrected recently amid concerns about slowing global demand ### Inflation and external price developments - Global oil prices have corrected recently amid concerns about slowing global demand. - Oil prices are projected to average lower in 2019 than in the previous year. - Other sources of external inflation are also likely to remain benign. - On the domestic front: - Moderate wage gains supported by firm labour market conditions and the cyclical moderation in productivity growth are expected to contribute to further increases in unit labour costs. - An acceleration in inflation in the quarters ahead is unlikely against the backdrop of slower GDP growth and uncertainties in the global economy. - The authorities expect core inflation to average within the 1–2% range for 2019. ### Macroeconomic policy stance - The current macroeconomic policy mix has been formulated to take into account the ongoing uncertainties in the international economic environment, to secure price stability and sustainable growth in the medium term. - Staff are in broad concurrence with the authorities’ policy stance. Monetary policy - MAS kept the rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band unchanged in April 2019, after two rounds of measured adjustments in 2018 which had set the policy band on an appreciation path, from a 0% slope previously. - The unchanged policy decision was predicated on MAS’ assessment that inflationary pressures would be contained, reflecting: - the expected easing of Singapore’s GDP growth below its potential rate, - a benign outlook for imported inflation, - the continuing restraining effects from the monetary policy tightening measures undertaken in 2018. - MAS noted staff’s assessment that the monetary policy stance is appropriately supportive of price stability. - The recent escalation in trade frictions has added to uncertainty and risks to growth. - In the short term, the policy band provides sufficient room for fluctuations in the S$NEER to accommodate volatility arising from these trade issues. - MAS will continue to closely monitor economic developments including global risk factors; any adjustments to policy will depend on how the economy evolves, and the latest assessment of inflation and GDP growth prospects. Fiscal policy - The fiscal policy stance is estimated to be mildly expansionary this year (calendar year basis), with several measures targeted at supporting households. - Fiscal policy is focused on medium- to long-term restructuring, but the authorities stand ready to provide fiscal stimulus should economic conditions take a significant turn for the worse. - Budget 2019 reinforced past initiatives with a focus on strengthening Singapore’s long-term sustainable growth prospects. - Budget measures are contextualised within a productivity growth framework aimed at incentivising investment, technology adoption and innovation. - Examples of measures to facilitate efficient resource allocation and raise productivity include: - reduction in Dependency Ratio Ceilings (DRCs) for the services sector, - expansion of Productivity Solutions Grant, - SMEs Go Digital programme, - one-stop portal for firms to transact with the government, - new Professional Conversion Programmes, - Enterprise Financing Scheme for SMEs. - The government’s role is designed from a supply-side perspective and not limited to boosting spending per se. - Fiscal resources deployed to promote inclusive growth amid globalisation and technology change have been considerably increased over recent years. ### Financial sector assessment and resilience - Authorities welcome staff’s acknowledgement of Singapore’s high financial regulatory and supervisory standards and recent enhancements to the framework for financial oversight. - MAS has implemented reforms including: - Basel III capital and liquidity requirements, - enhancements to the framework for crisis resolution and safety nets, - initiatives to promote cyber resiliency and cyber security in the banking sector. Financial system soundness - Stress tests by MAS and the FSAP team reaffirm that banks in Singapore would remain resilient under adverse macroeconomic conditions. - The sizeable capital buffers and strong profitability of major Singaporean banks allow them to absorb sharp increases in credit losses under FSAP’s severe solvency stress test scenarios. - Singaporean banks have higher leverage ratios compared to that for global systemically important banks (G-SIBs) and a conservative approach to risk-weighted asset calculation. - Domestic credit growth has moderated, with household and corporate debt remaining stable and balance sheets resilient with sizeable financial buffers. - Banks have adequate liquidity overall, with D-SIBs maintaining healthy buffers over minimum regulatory Liquidity Coverage Ratio (LCR) requirements in all currencies including Singapore dollars. - Under a scenario of severe macro conditions and significant deterioration in foreign currency market liquidity, stress tests show banks could face U.S. dollar shortfalls. - Authorities have been actively supervising banks on their foreign currency liquidity profiles and local banking groups have diversified sources of U.S. dollar funding. - Insurance companies have strong capital positions, though stress tests point to vulnerabilities to market risks such as credit spread widening and fall in equity prices; insurers were able to recover capital positions through various plans assessed as adequate. Resolution and crisis management - Authorities strengthened the resolution framework in 2017 through MAS Act amendments to enhance resolution tools and powers for managing failure of large, complex financial institutions. - Staff acknowledged the resolution framework as broadly consistent with international best practices in the FSB Key Attributes for Effective Resolution of Financial Institutions. - In June 2019, the authorities published a monograph on Emergency Liquidity Assistance (ELA) in Singapore to inform financial institutions’ planning for liquidity stress and crisis management, particularly relating to the extent of central bank liquidity support. - Authorities note the FSAP team’s assessment that policy effectiveness and governance will be strengthened by disclosure of the ELA framework. FinTech and operational risks - Authorities will continue to ensure risks posed by financial innovation are appropriately addressed through heightened supervisory intensity. - Rapid adoption of technology could lead to greater operational, technology-related, and money laundering and terrorism financing risks. - MAS has revised regulations to encourage better IT risk management and resilience. - The Payment Services Act will enhance MAS’ powers and regulatory oversight (including its AML/CFT purview) over payment service providers. - Authorities will continue refinements to regulations and supervision to balance risks and opportunities. ### Macroprudential policy and property market - Singapore has a strong institutional framework for macroprudential policy with effective cooperation and coordination with other institutions. - MAS relies on comprehensive quantitative information for surveillance and risk assessment and continuously enhances its systemic risk monitoring framework. - Property-related macroprudential tools have increased the resilience of households and financial institutions by moderating the pro-cyclicality of credit and residential price developments. - On 5 Jul 2018, authorities raised the Additional Buyer’s Stamp Duty (ABSD) rates and tightened Loan-to-Value (LTV) limits on private residential property purchases: - Purpose: to cool the property market and keep price increases in line with economic fundamentals. - Measures were calibrated against the strong and broad-based upswing of the property price cycle between Q3 2017 and Q2 2018 and addressed risks of a destabilising correction. - A comprehensive package of tax and credit-based measures was implemented due to strength in demand across all buyer types. - Consideration given to the strong pipeline of private housing supply progressing on-stream over the medium term. - There are signs the implemented measures have helped to moderate the property market cycle but continued vigilance is called for as macro conditions and market dynamics evolve. ### Medium-term structural issues and policy responses - Authorities continue to address structural issues including technological advancements, population ageing and climate change. - Building on Committee on the Future Economy (CFE) recommendations, authorities promote an innovation-based growth model to establish Singapore as a global innovation hub supported by a labour force with deep skills. - To reduce carbon emissions in line with the 2015 Paris Agreement, Singapore uses high excise duties on petrol, diesel and compressed natural gas as well as the recently-implemented carbon tax. - In response to technological change: - Initiatives such as SkillsFuture promote life-long learning. - Adapt and Grow measures help retrain workers and support transitions to new careers. - Policy measures incentivise firms, especially SMEs, to scale up and internationalise. - Reduction of foreign worker DRCs for the services sector should encourage greater automation and lift productivity. - Social mobility and inclusivity measures include: - Workfare Income Supplement scheme with higher payouts for older workers, - Progressive Wage Model, - Bicentennial Bonus, - Merdeka Generation Package, - enhancement of the Community Health Assist Scheme. - Authorities expect significant increases in broad-based, recurrent expenditure such as healthcare and education, and in refreshing and building rail and housing infrastructure. - This will accelerate the projected decline in Singapore’s public sector net savings as a share of GDP. - Households are expected to draw down on accumulated savings as the population ages. - Both trends indicate that the current account surplus will be gradually reduced in the next decade. ### Final remarks and readiness to respond - Amid elevated uncertainties, authorities will carefully monitor global developments and assess impacts on internal balance, encompassing macroeconomic and financial stability. - Authorities stand ready to undertake appropriate policy responses should cyclical developments deteriorate more sharply than anticipated. - While external headwinds will slow Singapore’s pace of growth in the short term, authorities remain committed to domestic restructuring to embrace new economic opportunities in the medium term and ensure growth remains inclusive. *1sgpea2019007 - 2.6 Global oil prices have corrected recently amid concerns about slowing global demand* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1sgpea2019007.pdf_