## 1sgpea2022001

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### Executive Board Assessment and Key Messages
- Outlook subject to significant uncertainty and risks are tilted to the downside, stemming mostly from the war in Ukraine and the related sanctions, China’s growth slowdown, monetary policy normalization in advanced economies, and the risk of vaccine-resistant new COVID-19 variants emerging.
- Executive Directors commended the authorities for effective pandemic management, swift vaccination rollout, and decisive policy support that led to an impressive economic recovery, while noting the recovery has been uneven across sectors.
- Macroeconomic policy guidance:
  - Calibrate the pace of normalization to facilitate a broader recovery while managing price pressures and downside risks.
  - Maintain a prudent fiscal stance combined with targeted and temporary assistance to vulnerable households, workers, and firms.
  - If downside risks materialize, fiscal policy should be the first line of defense.
  - Support the tighter monetary policy stance given upside risks to inflation; remain data dependent and vigilant to price developments.
  - Continue monitoring financial sector risks; maintain a tight macroprudential stance and tighten further if financial risks grow.
  - Ramp up housing supply to complement macroprudential measures and stabilize residential real estate prices.
  - Continue enhancement of the AML/CFT framework and implementation of the 2019 FSSA recommendations.
  - Accelerate transformation toward a greener, digital, and more inclusive economy; continue progress on climate change, digitalization, and inclusion initiatives.

### Recent Developments and Outlook
- Growth and sectoral outcomes:
  - Real GDP: -4.1 percent in 2020; 7.6 percent in 2021; projection 3.7 percent in 2022; 2.6 percent in 2023.
  - Recovery driven primarily by net external demand, complemented by domestic demand (robust investment and private consumption).
  - Tourism-related, consumer-facing, and construction sectors remained well below pre-pandemic levels in Q1 2022; manufacturing and tech-related activities thrived.
- Demand components (selected projections):
  - Total domestic demand: 2022: 3.8; 2023: 2.3
  - Private consumption: 2021: 4.5; 2022 (projection): 4.5; 2023 (projection): 3.9
  - Gross fixed investment: 2021: 19.6; 2022 (projection): 4.5; 2023 (projection): 0.1
- Outlook and risks:
  - Staff projects real GDP to grow by 3.7 percent in 2022, driven by pent-up demand as the economy reopens.
  - Over the medium term, growth is projected to converge to 2½ percent.
  - Headline inflation projected at 4.8 percent in 2022 and 2.5 percent in 2023.
  - Downside risks tilted to the downside: war in Ukraine, China’s slowdown, global monetary normalization, vaccine-resistant COVID-19 variants, and premature withdrawal of financial support increasing corporate stress, particularly for SMEs.

### Labor Market: recovery and heterogeneity
- Key labor outcomes:
  - Unemployment declined from a peak of 3.6 percent in October 2020 to about 2.2 percent in March 2022.
  - Employment excluding migrant domestic workers expanded by about 42,000 in 2022Q1.
  - Retrenchments fell to a record low of 1,260.
  - Foreign workforce (excluding migrant domestic workers) shrank by 211,500 between 2020 and 2021, but started to recover thereafter.
  - Median gross wage increased by 3.2 percent in 2021.
  - Under-employment elevated in June 2021 within services: 8 percent in accommodation and food services.
- Labor policy measures:
  - Wage subsidies, training, and job placement initiatives supported improvements in the overall labor market.
  - Skills programs: SGUnited Mid-Career Pathways (regularized/extended); SkillsFuture Career Transition Program (SCTP) to replace SGUS and SGUP-CT (which expired March 31, 2022); SGUP-CA to be made permanent.

### Inflation, Monetary Policy, and FX
- Inflation developments and projections:
  - CPI inflation (period average): 2021: 2.3; 2022 (projection): 4.8; 2023 (projection): 2.5
  - CPI inflation excluding food and energy (period average): 2021: 2.4; 2022 (projection): 2.8; 2023 (projection): 2.0
  - MAS core inflation: 2021: 0.9; 2022 (projection): 3.0; 2023 (projection): 2.0
  - Headline inflation reached 5.4 percent in April 2022.
  - MAS revised core inflation outlook to 2.5–3.5percent in 2022 (from 2.0–3.0percent in January) and headline to 4.5–5.5percent (from 2.5–3.5percent).
- Monetary policy actions:
  - MAS maintained accommodative stance through October 2021 then tightened: pre-emptive tightening in October 2021; out-of-cycle steepening in January 2022; re-centering and increasing appreciation rate of the S$NEER policy band in April 2022.
  - MAS sees a core inflation rate of just under 2 percent as consistent with overall price stability.
  - Net FX purchases: US$52.1 billion in 2020H2; US$6.6 billion in 2021H2.
  - Total FX reserves: S$563 billion in 2021 (up from S$479 billion in 2020).
  - Both the 3-month SGD SIBOR and SORA climbed above 1 percent by mid-May 2022.

### Banking, Corporate Balance Sheets, and Financial Soundness
- Banking sector metrics:
  - Total regulatory capital to risk weighted assets: 16.5 percent in 2022Q1 (regulatory minimum 10 percent).
  - Non-performing loans (NPL) at 1.4 percent of total non-bank loans in 2022Q1.
  - Local banks’ non-bank loan-to-deposit ratios remained well below 100 percent in 2022Q1.
  - Large domestic banks reported healthy and stable asset quality in 2022Q1.
  - NFC debt: 149 percent of GDP in 2019Q4; 156 percent of GDP by 2021Q2; moderated to 147 percent of GDP as of 2021Q4.
  - Proportion of short-term debt to total debt fell from 42 percent in 2020Q2 to 40 percent in 2021Q4.
  - Overall corporate NPL ratio fell to 2.7 percent in 2021Q4.
  - Sectoral NPLs in 2021Q4: transport & storage 8.9 percent; construction 7.0 percent.
  - SMEs’ NPL ratio: 4.4 percent as of 2021Q2; proportion of vulnerable SMEs estimated about 30 percentage points higher than vulnerable large firms.
- Asset management and reserves:
  - Singapore’s asset management industry AUM: about $3.5 trillion in 2020.
  - Gross official reserves (US$ billions): 2021: 417.9; 2022 (projection): 460.5; 2023 (projection): 519.0.

### Real Estate, Housing Market, and Macroprudential Policy
- Housing and household metrics:
  - Private residential house price inflation exceeded pre-COVID trends; staff analysis suggests prices are currently above long-term fundamentals.
  - Home ownership rate close to 90 percent.
  - Household debt peaked at 71 percent of GDP during the pandemic; about three quarters secured against real estate.
  - High share of mortgages with fixed rates for 3 years or less before transitioning to floating rates.
  - Property market related loans represented a third of banks’ total loans by end-2021.
- Macroprudential measures and supply-side actions:
  - Recent measures: raising Additional Buyer’s Stamp Duty (ABSD) rates; tightening the total debt servicing ratio (TDSR) from 60 to 55 percent; tightening the loan to value (LTV) limit for loans from HDB from 90 to 85 percent.
  - MAS estimate of resident credit-to-GDP gap: 10.6 percent in Q1 2021, moderating to 0 percent thereafter.
  - Housing and Development Board targeting to raise public flat supply by 35 percent in 2022 and 2023.
  - GLS Program (first half of 2022): 40 percent increase in housing units for the Confirmed List from the previous GLS Program in second half of 2021.

### Fiscal Policy Evolution, FY2022, and Public Debt
- Pandemic fiscal phases:
  - Phase 1 (FY2020): stimulus S$97.3 billion (20.3 percent of GDP); above-the-line measures about 16 percent of GDP; loan capital about S$22.0 billion (4.7 percent of GDP); fiscal impulse: 12 percent of GDP in FY2020.
  - Phase 2 (FY2021): COVID-19 Resilience Package S$11.0 billion (2 percent of GDP).
  - Phase 3 (FY2022): gradual normalization; COVID-19 related support S$7.6bn (1.3 percent of GDP).
- FY2022 specifics:
  - Fiscal deficit (excluding land sales) declining from 2.3 percent of GDP in FY2021 to 0.5 percent of GDP FY2022.
  - FY2022 measures include S$1.1bn (0.2 percent of GDP) Jobs and Business Support Package and Household Support Package; S$0.5bn (0.1 percent of GDP) sector-specific package for aviation.
  - GST to rise from 7 percent to 8 percent on 1 January 2023, and to 9 percent on 1 January 2024; GST expected to yield an additional 0.7 percent of GDP upon full implementation.
  - Budget extends Jobs Growth Incentive with lower support rates and regularizes SGUnited Mid-Career Pathways Programme.
- Fiscal medium-term pressures and debt:
  - Staff preliminary estimates: costs of fiscal pressures from aging, climate, and other long-term challenges could amount to around 5 percent of GDP per year over the long term.
  - Public gross nominal debt (percent of GDP): 108.2 (2020), 152.0 (2021), 160.2 (2022), projected to decline to 147.5 by 2027.
  - Gross financing needs (GFN) expected to average about 21 percent of GDP per annum in the medium term.
  - Net public saving expected to fall as higher public spending (green infrastructure, coastal protection) is implemented.
- Debt instruments and green financing:
  - Government issues SGS, SSGS, SSB, and RMGS (RMGS introduced 2020).
  - About S$35 billion (6 percent of 2022 GDP) in green bonds expected to fund green infrastructure projects by 2030.

### External Sector, Current Account, and NIIP
- Current account and external balances:
  - Current account balance (US$ billions): 2021: 71.9; projections 2022: 56.2; 2023: 56.4.
  - Current account (percent of GDP): 2021: 18.1; 2022 (projection): 13.2; 2023 (projection): 12.6.
  - Staff assesses the CA gap in 2021 at 3.4 to 7.0 percent of GDP (midpoint 5.2 percent).
- NIIP and valuation:
  - Net international investment position: 256.4 percent of GDP in 2021 (attributed to negative valuation effects).
  - NIIP in US$ billions: 2016: 712; 2017: 840; 2018: 685; 2019: 845; 2020: 969; 2021: 1018.
  - Gross assets and liabilities high: Gross Assets: 1240 percent of GDP (2021); Gross Liab.: 983.6 percent of GDP (2021); Debt Liab.: 383.9 percent of GDP (2021).
- External assessment and REER:
  - REER assessed to be undervalued in the range of 6.8 to 14.0 percent in 2021 (midpoint 10.4 percent); REER depreciated by 0.3 percent year-on-year in 2021.
  - Staff view: external position in 2021 substantially stronger than implied by fundamentals and desirable policies, but subject to wide uncertainty.

### Climate Policy, Carbon Tax, and Sustainable Finance
- Carbon tax path and targets:
  - Carbon tax initially S$5 per tonne of CO2e (2019) and remaining at this level until 2023.
  - Increase to S$25 per tonne in 2024 and 2025.
  - Increase to S$45 per tonne in 2026 and 2027.
  - With a view to reaching S$50 to S$80 per tonne by 2030.
  - Singapore’s updated NDC: peak emissions levels at 65 MtCO2e around 2030.
- Staff analysis and fiscal implications:
  - A carbon tax of S$50-S$80 per tonne by 2030 can reduce emissions by 19-26 percent below IMF-projected BAU levels in 2030.
  - $50- $80 carbon prices can raise additional fiscal revenues of 0.4-0.5 percent of GDP in 2030.
  - Revenues planned to be fully recycled to compensate households and businesses and to support green investments.
- Green finance and issuance:
  - Planned issuance of S$35 billion (6 percent of 2022 GDP) in green bonds by 2030.
  - Total issuance of sustainable debt in Singapore: $33.3 billion in 2021.
  - Sustainability-linked loans increased to $20.9 billion in 2021 (more than sixfold increase).

### Financial Integrity, AML/CFT, and Digital Assets
- AML/CFT and financial integrity:
  - Robust AML/CFT framework but significant increase in financial flows from higher-risk countries over last two years; rising ML/TF and sanctions-evasion risks.
  - Recommendations: prioritize publication of consolidated national ML/TF risk assessment; consider minimum engagement model for highest-risk entities; implement Corporate Registers Act amendments for beneficial ownership access.
  - VASP supervision steps underway following licensing regime roll-out; cross-border supervision of transient virtual asset activities remains a concern.
- Digital money and crypto:
  - Domestic payments innovations: FAST (2014), PayNow (2017), Singapore QR Code.
  - Project Nexus (BIS and MAS, 2021) proposed for global real-time payments.
  - MAS exploring wholesale and cross-border CBDC uses; no pressing need for a retail CBDC at this stage.
  - Cryptocurrency metrics (2020): combined peak daily trading volumes of SGD-quoted Bitcoin, Ethereum and XRP was 2 percent of the average daily trading volume of securities on SGX; cryptocurrency derivatives traded through financial institutions amounted to less than 1 percent of derivatives trading activity on SGX; cryptocurrencies comprise less than 0.01 percent of assets managed by MAS-regulated funds.
  - MAS approach: "no bans, but strong regulation" under the Payment Services Act (PSA); January 2022 guidelines discourage cryptocurrency trading by the general public.

### Inclusion, Inequality, and Social Protection
- Inequality and distribution:
  - Gini coefficient among resident employed households declined in 2020; the Gini coefficient was 0.45 in 2019 and remained unchanged in 2020; net of transfers and taxes it decreased to 0.38 in 2020.
  - Recovery in 2021 saw higher income growth for households at the bottom of the income distribution; unwinding of COVID-19 relief measures led to an increase in the Gini after taxes and transfers in 2021 relative to 2020, though still below pre-pandemic levels.
- Social protection and policy measures:
  - Policy measures: expand Progressive Wage Model; Progressive Wage Credit Scheme (PWCS); enhance Workfare Income Supplement; improve progressivity of income tax system.
  - Reskilling outcomes: SGUP-CT and SGUS trainees — about 50 percent earned the same or higher wages compared to 39 percent who experienced a decline.
  - Recommendation: continue reskilling, training, and reforms to facilitate resource reallocation to high-growth sectors while ensuring inclusiveness.
- Automatic stabilizers and long-term spending:
  - Consider strengthening spending automatic stabilizers; OECD average spending on unemployment insurance is 0.6 percent of GDP (noted as comparable to Singapore’s wage subsidies under JSS in FY2021).
  - Possible net costs associated with spending pressures (annual, percent of GDP): Potential enhanced social protection (0.6); major long-term infrastructure including climate (1); total gross spending pressures: 5.6; planned revenue measures in FY22 Budget: -0.8; total net spending pressures: 4.8.

### Risks, Scenarios, and Policy Contingencies
- Major external downside risks:
  - War in Ukraine and related sanctions amplifying inflationary pressures and increasing uncertainty.
  - China’s growth slowdown.
  - Monetary policy normalization in advanced economies leading to tighter US dollar funding and capital outflows.
  - Risk of vaccine-resistant new COVID-19 variants.
- Domestic risks:
  - Premature withdrawal of support schemes increasing corporate stress, particularly for SMEs.
  - Rising household debt and banking sector exposure to real estate.
  - Climate change posing longer-term growth threats.
- Contingency frameworks:
  - Singapore has ample fiscal space; fiscal policy should be the first line of defense if downside risks materialize.
  - MAS toolkit (including re-centering the S$NEER policy band) to be deployed as necessary to preserve medium-term price stability.
  - A downside stagflation scenario would call for fiscal loosening and further tightening of monetary policy.
  - Stress testing: MAS industry-wide stress tests and exploratory climate stress-testing to inform resilience assessments.

*Source: IMF staff report for the 2022 Article IV consultation with Singapore; data and forecasts as of May 24, 2022; excerpted content provided in the supplied PDF excerpt.*

### 1.5 percent. The outlook is subject to significant uncertainty and risks are titled to the

### SINGAPORE: STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION (excerpt)

### Executive Board Assessment and Key Messages
- The outlook is subject to significant uncertainty and risks are tilted to the downside, stemming mostly from the war in Ukraine and the related sanctions, China’s growth slowdown, monetary policy normalization in advanced economies, and the risk of vaccine-resistant new COVID-19 variants emerging.  
- Executive Directors commended the authorities for effective pandemic management, swift vaccination rollout, and decisive policy support, which led to an impressive economic recovery, while noting the recovery has been uneven across sectors.  
- Macroeconomic policy guidance:
  - Calibrate the pace of normalization to facilitate a broader recovery while managing price pressures and downside risks.
  - Maintain a prudent fiscal stance combined with targeted and temporary assistance to vulnerable households, workers, and firms.
  - If downside risks materialize, fiscal policy should be the first line of defense.
  - Support the tighter monetary policy stance given upside risks to inflation; remain data dependent and vigilant to price developments.
  - Continue monitoring financial sector risks; maintain a tight macroprudential stance and tighten further if financial risks grow.
  - Ramp up housing supply to complement macroprudential measures and stabilize residential real estate prices.
  - Continue enhancement of the AML/CFT framework and implementation of the 2019 FSSA recommendations.
  - Accelerate transformation toward a greener, digital, and more inclusive economy; continue progress on climate change, digitalization, and inclusion initiatives.

### Context and Pandemic Transition
- Pre-pandemic strengths: track record of fiscal prudence and robust macroeconomic policy frameworks supported a decisive response to the health crisis.
- Vaccination statistics:
  - "92 percent of the total population is fully vaccinated."
  - "About 77 percent of the population have received a booster shot as of June 13th, 2022."
- Singapore is moving from pandemic to endemic phase and pivoting to longer-term challenges (climate change, inequality, technological shifts).

### Recent Developments: A Strong but Uneven Recovery
- Growth and sectoral outcomes:
  - Real GDP: contracted -4.1 percent in 2020; recovered to 7.6 percent in 2021.
  - Recovery driven primarily by net external demand, complemented by domestic demand (robust investment and private consumption).
  - Tourism-related, consumer-facing, and construction sectors remained well below pre-pandemic levels in Q1 2022; manufacturing and tech-related activities thrived.
- Credit and financial support:
  - Private sector domestic non-bank credit growth: 6.2 percent in 2021 (up from 1.4 percent in 2020).
  - FY2020 fiscal response: about 20 percent of GDP; FY2021 targeted measures about 2 percent of GDP.
  - MAS maintained an accommodative monetary stance through October 2021 with a zero percent per annum rate of appreciation of the S$NEER policy band and unchanged band width. Regulatory and supervisory forbearance measures expired in September 2021.
- External sector:
  - Goods exports remained solid overall in 2022Q1: 4.3 percent year-on-year in real terms, driven by non-oil re-exports.
  - Oil imports grew by more than 50 percent in 2022Q1; non-oil imports rose by 17.4 percent in 2022Q1 due to higher electronics and non-electronics imports.
  - Services trade recovery in 2022Q1 driven by business and transport services exports and imports.
- Labor and construction:
  - Foreign labor shortages due to border restrictions weighed on construction activities, which remained at about 30 percent below the pre-pandemic level in end-2021.

### Key Economic and Financial Indicators (selected figures from Table 1; projections noted)
- Snapshot (2021):
  - Nominal GDP (2021): US$396.9 billion
  - Population (2021): 5.5 million
  - GDP per capita (2021): US$72,766
  - Main goods exports (2021, percent of total non-oil goods exports): machinery & transport equip. (61.6 percent); chemical products (15.5 percent); misc. manufactured articles (9.9 percent).
  - Top three destinations for goods exports (2021, percent of gross goods exports): China (14.8 percent); Hong Kong SAR (13.1 percent); USA (8.4 percent).
- Growth (real GDP, percentage change):
  - 2016: 3.6
  - 2017: 4.7
  - 2018: 3.7
  - 2019: 1.1
  - 2020: -4.1
  - 2021: 7.6
  - 2022 (projection): 3.7
  - 2023 (projection): 2.6
- Demand components (selected):
  - Total domestic demand (projection): 2022: 3.8; 2023: 2.3
  - Private consumption (percentage change): 2021: 4.5; 2022 (projection): 4.5; 2023 (projection): 3.9
  - Gross fixed investment (percentage change): 2021: 19.6; 2022 (projection): 4.5; 2023 (projection): 0.1
- Saving and investment (percent of GDP):
  - Gross national saving: 2021: 42.5; 2022 (projection): 40.0; 2023 (projection): 38.3
  - Gross domestic investment: 2021: 24.4; 2022 (projection): 26.8; 2023 (projection): 25.7
- Inflation and labor:
  - CPI inflation (period average): 2021: 2.3; 2022 (projection): 4.8; 2023 (projection): 2.5
  - CPI inflation, excluding food and energy (period average): 2021: 2.4; 2022 (projection): 2.8; 2023 (projection): 2.0
  - MAS core inflation: 2021: 0.9; 2022 (projection): 3.0; 2023 (projection): 2.0
  - Unemployment rate: 2021: 2.7; 2022 (projection): 2.2; 2023 (projection): 2.2
- Fiscal (central government, percent of GDP):
  - Revenue: 2021: 18.3; 2022 (projection): 17.8; 2023 (projection): 16.9
  - Expenditure: 2021: 20.2; 2022 (projection): 16.8; 2023 (projection): 15.5
  - Net lending/borrowing: 2021: -1.9; 2022 (projection): 1.0; 2023 (projection): 1.4
  - Net lending/borrowing, excluding nonproduced assets: 2021: -3.8; 2022 (projection): -1.0; 2023 (projection): -0.5
  - Primary balance: 2021: -7.6; 2022 (projection): -4.7; 2023 (projection): -3.2
- Money and credit (end of period, percent change):
  - Broad money (M2): 2021: 9.7; 2022 (projection): 8.9; 2023 (projection): 5.1
  - Credit to private sector: 2021: 6.2; 2022 (projection): 3.7; 2023 (projection): 2.6
- External and reserves:
  - Current account balance (US$ billions): 2021: 71.9; 2022 (projection): 56.2; 2023 (projection): 56.4
  - Current account (percent of GDP): 2021: 18.1; 2022 (projection): 13.2; 2023 (projection): 12.6
  - Gross official reserves (US$ billions): 2021: 417.9; 2022 (projection): 460.5; 2023 (projection): 519.0
  - Gross official reserves (In months of imports): 2021: 6.3; 2022 (projection): 6.6; 2023 (projection): 7.0

### Outlook and Risks
- Outlook:
  - Recovery is firming but remains uneven; near-term projections show growth moderating from 7.6 percent in 2021 to 3.7 percent in 2022 and 2.6 percent in 2023.
  - Inflation is elevated with CPI inflation projected at 4.8 percent in 2022 before easing to 2.5 percent in 2023.
- Downside risks (tilted to the downside):
  - War in Ukraine and related sanctions amplifying inflationary pressures and increasing uncertainty.
  - China’s growth slowdown.
  - Monetary policy normalization in advanced economies.
  - Risk of vaccine-resistant new COVID-19 variants.
  - Potential for premature withdrawal of financial support schemes increasing corporate stress, particularly for SMEs.

### Policy Recommendations (near-term and structural)
- Near-term policy mix:
  - Maintain a tighter fiscal stance in 2022 while providing targeted and temporary assistance for vulnerable households, workers, and firms to limit inflationary pressures from public demand and facilitate a broader recovery.
  - Continue the tighter monetary policy stance to contain inflationary pressures exacerbated by the war in Ukraine and related sanctions; keep policy data dependent.
  - Maintain and, if necessary, further tighten the tight macroprudential stance; combine with plans to ramp up housing supply to ensure a soft landing in residential real estate prices and prevent rising systemic financial risks.
  - Continue vigilance in the financial sector; recognize the financial sector remains healthy but monitor risks as support is withdrawn.
  - If downside risks materialize, deploy ample fiscal buffers with targeted fiscal support as the first line of defense.
- Structural and medium-term priorities:
  - Pivot to post-pandemic priorities: accelerate transition towards a smarter, greener, and more inclusive economy; recent FY2022 budget initiatives supporting these transitions are welcome.

*Source: IMF staff report for the 2022 Article IV consultation with Singapore; data and forecasts as of May 24, 2022; excerpted content provided in the supplied PDF excerpt.*

### 6.      The labor market is recovering from the pandemic, albeit with some heterogeneity

### 6.      The labor market is recovering from the pandemic, albeit with some heterogeneity

### Labor market developments and heterogeneity
- Unemployment declined from its peak of 3.6 percent in October 2020 to about the pre-pandemic level of 2.2 percent in March 2022.
- Employment excluding migrant domestic workers expanded by about 42,000 in 2022Q1.
- Retrenchments fell to a record low of 1,260.
- Employment in construction remained sluggish reflecting foreign labor shortages but started to recover in 2022Q1 as entry approvals resumed.
- Employment in services rebounded in 2021, but under-employment was elevated in June 2021 within the sector, reaching 8 percent in accommodation and food services.
- The foreign workforce (excluding migrant domestic workers) shrank by 211,500 between 2020 and 2021, but has started to recover thereafter.
- The median gross wage increased by 3.2 percent in 2021, with variations across sectors.
- Labor market measures—wage subsidies, training, and job placement initiatives—supported improvements in the overall labor market.

### Inflation, monetary policy, and financial conditions
- Headline inflation reached 5.4 percent in April 2022, mostly reflecting higher costs of private transport and housing.
- MAS core inflation stood at 3.3 percent (period referenced: 2021/early 2022).
- MAS revised its core inflation outlook to 2.5–3.5percent in 2022, from the 2.0–3.0percent expected in January.
- MAS revised its headline inflation outlook to 4.5–5.5percent in 2022, from 2.5–3.5percent expected in January.
- MAS tightened monetary policy: pre-emptive tightening in October 2021, out-of-cycle tightening in January 2022 by raising the slope of the S$NEER policy band slightly, and in April 2022 re-centering the mid-point upward at the prevailing level and increasing slightly the rate of appreciation of the policy band.
- Net FX purchases reached US$52.1 billion in 2020H2, moderating to US$6.6 billion in 2021H2.
- Total FX reserves stood at S$563 billion in 2021, up from S$479 billion in 2020.
- Both the 3-month SGD SIBOR and SORA climbed above 1 percent by mid-May 2022.

### Banking, nonbank financial sector, and corporate balance sheets
- Total regulatory capital to risk weighted assets stood at 16.5 percent in 2022Q1, substantially above the 10 percent regulatory minimum.
- Non-performing loans (NPL) at 1.4 percent of total non-bank loans in 2022Q1.
- Local banks’ SGD and foreign currency non-bank loan-to-deposit ratios (LTD) remained well below 100 percent in 2022Q1.
- Large domestic banks reported healthy and stable asset quality and strong balance sheet fundamentals in 2022Q1.
- Singapore’s asset management industry AUM was about $3.5 trillion in 2020.
- MAS expanded reporting requirements for fund managers to cover significant redemptions.
- NFC debt: 149 percent of GDP in 2019Q4; rose to 156 percent of GDP by 2021Q2; moderated to 147 percent of GDP as of 2021Q4.
- Proportion of short-term debt to total debt fell from 42 percent in 2020Q2 to 40 percent in 2021Q4.
- Overall corporate NPL ratio fell to 2.7 percent in 2021Q4.
- Sectoral NPLs in 2021Q4: transport & storage 8.9 percent; construction 7.0 percent.
- SMEs’ NPL ratio remained stable at 4.4 percent as of 2021Q2.
- The proportion of vulnerable SMEs is estimated to be about 30 percentage points higher than that of vulnerable large firms.

### Real estate, housing market, and macroprudential measures
- Private residential housing: house price inflation exceeded pre-COVID trends; staff analysis suggests private residential house prices are currently above long-term fundamentals.
- Singapore home ownership rate close to 90 percent.
- Systemic risk channels in residential real estate include: household debt peaked at 71 percent of GDP during the pandemic (about three quarters secured against real estate); high share of mortgages with fixed rates for 3 years or less before transitioning to floating rates; strong foreign demand; property market related loans representing a third of banks’ total loans by end-2021.
- Recent policy measures to moderate residential property prices:
  - Raising the Additional Buyer’s Stamp Duty (ABSD) rates (tabulated in source).
  - Tightening the total debt servicing ratio (TDSR) from 60 to 55 percent.
  - Tightening the loan to value (LTV) limit for loans from HDB from 90 to 85 percent.
- MAS’ estimate of resident credit-to-GDP gap: 10.6 percent in Q1 2021, moderating to 0 percent thereafter.
- Housing and Development Board targeting to raise public flat supply by 35 percent in 2022 and 2023.
- GL S Program for first half of 2022: 40 percent increase in housing units for the Confirmed List from the previous GLS Program in the second half of 2021.

### Outlook and key projections
- Staff projects real GDP to grow by 3.7 percent in 2022, driven by pent-up demand as the economy reopens.
- Over the medium term, growth is projected to converge to 2½ percent.
- Headline inflation projected to rise to 4.8 percent in 2022, before moderating to 2.5 percent in 2023.
- MAS core inflation projected to reach 3.0 percent in 2022 and 2.0 in 2023.
- Current account (CA) surplus projected at about 13 percent of GDP in 2022 (CA surplus was 18.1 percent of GDP in 2021 and 16.8 percent in 2020).
- IMF staff assesses the CA gap at 3.4 to 7.0 percent of GDP (reference to Appendix II).
- 2021 real effective exchange rate assessed to be undervalued by 6.8 to 14.0 percent, having depreciated by 0.3 percent year-on-year.

### Risks and scenarios (tilted to the downside, mostly external)
- War in Ukraine and related sanctions:
  - Direct bilateral goods trade with Russia and Ukraine about ½ percent of GDP in 2021; tourism flows about 0.1 percent of total flows.
  - Potential transmission via financial markets, commodity price shocks, higher US dollar funding costs, and tighter US dollar liquidity in Singapore.
  - Commodity-trading firms’ exposures monitored; local banking groups’ aggregated commodities’ financing at end 2021 was around 9 percent of their total credit exposures.
- Other external risks:
  - A sharper slowdown in China poses significant downside risks; Singapore’s local banks have exposures to Greater China (loans and total assets) as of 2021.
  - Outbreaks of new COVID-19 variants could reduce external demand and derail services recovery.
  - Ongoing policy normalization by major central banks could tighten U.S. dollar funding conditions, trigger sudden capital outflows, and correct financial markets.
- Domestic risks:
  - A rise in domestic COVID-19 infections could weaken activity.
  - Rising household debt and banking sector exposure to real estate are sources of risk.
  - Climate change poses a threat to longer-term growth prospects.

*Source: IMF Staff Report (chapter excerpt).*

### 22.      The authorities broadly agreed with staff’s assessment of the outlook. They expect real

### 1sgpea2022001 - 22.      The authorities broadly agreed with staff’s assessment of the outlook. They expect real

### Outlook and near-term dynamics
- Real GDP growth expected to be slightly above potential, broad-based, and between 3 to 5 percent in 2022; growth likely to come in at the lower half of the forecast range amid a weaker outlook for external demand.
- High vaccination rate and lifting of domestic and border restrictions since end-March 2022 expected to support recovery in consumer-facing, air transport, construction, and tourism-related sectors; activities in most of these sectors may not return to pre-pandemic levels by end-2022.
- Tight labor market expected to gradually normalize with removal of border restrictions and renewed inflow of migrant workers.
- Inflation has picked up with broad-based price increases; pace would ease toward the end of the year as external inflationary pressures moderate.

### Risks to the outlook
- Overall risks are tilted to the downside amid a confluence of global shocks and risks.
- War in Ukraine is an upside risk to inflation; impact on Singapore’s growth described as marginal given small direct and indirect exposures to Russia and Ukraine, but could be compounded by confidence effects and supply chain disruptions restraining domestic consumption and investment.
- Global economic fragmentation and “friend-shoring” of supply chains identified as a major risk that could slow global growth if broad-based.
- Continued COVID-related restrictions in key trading partners could lead to lower growth regionally and in Singapore.
- Other risks include financial stability risks from faster-than-expected monetary policy normalization in advanced economies and continued uncertainty over the pandemic trajectory.

### Financial spillovers and banking exposures
- Direct financial spillovers from property market likely limited due to little exposure to Chinese developers: Less than 1 percent of domestic non-bank loans directly exposed to China’s property sector and a further 2.5 percent exposed to domestic property developers with operations in China.
- Wider exposure of Singapore’s three local banks (DBS, UOB, OCBC) to Greater China noted, with total asset exposures of between 15 to 24 percent as of end-2021, presenting another channel for a China slowdown to impact the banking sector and broader economy.

### External balance assessment — authorities’ view
- Authorities have reservations about the external balance assessment:
  - Argue current COVID adjustors may not capture full impact of the pandemic on Singapore’s trade balance.
  - Concern that a low standard error from the EBA sample (which does not include Singapore) may understate uncertainty given judgement involved.
- Authorities’ interpretation of CA balance:
  - Reflects Singapore’s role as a regional financial hub.
  - Saving-investment gap largely driven by demographic factors.
  - High household saving reflects high share of prime working age population saving for retirement and social norms such as strong bequest motives.
  - Government saving decreased during the pandemic but continues to reflect prudent and efficient fiscal management.
- Staff assessment: policy gap remained close to zero in 2021.
- Authorities indicate that over the medium term expected increase in public spending needs, including for aging and climate-related spending, will reduce the CA surplus.

### Near-term policy mix recommendations
- Calibrate pace of normalization across fiscal, monetary, and financial levers to broaden recovery while managing rising price pressures and downside risks.
- Fiscal policy recommendations:
  - Continue gradual normalization from pandemic-era broad-based support while providing targeted and temporary support and facilitating post-pandemic economic transformation.
  - Remain agile and data dependent; provide targeted and temporary support to vulnerable households and firms in response to rising fuel and food prices.
- Monetary policy recommendations:
  - Tighter monetary policy stance appropriate to prevent inflationary pressures becoming entrenched.
  - Monetary policy should remain data dependent and focused on preserving price stability given upside risks to inflation.
- Macroprudential policy:
  - Should continue to be tightened when needed to contain systemic financial risks.
- Exit sequencing:
  - Align exit from remaining targeted fiscal and financial measures with broadening of recovery; maintain targeted and temporary support to vulnerable households and hard-hit but solvent firms; facilitate resource reallocation and restructuring of non-viable corporates.
  - Calibrate full withdrawal of lending support schemes to reduce risk of undue and sudden tightening of credit, particularly for SMEs.

### Contingency and stress scenarios
- Singapore has ample fiscal space to deploy further policy support if downside risks materialize.
- Fiscal policy is primary first line of defense; MAS toolkit (including parameters reserved to stress episodes, e.g. re-centering the mid-point of the S$NEER policy band) should be deployed when necessary to preserve medium-term price stability.
- Targeted and time-bound financial sector support could cushion adversely affected sectors.
- A downside stagflation scenario would call for fiscal loosening and further tightening of monetary policy.

### Fiscal policy stance and FY2022 specifics
- FY2022 budget represents prudent normalization consistent with recovery.
- Fiscal deficit (excluding land sales) declining from 2.3 percent of GDP in FY2021 to 0.5 percent of GDP FY2022, mostly due to lower special transfers with termination in December 2021 of wage subsidies under the Jobs Support Scheme (JSS).
- FY2022 budget includes:
  - S$1.1bn (0.2 percent of GDP) Jobs and Business Support Package and Household Support Package.
  - S$0.5bn (0.1 percent of GDP) sector-specific package for aviation.
- COVID-19 package in FY2022 budget equals 1.3 percent of GDP (smaller than FY2021 package of 2 percent of GDP).
- Budget extends Jobs Growth Incentive with lower support rates and regularizes SGUnited Mid-Career Pathways Programme.
- Contractionary fiscal stance in FY2022 combined with targeted and temporary measures supports policy normalization by limiting inflationary pressures from public demand while facilitating a broadening of recovery.

### Fiscal space, contingencies, and medium-term needs
- Singapore’s large fiscal reserves enable agile, data dependent, and gradual fiscal policy to broaden recovery.
- Authorities should have contingency plans ready to deploy additional resources toward targeted economic support if downside risks materialize; size/composition depend on nature/magnitude of shock.
- Staff preliminary estimates: costs of fiscal pressures from aging, climate, and other long-term challenges could amount to around 5 percent of GDP per year over the long term.
- Planned revenue mobilization (notably GST and wealth tax increases) will help meet part of financing need; slower pace of fiscal surplus accumulation may be warranted.
- Higher public spending, particularly investment in green infrastructure and coastal protection, will lower net public saving and reduce CA imbalances and support domestic demand.

### FY2022 structural priorities highlighted
- FY2022 budget roadmap to transition toward a greener, digital, and more inclusive economy through:
  - (i) gradually raising the carbon tax rate and funding green infrastructure projects through 2030;
  - (ii) accelerating technological adoption and supporting research and development (R&D) activities;
  - (iii) increasing progressivity of the tax system by increasing personal income tax rate for highest income brackets and raising property and luxury tax rates.
- Budget includes plans to raise the Goods and Services Tax (GST) from 7 percent to 8 percent on 1 January 2023, and to 9 percent on 1 January 2024 while providing support to mitigate its impact on vulnerable households.
- Authorities have already brought forward some FY2022 measures in response to inflationary pressures, such as the Small Business Recovery Grant and the Household Support Package, and indicated readiness to take further actions should the situation worsen.

### Authorities’ views on fiscal reserves and policy roles
- Authorities emphasize reserves are important to guard against large shocks and support inter-generational equity; under the Net Investment Returns framework up to 50 percent of net investment returns of the reserves can be spent in the Budget.
- Fiscal policy has shifted from broad pandemic response to supporting a broadening of recovery and post-pandemic priorities, including labor force reallocation and targeted support to vulnerable entities.
- Targeted fiscal support remains first line of defense; design of measures depends on shock type.
- Authorities stand ready to provide additional support to vulnerable households severely affected by shocks such as the war in Ukraine.
- Preserving incentives for individual efforts to remain active in labor market is key for the new social compact.

### Monetary and financial sector policies
- MAS framework: basket, band, and crawl exchange rate-based monetary policy; S$NEER is managed against an undisclosed basket of currencies and acts as the short-term policy instrument.
- MAS sees a core inflation rate of just under 2 percent as consistent with overall price stability.
- Monetary policy has shifted to a tighter stance; assessed broadly neutral in Q1 2022 but became tighter after substantial policy tightening in April 2022.
- MAS timely shift to tighter stance, complemented by tighter fiscal and macroprudential stance, projected to help bring MAS core inflation to 2 percent in 2023.
- Monetary policy should remain data dependent; further tightening warranted if higher inflation proves more persistent.
- Systemic banks expected to remain solvent under substantial growth shocks:
  - MAS’ 2021 industry-wide stress test simulated an adverse COVID scenario; despite significant deterioration in loan quality, D-SIBs expected to remain solvent with CET1 capital ratios well above MAS’ minimum regulatory requirements.
  - MAS reverse stress test suggested macro stresses would need to be considerably worse than past crisis periods for banks to fall below regulatory requirements.
- Staff welcome MAS plans to incorporate climate-related risks in stress testing by the end of 2022.

*Source: IMF staff report excerpt (content unit 1sgpea2022001).*

### 37.      Singapore’s strong economic linkages with China could create potential challenges in

### Singapore’s strong economic linkages with China could create potential challenges in the near term.

### China-related exposures and bank credit risks
- Finding: Singapore has significant direct and indirect exposures to non-bank Chinese entities and to China’s real estate sector; recent financial stress of several of China’s property developers heightens near-term risks.
- Recommendation: Strengthen systemic risk analysis of China-related exposures and credit risks.
- Recommendation: Closely monitor and analyze credit exposure to China’s real estate sector, especially given heightened global uncertainty.
- Recommendation: Continue to review banks’ periodic stress tests of their large exposures to China—in addition to regular stress testing.

### Withdrawal of support, sectoral disparities, and stress testing
- Finding: Broad-based financial support measures have been withdrawn; MAS stress-testing suggests household and corporate balance sheets are resilient to simultaneous interest rate and earnings’ shocks.
- Finding: Decline in take-up of credit relief schemes ahead of their expiry in 2021 by individuals and SMEs indicated normalization in debt servicing capacity.
- Concern: Sectoral disparities in corporate performance warrant timely and close surveillance of weaker firms with large exposures to banks.
- Recommendation: Enhance corporate surveillance framework by incorporating additional balance sheet risk indicators, including probabilities of default.
- Recommendation: Use continuous stress testing to assess policy tradeoffs regarding sequencing of withdrawal of support policies.
- Recommendation: Provide clear and timely communication on conditions under which existing support measures will be phased to lower withdrawal costs associated with surprises and abrupt adjustments.

### Macroprudential stance and housing market
- Finding: Elevated house prices imply a need to maintain a tight macroprudential stance; authorities recently tightened the Additional Buyer’s Stamp Duty (ABSD).
- Assessment: Staff support the recent tightening of the ABSD as it could help contain systemic financial risk posed by a sudden and/or large downward property price correction.
- Evidence: Past evidence suggests ABSD and broader macroprudential policies have been effective in moderating speculative demand and house price growth.
- Recommendation: Phase out residency-based differentiation in ABSD once systemic risks from the housing market dissipate, since residency-based ABSD constitutes a capital flow management and macroprudential measure (CFM/MPM).
- Recommendation: If household leverage and house prices continue to grow strongly, consider tightening borrower-based macroprudential policies, including LTVs and DSRs, particularly for multiple property owners.
- Recommendation: Complement macroprudential tightening with measures to realign supply and demand for housing.
- Relevant dates/actions: ABSD tightening referenced alongside a stamp duty increase in December 2021.

### AML/CFT framework and financial integrity risks
- Finding: Singapore has a robust AML/CFT framework but registered a significant increase in financial flows from higher-risk countries over the last two years, indicating rising ML/TF and sanctions-evasion risks.
- Recommendation: Prioritize publication of a consolidated assessment of ML/TF risks at the national level with further focus on transnational flows.
- Recommendation: Consider adoption of a minimum engagement model to ensure highest-risk entities receive suitable supervision frequency and intensity.
- Recommendation: Continue implementation efforts of amendments to the Corporate Registers Act to make beneficial ownership easily available and accessible.
- Finding: Following the roll-out of a licensing regime, steps are underway to supervise local Virtual Asset Service Providers (VASPs) providing services outside Singapore for AML/CFT purposes.
- Concern: The transient nature of virtual asset activities and cross-border supervision challenges require sustained efforts to mitigate financial integrity risks.
- Operational note: Greater focus on integration of risk factors (including country risk) with payments and economic data would strengthen systemic analysis of transnational flows.

### Monetary policy, banking resilience, and supervisory response
- Authorities’ view: Monetary policy tightened three times since October 2021 to address rising inflation; a more hawkish tightening occurred in April 2022.
- Finding: MAS continuously monitors inflation developments and will weigh the trajectory of core inflation against heightened global uncertainty.
- Finding: Financial system remains healthy with strong buffers; banks’ asset quality has improved with the economic recovery and domestic banks maintain healthy US dollar liquidity profiles.
- Action: MAS has been engaging with banks to strengthen liquidity risk management and is monitoring resilience through updated stress tests, including risks from developments in China and rising global interest rates.
- Initiative: MAS conducted exploratory stress-testing exercise for climate-related risks to inform discussions with financial institutions.

### Climate mitigation, adaptation, and fiscal support for green transition
- Commitment: FY2022 budget updated Singapore’s climate commitments to achieving net zero emission by or around mid-century (from “as soon as viable in second half of the century”).
- Target: Singapore’s nationally determined contribution (NDC) is to peak emissions levels at 65 MtCO2e around 2030.
- Carbon tax path: Gradually raise carbon tax from current S$5 per ton of emissions to reach S$50 to S$80 per ton by 2030.
- Staff analysis: Updated carbon tax path can achieve significant emissions reductions compared to the previous baseline; more is needed to approach a linear pathway to net zero by mid-century.
- Complementary policies: Widespread adoption of solar energy and intention to phase out internal combustion engine vehicles by 2040 (not captured in the analysis) can help meet climate goals.
- Revenue use: Revenues from the updated carbon tax path can reach 0.5 percent of GDP by 2030 and are planned to be fully recycled to compensate households and businesses and to support green investments.
- Adaptation financing: Authorities plan to issue S$35 billion (6 percent of 2022 GDP) in green bonds by 2030 to fund green infrastructure and protect against rising sea levels.
- Sustainable finance: Total issuance of sustainable debt in Singapore reached $33.3 billion in 2021; sustainability-linked loans increased by more than sixfold in 2021 to $20.9 billion.
- Recommendation: Use carbon tax revenues to support green investments and transitional support as needed.

### Digitalization and innovation
- Finding: FY2022 budget enhances schemes (Advanced Digital Solutions, Grow Digital) to accelerate digital adoption and upskilling, supporting productivity gains.
- Finding: MAS actively promotes digital innovations in finance: digital banks, central bank digital currency (CBDCs), cross-border payment systems, and use of crypto assets.
- Recommendation: Expand research and development to reap digital economy benefits and boost productivity growth.

### Equity, inclusion, and labor market reallocation
- Finding: Inequality (Gini coefficient among resident employed households) declined in 2020; 2021 saw higher income growth for households at the bottom of the income distribution.
- Concern: Unwinding of COVID-19 relief measures has started to negatively impact inequality after tax and transfers in 2021.
- Policy measures: Expansion of social safety system via (i) extension of progressive wage model to additional sectors and occupations; (ii) progressive wage credit scheme (PWCS); (iii) enhancement of workfare income supplement; (iv) improved progressivity of the income tax system.
- Finding: Reskilling programs SGUnited Mid-Career Pathways-Company Training (SGUP-CT) and SGUnited Skills (SGUS) led to employment opportunities with higher wages; about 50 percent of trainees earned the same or higher wages compared to 39 percent who experienced a decline.
- Initiative: SkillsFuture Career Transition Program (SCTP) announced to replace SGUS and SGUP-CT (which expired on March 31, 2022); SGUnited Mid-Career Pathways - Company Attachment (SGUP-CA) will be made permanent.
- Recommendation: Continue reskilling, training, and reforms to facilitate resource reallocation to high-growth sectors while ensuring inclusiveness.

*Source: IMF staff.*

### 55.      Singapore’s targeted containment measures, effective vaccination campaign and

### 1sgpea2022001 - 55.      Singapore’s targeted containment measures, effective vaccination campaign and

### Macroeconomic recovery and external position
- Real GDP growth in 2021 reached 7.6 percent and overall activity surpassed pre-COVID levels.
- The recovery was uneven: output in tourism-related, consumer-facing and construction sectors remained below pre-pandemic levels.
- Developments in 2021 suggest Singapore’s external position remains substantially stronger than warranted by fundamentals and desirable policies.
- The current account (CA) surplus increased to 18.1 percent of GDP in 2021.

### Near-term policy focus and calibration
- Near-term macroeconomic policies should focus on calibrating the pace of normalization across policy levers.
- Fiscal policy:
  - Fiscal policy support, targeting affected entities, should facilitate a broadening of the recovery.
  - Should downside risks materialize, fiscal policy should continue to be the first line of defense and Singapore has ample fiscal space to deploy additional policy support.
  - The calibration of fiscal policy in 2022 is aligned with the strong, yet uneven recovery.
  - The tighter fiscal stance in 2022, combined with targeted assistance to vulnerable households, workers, and firms, will support overall policy normalization by limiting inflationary pressures from public demand while facilitating a broadening of the recovery across sectors.
- Monetary policy:
  - Monetary policy should aim at managing price pressures considering upside risks to inflation, including from the war in Ukraine and the related sanctions as well as the tight labor market.
  - The tighter monetary policy stance is appropriate.
  - A data dependent approach to monetary policy would be appropriate, with further tightening warranted if higher inflation turns out to be more persistent than envisaged.

### Fiscal outlook and medium- to long-term spending pressures
- Singapore is well-positioned to increase spending to address medium- and long-term challenges, which will also help reduce large external surpluses.
- Sizeable medium- and long-term spending pressures stem from:
  - a rapidly aging population,
  - needs to strengthen social protection schemes,
  - risks from climate change and future pandemics,
  - the need to rejuvenate public housing and infrastructure.
- A preliminary quantification suggests these challenges could amount to 5 percent of GDP per year over the long term.
- Planned revenue mobilization will help cover some of these costs; a slower pace of fiscal surplus accumulation may be warranted.
- Singapore’s large fiscal reserves will continue to act as buffers against large shocks.

### Macroprudential policy and financial stability
- Macroprudential policies should continue to moderate any rise of systemic financial risks.
- The financial sector remains healthy, and authorities should be vigilant as a premature withdrawal of financial support schemes could increase corporate stress, particularly for SMEs.
- To preserve stability and resilience amid elevated house prices, the tight macroprudential stance should be maintained and, if necessary, further tightened should financial risks continue to grow.
- Combined with authorities’ plans to ramp up housing supply, this would support a soft landing in residential real estate prices.

### Structural transformation and policy direction
- The authorities’ efforts to accelerate transformation towards a greener, digital, and more inclusive economy are lauded.
- As the pandemic subsides, authorities are appropriately accelerating transformation towards a green, digital, and more inclusive economy as illustrated by steps already taken in the FY2022 budget.
- It is recommended that the next Article IV consultation with Singapore be held on the standard 12-month cycle.

### Climate Change Mitigation (Box 1) — carbon tax path and impacts
- Singapore emits approximately 0.1 percent of annual global CO2, primarily from the energy sector.
- Singapore’s carbon tax:
  - Initially imposed in 2019 at S$5 per tonne of CO2e emissions (covering around 80 percent of emissions) and will remain at this level until 2023.
  - Increase to S$25 per tonne in 2024 and 2025.
  - Increase to S$45 per tonne in 2026 and 2027.
  - With a view to reaching S$50 to S$80 per tonne by 2030.
- Singapore’s updated nationally determined contribution (NDC) for 2030 entails a commitment to peak emissions levels at 65 MtCO2e.
- CPAT analysis findings:
  - A carbon tax of S$50-S$80 per tonne by 2030 can reduce emissions in Singapore by 19-26 percent below IMF-projected BAU levels in 2030, bringing emissions below the 2030 NDC.
  - More mitigation policies are needed to approach a linear pathway to net zero emissions (NZE) by or around mid-century; policies such as widespread solar adoption and phasing out internal combustion engine vehicles by 2040 (not captured in the CPAT analysis) would help.
- Fiscal revenue implications:
  - $50- $80 carbon prices can raise additional fiscal revenues of 0.4-0.5 percent of GDP in 2030.
  - The 2022 Budget announced that all revenues raised from the new carbon tax trajectory will be recycled: some to cushion higher energy prices on households and firms and the larger part directed towards investments in new low-carbon and more energy efficient solutions.
  - Given that energy prices in the baseline are not artificially low, the increase from carbon taxation will not be very large, so dedicating a higher proportion of the revenues to greening investments is more optimal.

### Digital Money and E‑Payments (Box 2)
- Domestic payments innovations include FAST (2014), PayNow (2017), and Singapore Quick Response Code for cheaper, faster bank-based payments.
- Singapore is pursuing bilateral payments system linkages to reduce costs of small cross-border payments; Project Nexus (BIS and MAS, 2021) is a proposed blueprint for enhancing global real-time payments via multilateral linkages.
- MAS is exploring wholesale and cross-border CBDC uses; no pressing need for a retail CBDC at this stage given high efficiency of national e-payments and most domestic money supply created by commercial banks in digital form.
- The case for a retail CBDC could strengthen if domestic use of foreign digital currencies widens or privately issued stablecoins need mitigation.
- Cryptocurrency market scale and regulatory approach:
  - Combined peak daily trading volumes of SGD-quoted Bitcoin, Ethereum and XRP was 2 percent of the average daily trading volume of securities on SGX in 2020.
  - Cryptocurrency derivatives traded through financial institutions amounted to less than 1 percent of derivatives trading activity on SGX.
  - Cryptocurrencies comprise less than 0.01 percent of the assets managed by MAS-regulated funds.
  - MAS approach: "no bans, but strong regulation" — entities are required under the Payment Services Act (PSA) to be licensed before providing digital payment token services; regulation targets money laundering, terrorism financing, and technology risks; cryptocurrency funds are not authorized for sale to retail investors; January 2022 guidelines discourage cryptocurrency trading by the general public.

### Key statistics and indicators highlighted
- Real GDP growth in 2021: 7.6 percent.
- Preliminary long-term fiscal pressure estimate: 5 percent of GDP per year.
- Singapore emissions share of global CO2: 0.1 percent.
- Carbon tax schedule and levels: S$5 (until 2023), S$25 (2024–2025), S$45 (2026–2027), S$50 to S$80 (by 2030).
- 2030 NDC peak emissions commitment: 65 MtCO2e.
- Emissions reduction from S$50–S$80 carbon tax by 2030: 19-26 percent below IMF-projected BAU levels.
- Additional fiscal revenues from S$50–S$80 carbon tax in 2030: 0.4-0.5 percent of GDP.
- Share of fully vaccinated people (noted in figures): neared 92 percent.
- Current account surplus in 2021: 18.1 percent of GDP.
- Cryptocurrency market metrics in 2020: peak daily trading volumes equal to 2 percent of average daily SGX securities trading; derivatives <1 percent of SGX derivatives; assets under MAS-regulated funds <0.01 percent in cryptocurrencies.

*International Monetary Fund — content unit 1sgpea2022001 (excerpts as provided)*

### 256.4 percent of GDP in 2021 due to negative valuation

### 256.4 percent of GDP in 2021 due to negative valuation

### Financial account and external balance
- Net international investment position:
  - In billions of U.S. dollars: 712 (2016), 840 (2017), 685 (2018), 845 (2019), 969 (2020), 1018 (2021).
  - In percent of GDP: 223 (2016), 245 (2017), 182 (2018), 225 (2019), 281 (2020), 256 (2021).
- The 256.4 percent of GDP in 2021 is attributed to negative valuation effects.
- Balance of payments (US$ billions):
  - Current account balance: 56.3 (2016); 59.4 (2017); 57.1 (2018); 54.3 (2019); 58.1 (2020); 71.9 (2021); projections: 56.2 (2022), 56.4 (2023).
  - Goods balance: 89.9 (2016) to 118.2 (2021); projected 100.9 (2022), 111.2 (2023).
  - Financial account (net): 57.5 (2016); 32.5 (2017); 44.5 (2018); 62.5 (2019); -15.8 (2020); 8.2 (2021); 6.1 (2022); 4.9 (2023).
  - Overall balance: -1.8 (2016); 27.4 (2017); 12.5 (2018); -8.4 (2019); 74.9 (2020); 66.2 (2021); 50.1 (2022); 51.4 (2023).
- Net errors and omissions: -0.6 (2016); 0.5 (2017); -0.1 (2018); -0.2 (2019); 1.0 (2020); 2.5 (2021).
- International investment position vulnerability: large portfolio assets concentrated with exposure to shocks in the US, China, and India.

### Composition of external financial flows (BPM6 sign convention)
- Direct investment:
  - Financial account contribution (In percent of GDP chart context): Singapore has a net asset position in portfolio investment and a net liability position in FDI holdings.
  - Table 2 (US$ billions): Direct investment (financial account, net): -28.5 (2016); -36.5 (2017); -59.0 (2018); -55.9 (2019); -43.0 (2020); -58.1 (2021); projections: -59.6 (2022), -62.6 (2023).
  - Direct investment assets: 36.9 (2016); 62.7 (2017); 22.2 (2018); 55.6 (2019); 31.8 (2020); 47.4 (2021); projected 51.0 (2022); 56.0 (2023).
  - Direct investment liabilities: 65.4 (2016); 99.2 (2017); 81.2 (2018); 111.5 (2019); 74.8 (2020); 105.5 (2021); projected 110.6 (2022); 118.6 (2023).
- Portfolio investment:
  - Financial account net: 14.5 (2016); 19.9 (2017); 53.0 (2018); 108.7 (2019); 60.5 (2020); 57.0 (2021); projected 42.3 (2022); 34.0 (2023).
  - Portfolio assets: 26.0 (2016); 45.6 (2017); 39.0 (2018); 114.1 (2019); 60.3 (2020); 73.8 (2021); projected 54.8 (2022); 44.0 (2023).
  - Portfolio liabilities: 11.5 (2016); 25.7 (2017); -14.1 (2018); 5.5 (2019); -0.2 (2020); 16.8 (2021); projected 12.5 (2022); 10.0 (2023).
- Other investment and financial derivatives (US$ billions): 71.5 (2016); 49.1 (2017); 50.5 (2018); 9.7 (2019); -33.3 (2020); 9.3 (2021); projected 23.4 (2022); 33.5 (2023).
- Financial account recorded net capital outflows in 2021, reflecting net outflows of portfolio investment and in “other investment”. Net FDI inflows increased in 2021. Official flows account for most of the financial outflows.
- Gross official reserves increased in 2021:
  - Gross official reserves (US$ billions): 246.6 (2016); 279.9 (2017); 287.7 (2018); 279.5 (2019); 362.3 (2020); 417.9 (2021); projections: 460.5 (2022); 519.0 (2023).
  - In months of imports: 5.9 (2016); 6.0 (2017); 6.3 (2018); 6.5 (2019); 7.1 (2020); 6.3 (2021); projection 6.6 (2022); 7.0 (2023).

### Labor market developments
- Residents’ labor force participation rose in 2021; total employment recovered in 2021 driven by resident employment.
- Unemployment rate (period average, percent): 2.1 (2016); 2.2 (2017); 2.1 (2018); 2.3 (2019); 3.0 (2020); 2.7 (2021); projected 2.2 (2022); 2.2 (2023).
- Labor market tightened in 2021 with a significant rise in job vacancies relative to job seekers.
- Retrenchments: After soaring in 2020, the number of retrenched workers declined to the pre-pandemic level.
- Foreign workforce contraction in 2021 was largest for high-skilled and semi-skilled work permit holders as requirements were tightened.
  - Chart contributions to change in total foreign workforce (2015–2021) by pass type include Employment Pass (EP), S Pass, Work Permit, Other Work Passes, and Total Foreign Workforce.

### Inflation developments
- CPI inflation (period average, percent): -0.5 (2016); 0.6 (2017); 0.4 (2018); 0.6 (2019); -0.2 (2020); 2.3 (2021); projections: 4.8 (2022); 2.5 (2023).
- CPI inflation, excluding food and energy (period average, percent): -0.5 (2016); -0.7 (2017); -0.1 (2018); 0.4 (2019); -0.3 (2020); 2.4 (2021); projections: 2.8 (2022); 2.0 (2023).
- MAS core inflation (staff estimates, percent): 0.9 (2016); 1.5 (2017); 1.7 (2018); 1.0 (2019); -0.2 (2020); 0.9 (2021); projections: 3.0 (2022); 2.0 (2023).
- Drivers in 2021:
  - Rapid increase in both headline and MAS core inflation driven by private road transportation and food prices respectively.
  - Prices of cars and car ownership certificates rose in 2021 as bidding resumed following the COVID19-related suspension, supporting the spike in headline inflation.
  - Food prices picked up in 2021.
- Inflation expectations remain well-anchored based on market pricing and consensus forecast.

### Monetary and financial sector developments
- Yield curve and money markets:
  - The yield curve has shifted up, and money market rates in Singapore have started to edge up with global rates.
  - Government bond yields have increased.
- Broad money growth increased slightly:
  - Broad money (M2, end of period percent change): 8.4 (2016); 4.2 (2017); 5.1 (2018); 4.4 (2019); 10.7 (2020); 9.7 (2021); projections: 8.9 (2022); 5.1 (2023).
- Singapore stock market:
  - Fell sharply in the initial phase of the pandemic but recovered to pre-pandemic levels.
  - Stock prices percent change, y/y: -0.1 (2016); 18.3 (2017); -9.9 (2018); 5.0 (2019); -11.8 (2020); -8.0 (2021).
- Foreign exchange market turnover is increasing in 2022.

### Banking sector and monetary survey
- Banking sector assets as share of GDP increased.
- Funding and loans:
  - Non-bank deposits are the largest funding sources for banks.
  - Deposits increased strongly in the wake of the pandemic, with a shift from fixed to demand and savings deposits.
  - Banking sector foreign currency loan-to-deposit ratio continued to decline in 2021.
- Credit and monetary aggregates (end of period, billions SGD):
  - Net foreign assets: 506 (2016); 534 (2017); 556 (2018); 578 (2019); 724 (2020); 660 (2021); projections: 728 (2022); 798 (2023).
  - Domestic credit: 864 (2016); 898 (2017); 950 (2018); 996 (2019); 1019 (2020); 984 (2021); projected 1018 (2022); 1045 (2023).
  - Claims on private sector: 741 (2016); 765 (2017); 802 (2018); 826 (2019); 837 (2020); 889 (2021); projected 922 (2022); 946 (2023).
  - M2: 814 (2016); 848 (2017); 892 (2018); 931 (2019); 1031 (2020); 1131 (2021); projected 1232 (2022); 1295 (2023).
- Commercial bank loans & advances by purpose (Mar 2022):
  - Building and Construction: 16%
  - Housing Loans: 17%
  - Other Business Loans: 56%
  - Other Consumer Loans: 11%
- Total loans to nonbanks (in billions of SGD): 1,155 (2016); 1,248 (2017); 1,314 (2018); 1,370 (2019); 1,354 (2020); 1,317 (2021).
- Data reporting note: Data reporting by financial institutions changed since July 2022 after two major changes in MAS’ banking sector regulatory framework took effect, creating a break in the broad money and credit to private sector series.

### Banking sector vulnerabilities and soundness
- Financial soundness indicators and vulnerability metrics:
  - Private sector credit (percent change, y/y, end of period): 5.5 (2016); 3.3 (2017); 4.8 (2018); 3.0 (2019); 1.4 (2020); 6.2 (2021).
  - NPL ratio (local banks, percent, latest available): 1.4 (2016); 1.6 (2017); 1.5 (2018); 1.5 (2019); 1.6 (2020); 1.5 (2021).
  - Capital adequacy ratio of local banks (percent, latest available): 16.5 (2016); 17.1 (2017); 16.8 (2018); 17.0 (2019); 17.6 (2020); 17.2 (2021).
  - Credit rating of local banks (S&P): AA- (2016–2021).
- Cross-border exposures:
  - Major sources of funding for Singapore’s financial center include East Asian and European banks.
  - East Asia is a major 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 high, exposing Singapore to the risk of regional spillovers.

### Housing market and household balance sheets
- House price and supply:
  - House price-to-income ratio remained broadly stable; house price-to-rent ratio has increased.
  - Private market transactions increased in 2021; vacancy ratio in the private market decreased.
  - Housing supply per capita remains stable; supply is expected to increase in the coming years (Upcoming Private Residential Supply Pipeline, 2022Q1: Under construction and Planned expressed as percent of 2019Q4 private residential stock).
- Household debt and balance sheets:
  - Household debts, including housing loans, have declined since 2015, but increased in 2020 owing to lower GDP.
  - Household debt-to-GDP ratio is lower than peers.
  - Households’ total net worth stands at over 450 percent of GDP; liquid financial assets are enough to cover current debt outstanding in aggregate.
- Banks’ exposure to private housing loans has slightly declined; quality of housing loans remains strong with a declining average loan-to-value (LTV) ratio.
- Private residential price changes:
  - Real estate prices (private residential, 4-quarter average) percent change, y/y: -3.1 (2016); -1.1 (2017); 7.8 (2018); 2.3 (2019); 1.6 (2020); 8.0 (2021).

### Spillovers, trade, and FDI
- Trade and demand links:
  - Singapore depends mainly on foreign final demand from China, EU, and the US; Malaysia and Indonesia are important regional partners.
  - Top three destinations for goods exports (2021, percent of gross goods exports): China (14.8 percent); Hong Kong SAR (13.1 percent); and USA (8.4 percent).
  - Main goods exports (2021, percent of total non-oil goods exports): machinery & transport equip. (61.6 percent); chemical products (15.5 percent); misc. manufactured articles (9.9 percent).
- FDI stocks are dominated by the US and EU and are mainly concentrated in the finance and insurance sector.
- Large portfolio assets make Singapore’s external balance sheet vulnerable to shocks in the US and several regional economies such as China and India.

### Demographic transition
- Old-age dependency projected to increase significantly in the medium to long term; Singapore’s aging speed is among the highest in the region and advanced economies.
- Old-age dependency ratio & population growth (time series presented 1990–2040; chart summary):
  - Change in old-age dependency ratio, 2010–2030: Singapore among the highest increases.
- Labor force participation improvements:
  - Labor force participation rate has risen recently, particularly for the elderly and women in prime working age, with scope for further rise for prime working age women.
- Fertility:
  - Total fertility (2016–20 average, births per woman): Singapore among the lowest in the world.

### Social and inequality indicators
- Earnings and incomes:
  - Average monthly earnings continue to increase steadily.
  - Median wages for high-skilled and mid-skilled workers in 2021 have started to recover from the decline in 2020; median wages for low-skilled workers remained broadly stable.
  - Median household income increased in 2021.
  - Real incomes of lower income groups have increased at a faster pace in the last decade after being largely stagnant during 2000−11.
- Impact of 2021 inflation and policy adjustments:
  - High inflation affected all income groups in 2021, but the bottom 20 percent was relatively less affected, helping real income in this group.
  - The exit from temporary government policies (taxes and benefit payments) led to a rise in inequality in 2021.
- Wage growth (weighted gross monthly wages, y-o-y percent change, full-time employed residents excluding employer's CPF contributions):
  - High-skilled, mid-skilled, low-skilled series shown 2010–2021 with notable recovery in 2021.

*Source: IMF staff report (data and charts as provided in the supplied content).*

### Appendix I. Evolving Fiscal Policy in Singapore: From Pandemic

### Appendix I. Evolving Fiscal Policy in Singapore: From Pandemic Response to Addressing Rising Medium-Term Fiscal Pressures

### Overview
- Fiscal policy evolved across three phases since the onset of COVID-19: Phase 1 (large fiscal expansion in FY2020), Phase 2 (shift to targeted support in FY2021), and Phase 3 (normalization with targeted assistance and pivot to post-pandemic priorities in FY2022).
- The pandemic response and subsequent budgets interacted with medium-term priorities including a greener, digital, and more inclusive economy, and rising medium-term spending pressures (notably healthcare and aging).

### Phase 1 — FY2020: Large Fiscal Expansion to Cushion the Recession
- The stimulus package amounted to about S$97.3 billion (20.3 percent of GDP), financed largely through drawdowns of government reserves.
- The package comprised above-the-line measures of about 16 percent of GDP and below-the-line loan capital of about S$22.0 billion (4.7 percent of GDP).
- Fiscal impulse: 12 percent of GDP in FY2020 (or on a calendar basis 10 percent of GDP in 2020).
- Estimated growth support: the package supported growth by an estimated 5.5 percentage points in 2020.
- Output and timing:
  - Record real GDP contraction of 12.2 percent year-on-year in 2020Q2.
  - Output expanded by 2.0 percent in 2021Q1.
- Result: largest budget deficit in Singapore’s history.

### Phase 2 — FY2021: Unwinding and Targeted Measures amid Strong Rebound
- FY2021 budget shifted from broad emergency relief to smaller targeted measures.
- The COVID-19 Resilience Package in FY2021 totaled S$11bn (2 percent of GDP), about one-tenth of the FY2020 package.
- The FY2021 package included public health care measures to support safe reopening and increased allocations for skills upgrade and job creation initiatives.
- The Jobs Support Scheme (JSS) was extended but significantly scaled down and targeted to sectors such as tourism, retail, food and beverages, and aviation.
- Note: some FY2020 support was disbursed during the first quarter of 2021 due to FY2020 covering April 1, 2020 to March 31, 2021.
- Evidence on multipliers (Box 1): cumulative fiscal multipliers one year after a health crisis are about twice larger than during normal times in advanced economies.

### Phase 3 — FY2022: Gradual Normalization, Targeted Support, and Pivot to Post-Pandemic Priorities
- FY2022 unwinds most pandemic-related support and targets remaining support to households and firms still impacted by the pandemic, implying a contractionary fiscal stance (authorities’ definition corresponds to a modest 0.3 percent of GDP expansionary fiscal stance in 2022 using IMF GDP projections).
- FY2022 commits S$7.6bn of COVID-19 related support measures (1.3 percent of GDP), including the Jobs and Business Support Package and Household Support Package.
- Notable FY2022 measures:
  - Small Business Recovery Grant for SMEs in sectors hard hit by COVID-19 restrictions (retail, tourism, hospitality).
  - Extension of the Jobs Growth Incentive with lower support rates.
  - Regularization of the SGUnited Mid-Career Pathways Programme for skills upgrades.
- Post-pandemic priority measures in FY2022:
  - Net-zero emissions targeted by or around the middle of the century.
  - Carbon tax increases from S$5 per tonne of emissions to S$25 in 2024 and 2025, and S$45 in 2026 and 2027, with a view to reaching S$50 to S$80 by 2030.
  - Plans to issue S$35 billion (6 percent of 2022 GDP) in green bonds by 2030.
  - Measures to accelerate technological adoption and build a fairer and more resilient tax system, including raising taxes on luxury cars, increasing personal income tax rate for the highest brackets (chargeable income in excess of S$500,000), and increasing residential property taxes.
- Revenue measures to anticipate medium-term pressures:
  - GST raised from 7 percent to 8 percent on 1 January 2023, and then to 9 percent on 1 January 2024.
  - Enhanced assurance package and enhanced GST voucher to offset higher cost of living for vulnerable households.
  - GST expected to yield an additional 0.7 percent of GDP upon full implementation.
  - Measures to raise income and wealth taxes expected to yield an additional 0.1 percent of GDP.

### Composition of COVID-19 Packages (FY2020, FY2021, FY2022) — Key Figures
- Total COVID-19 packages: FY2020 total S$97.3 (20.3 percent of GDP); FY2021 total S$11.0 (2.3 percent of GDP); FY2022 total S$7.6 (1.3 percent of GDP).
- Emergency public health measures to fight COVID-19:
  - FY2020: S$13.8 (2.9 percent of GDP)
  - FY2021: S$4.8 (0.9 percent of GDP)
  - FY2022: S$6.0 (1.0 percent of GDP)
- Support for jobs, workers, businesses:
  - FY2020: S$73.5 (15.3 percent of GDP)
  - FY2021: S$5.8 (1.1 percent of GDP)
  - FY2022: S$1.0 (0.2 percent of GDP)
  - Jobs Support Scheme in FY2020: S$26.9 (5.6 percent of GDP); FY2021: S$2.9 (0.5 percent of GDP)
  - Other line items include Enhanced Wage Credit Scheme, SGUnited Jobs and Skills package, Foreign Worker Levy Rebate, Property Tax Rebate, Rental Relief, Government Rental Waiver, sector-specific support (e.g. Aviation, Land Transport, Construction), and others.
- Support to households:
  - FY2020: S$10.0 (2.1 percent of GDP)
  - FY2021: S$0.4 (0.1 percent of GDP)
  - FY2022: S$0.6 (0.1 percent of GDP)
- Notes from table:
  - FY2020 and FY2022 COVID-19 packages are funded from both Past Reserves and the Current Reserves of the current term of Government.
  - FY2021 figures reflect the S$11 billion COVID-19 Resilience Package, planned to be fully funded from Past Reserves.
  - The FY2020 package includes S$22 billion of loan capital.
  - Small Business Recovery Grant and extension of Jobs Growth Incentive are included in FY2022 items.
  - Contingency funds increased from S$3 billion to S$16 billion in FY2020 are not included in the table.

### Box 1 — Fiscal Multipliers During Pandemic (Key Findings)
- Methodology: linear and state-dependent panel local projections, scaling dependent variables by lagged real GDP; cumulative multipliers calculated via one-step IV methodology.
- Baseline results: estimated multiplier of 0.4 in year T and cumulative multiplier of 0.5-0.6 in the medium term.
- Pandemic vs non-pandemic states:
  - In pandemics, cumulative multiplier rises to almost 1 one year after the pandemic shock in advanced economies, compared to about 0.4 under the non-pandemic state.
- Drivers of larger pandemic multipliers: uncertainty, suppressed demand, and supply bottlenecks.
- Implication: growth impact of pandemic measures is larger and longer lasting; the immediate large fiscal support is expected to have larger impact than in non-pandemic times and about 50 percent larger one year after the fiscal impulse.
- Empirical consistency: real GDP growth in Singapore rose from a contraction of 4.1 percent in 2020 to 7.6 percent in 2021.

### Rising Medium-Term Fiscal Pressures — Major Drivers
- Identified challenges increasing spending needs:
  1. Increase in spending needs due to rapidly aging population, especially healthcare.
  2. Possible need to strengthen automatic stabilizers through enhanced social protection.
  3. Fundamental threats including climate change (given Singapore’s low-lying areas).
  4. Risk of future pandemics with asymmetric, large economic impacts.
  5. Lumpiness in spending to rejuvenate public housing and infrastructure (rail lines; water, drainage, and sewage systems).
  6. Transition costs for firms and workers as Singapore accelerates digitalization.
- Healthcare trends and projections:
  - Singapore’s resident life expectancy at birth: 83.9 years in 2020.
  - Total health expenditure in 2019: 4.4 percent of GDP (below 8.6 percent of GDP average for advanced countries in Asia).
  - Per capita total health expenditure in Singapore: US$2,500.
  - Health expenditure rose by 1.1 percent of GDP between 2000 and 2019, driven by aging and excess cost growth.
  - Staff estimates suggest total healthcare spending could double by 2050 to 9 percent of GDP.
  - Another estimate: total healthcare spending could rise to 8.6 percent of GDP in 2050, from 4.2 percent in 2015, driven by rapid aging and excess cost growth.
  - Risks to these estimates include higher prevalence of chronic disease, rising affluence increasing demand and expectations for higher-quality healthcare, labor force shrinkage raising wages in the healthcare sector, and medical technology advances increasing costs.
- Social protection and labor market:
  - Singapore relies on active labor market policies (ALMPs) rather than unemployment insurance, with on-the-job training, employment subsidies, and job matching.
  - Singapore’s ALMPs contributed to high labor market participation, low unemployment, and higher social mobility relative to peers.
  - During the pandemic, expanded labor market policies helped resident unemployment return rapidly to pre-pandemic levels and limited loss of schooling hours.

*Prepared by Tidiane Kinda (APD); Appendix I content from IMF staff report chapter.*

### 12.      Strengthening spending automatic stabilizers could further help smooth shocks if

### 12.      Strengthening spending automatic stabilizers could further help smooth shocks if

### Overview
- Strengthening spending automatic stabilizers could help smooth shocks if these become more frequent.
- Singapore’s approach of enhancing existing schemes to respond to shocks by supporting employment has worked well.
- Strengthening automatic stabilizers could reduce the number of existing and ad-hoc programs, reduce administrative burden, and raise public awareness about existing schemes.

### Design and cost of a permanent social protection system
- The cost of a permanent social protection system will depend on its design (income replacement rate, benefit duration, qualification criteria).
- Cross-country data example: OECD average spending on unemployment insurance is 0.6 percent of GDP.
  - This OECD average "0.6 percent of GDP" is noted to be close to Singapore’s wage subsidies under the JSS in FY2021.

### Other medium-term spending pressures
- Singapore faces medium-term spending pressures from:
  - Climate change (especially rising sea levels).
  - Investment in public housing and infrastructure.
  - Risk of future pandemics.
- To fund climate-resilient infrastructure, the authorities have started provisioning under a new Coastal and Flood Protection Fund.
- Capital spending to construct new infrastructure and rejuvenate aging infrastructure could raise development spending by 1 percent of GDP per year.
- The government has started to issue new bonds under the Significant Infrastructure Government Loan Act (SINGA) to finance major long-term infrastructure projects (new rail lines, water management facilities, infrastructure to protect against rising sea levels).
- The cumulative cost of economic packages to mitigate the pandemic fallout is about 24 percent of GDP over 3 years, with the first year alone amounting to 20 percent of GDP.

### Fiscal buffers, revenue measures, and net spending pressures
- Singapore’s large fiscal reserves will allow the country to face the sizeable total cost of rising spending pressures.
- New revenue measures (higher GST, residential property tax, personal income tax and luxury car tax) expected to yield about 0.8 percent of GDP.
- This analysis assumes revenues from carbon tax hikes will be directed to climate goals not included in these spending estimations.
- Planned revenue mobilization (GST, wealth, and personal tax increases) and public borrowing will help address some spending pressures.
- A slower pace of fiscal surplus accumulation will also help manage rising spending needs.
- Singapore’s large fiscal reserves will continue to act as buffers against large shocks such as the pandemic.

### Macroeconomic implications
- Implementation of a large spending program will help accelerate economic transformation and improve the external position.
- Higher public spending, particularly investment, to address medium- and long-term challenges will lower net public saving and reduce current account imbalances.
- Expansion of social services (healthcare, unemployment insurance) would reduce incentives for private savings and support stronger automatic stabilizers.

### Possible net costs associated with spending pressures (annual, percent of GDP)
- Increase in health care spending: (figure not specified in the text excerpt)
- Potential cost of an enhanced social protection system (unemployment insurance): 0.6
- Spending needs to support major long-term infrastructure, including for climate change (SINGA): 1
- Total gross spending pressures: 5.6
- Planned Revenue Measures in FY22 Budget: -0.8
  - of which:
    - GST: -0.7
    - Wealth tax: -0.1
- Total net spending pressures: 4.8

### Policy implications and considerations
- Consider strengthening the social protection system and the social compact to bolster automatic stabilizers as shocks may become more frequent and prevalent.
- Use fiscal reserves and planned revenue measures to finance rising spending pressures while balancing the pace of fiscal surplus accumulation.
- Direct revenues from specific taxes (e.g., carbon tax hikes) to targeted climate goals as indicated by the authorities.

*SINGAPORE INTERNATIONAL MONETARY FUND*

### Appendix II. External Sector Assessment

### Appendix II. External Sector Assessment

### Overall assessment
- The external position in 2021 was substantially stronger than the level implied by medium-term fundamentals and desirable policies.
- Assessment subject to wide uncertainty due to Singapore’s very open economy and status as a global trading and financial center.
- Near-term: the war in Ukraine is expected to narrow the CA surplus due to a related negative terms-of-trade shock for Singapore.
- Medium-term: the CA surplus is projected to narrow gradually alongside an increase in household consumption as the share of prime working age population actively saving for retirement declines, the recovery of capital-related imports, and higher public spending.
- Potential policy responses:
  - Planned execution of major green infrastructure projects should help reduce external imbalances in the near term.
  - Over the medium term, higher public investment addressing aging and the transition to a green and digital economy (including spending on health care, green and other physical infrastructures, and human capital) would help reduce external imbalances by lowering net public saving.

### Foreign asset and liability position and trajectory
- Background:
  - NIIP stood at 256.4 percent of GDP in 2021, down from 280.8 percent of GDP in 2020 but above the average level of 231.1 percent of GDP in 2016-2020.
  - Gross assets and liabilities are high, reflecting Singapore’s status as a financial center.
  - About a half of foreign liabilities is in FDI, and about a third is in the form of currency and deposits.
  - The CA surplus has been a main driver since the global financial crisis; valuation effects were material in some years.
  - CA and growth projections imply the NIIP will rise over the medium term.
  - The large positive NIIP in part reflects the accumulation of assets for old-age consumption, which is expected to be gradually unwound over the long term.
- Assessment:
  - Large gross non-FDI liabilities (477.9 percent of GDP in 2021)—predominantly cross-border deposit taking by foreign bank branches—present some risks.
  - Risks are mitigated by large gross asset positions, banks’ large short-term external assets, and the authorities’ close monitoring of banks’ liquidity risk profiles.
  - Singapore has large official reserves and other official liquid assets.
- Key statistics (2021, % GDP):
  - NIIP: 256.4
  - Gross Assets: 1240
  - Res. Assets: 105.3
  - Gross Liab.: 983.6
  - Debt Liab.: 383.9

### Current account
- Background:
  - CA surplus was 18.1 percent of GDP in 2021, up from 16.8 percent in 2020.
  - Larger surpluses in both goods and services balances contributed to the increase.
  - CA balance is higher than the average of 16.7 percent since 2016 and lower than the post-global-financial-crisis peak of 22.9 percent in 2010.
  - Singapore’s large CA balance reflects a strong goods balance and a small surplus in services partly offset by a deficit in the income account.
  - Structural factors and policies boosting savings include Singapore’s status as a financial center, consecutive fiscal surpluses in most years, rapid aging, and a mandatory defined-contribution pension program (whose assets were about 94.8 percent of GDP in 2021).
  - CA surplus is projected to narrow over the medium term on the back of increased infrastructure and social spending.
  - In 2021, public saving increased albeit remaining in negative territory as the fiscal deficit narrowed, while private saving increased.
- Assessment:
  - Guided by the EBA framework, staff assesses the 2021 CA gap to be in the range of 3.4-7.0 percent of GDP, with a midpoint of 5.2 percent.
  - Identified policy gaps remained close to zero in 2021 reflecting a less expansionary fiscal policy adopted in 2021 in Singapore compared to the rest of the world and low but efficient public health care expenditure.
- Staff adjustments and decomposition:
  - Using EBA estimated coefficients without adjustments yields a CA norm of about 14.8 percent of GDP in 2021 (including the multilateral consistency adjustor), but this understates the CA gap for Singapore.
  - Adjustments made by staff:
    - Downward adjustment of 1.2 percentage points to EBA’s implied contribution of public health expenditures to the norm (accounting for high efficiency of Singapore’s health expenditure).
    - COVID-19 related transitory impact adjustment totaling -1.4 percent of GDP, composed of: travel adjustor of -1.3 percent of GDP; transport adjustor of 0.7 percent of GDP; household consumption shift adjustor of -0.8 percent of GDP; medical goods adjustor of 0.0 percent of GDP.
    - Downward adjustment of 3.7 percentage points to the norm to account for NFA composition and component-specific return differentials.
    - Downward adjustment of -2.4 percentage point of GDP to underlying CA to account for measurement biases due to inflation and portfolio equity retained earnings (-4.9 and +2.5 percent of GDP respectively).
  - After adjustments, staff-estimated CA gap is about 5.2 percent of GDP, to which:
    - fiscal gap contributes about 0.6 percent of GDP,
    - credit gap about -0.5 percent of GDP,
    - public health spending about -0.1 percent of GDP,
    - reserves about 0.0 percent of GDP.
- Key statistics (2021, % GDP):
  - CA: 18.1
  - Cycl. Adj. CA: 18.9
  - Staff Gap (midpoint): 5.2

### Real exchange rate (REER)
- Background:
  - REER depreciated by 0.3 percent in 2021 reflecting NEER depreciation by 0.4 percent.
  - This followed a REER depreciation by 2.3 percent and a NEER appreciation by 0.2 percent (both cumulative) between 2018 and 2020.
  - As of January 2022, the REER had appreciated by 1.2 percent relative to 2021 average.
- Assessment:
  - Consistent with the staff CA gap, staff assesses the REER to be undervalued in the range of 6.8 to 14 percent, with a midpoint of 10.4 percent in 2021 (applying an estimated elasticity of 0.5).
  - To reflect uncertainty, the maximum range of +/-1.8 percent in the EBA sample is applied for the CA gap.

### Capital and financial accounts: flows and policy measures
- Background:
  - Singapore has an open capital account.
  - As a trade and financial center in Asia, changes in market sentiment can affect Singapore significantly (increased regional risk aversion may lead to inflows; global stress may lead to outflows).
  - Financial account balance reflects reinvestment abroad of income from official foreign assets, sizable net inward FDI, and smaller but more volatile net bank-related flows.
  - In 2021, the capital and financial account switched to outflows of 2.1 percent of GDP from temporary inflows of 4.6 percent in 2020.
  - Outflows ranged from 9.5 to 18 percent in 2016–20.
- Assessment:
  - The financial account is likely to remain in deficit as long as the trade surplus remains large.

### FX intervention and reserves level
- Background:
  - With the NEER as the intermediate monetary policy target, intervention is undertaken to achieve inflation and output objectives.
  - As a financial center, prudential motives call for a larger NIIP buffer.
  - Official reserves held by the MAS reached US$417.9 billion (105.3 percent of GDP) in 2021.
  - Aggregate data on foreign exchange intervention operations has been published since Apr 2020.
- Assessment:
  - In addition to FX reserves held by the Monetary Authority of Singapore (MAS), Singapore also has access to other official foreign assets managed by Temasek and GIC.
  - The current level of official external assets appears adequate, even after considering prudential motives, and there is no clear case for further accumulation for precautionary purposes.
  - Note: External assets managed by GIC and Temasek amount to at least 100 percent of GDP.

*Source: Appendix II. External Sector Assessment (excerpt).*

### 94.9 percent of GDP.

### 1sgpea2022001 - 94.9 percent of GDP.

### Government debt instruments
- The government issues four types of debt securities:
  - (1) Singapore Government Securities (SGS): marketable debt instruments issued primarily to provide a robust government yield curve, foster the growth of an active secondary market, enable efficient risk management and finance investment under the Significant Infrastructure Government Loan Act.
  - (2) Special Singapore Government Securities (SSGS): non-marketable bonds primarily issued to the CPF Board with a guaranteed floor on interest rates.
  - (3) Singapore Saving Bonds (SSB): non-tradable securities introduced in 2015 where principal and interest payments (linked to long-term SGS rates) are guaranteed by the government.
  - (4) Reserves Management Government Securities (RMGS): non-marketable securities introduced in 2020, denominated in Singapore dollars, to be issued solely for facilitating transfers of excess reserves from MAS to the government for longer-term investment by GIC.
- Use of RMGS:
  - "The use of RMGS does not result in new purchases of foreign assets by the Singapore government. However, it affects the composition of Singapore’s foreign assets, given the different investment practices of MAS and GIC."

### Green bonds and investment needs
- "About S$35 billion (6 percent of 2022 GDP) in green bonds are expected to fund green infrastructure projects by 2030."

### Macro-fiscal assumptions and tax reforms
- Fiscal path and reforms:
  - Fiscal deficit widened to "8.4 percent of GDP in 2020" and narrowed to "2.3 percent of GDP in 2021".
  - Staff baseline projects a return to a balanced budget starting in 2024.
  - Baseline includes tax reforms:
    - (i) "residential property tax in 2023";
    - (ii) "Goods and Services Tax (GST) rate between 2023 and 2024";
    - (iii) "personal income tax in 2024";
    - (iv) "carbon tax between 2024 and 2030".
- Data coverage: fiscal assumptions are based on "central government debt" consistent with authorities' reported government debt.

### Debt level projections, composition, and financing needs
- Debt-to-GDP:
  - "Debt-to-GDP ratio increased to 152 percent of GDP in 2020" and "is projected to peak at 160 percent of GDP in 2021."
  - Medium-term projection: "slowly decline to147 percent of GDP by 2027."
  - Factors affecting medium-term path:
    - (i) "a modest rise in investment needs by the CPF as employment growth slows in line with population aging"
    - (ii) "a slightly lower fiscal deficit due higher revenue collection following the implementation of various tax reforms."
- Gross financing needs (GFN):
  - "GFN are expected to average about 21 percent of GDP per annum in the medium term."
- Identified debt-creating flows and contributions (selected numbers from Figure 1):
  - Nominal gross public debt (percent of GDP): 108.2 (2020), 152.0 (2021), 160.2 (2022), 155.3 (2023), 154.4 (2024), 154.6 (2025), 152.0 (2026), 149.8 (2027), 147.5 (projection).
  - Public gross financing needs (percent of GDP): 8.7 (2020), 26.8 (2021), 22.3 (2022), 22.2 (2023), 21.8 (2024), 21.2 (2025), 20.9 (2026), 20.6 (2027), 21.1 (projection).
  - Real GDP growth (percent): 3.7 (2011-2019 actual), -3.9 (2020), 8.0 (2021), 3.3 (2022), 2.8 (2023), 2.4 (2024), 2.5 (2025), 2.5 (2026), 2.5 (2027).
  - Inflation (GDP deflator, percent): 1.1 (2011-2019 actual), -2.5 (2020), 5.4 (2021), 4.2 (2022), 2.2 (2023), 1.5 (2024), 3.3 (2025), 3.3 (2026), 3.3 (2027).
  - Nominal GDP growth (percent): 4.8 (2011-2019 actual), -6.3 (2020), 13.9 (2021), 7.6 (2022), 5.2 (2023), 4.0 (2024), 5.9 (2025), 5.9 (2026), 5.9 (2027).
  - Effective interest rate (percent): 3.1 (2011-2019 actual), 2.8 (2020), 2.8 (2021), 2.7 (2022), 2.6 (2023), 2.7 (2024), 2.7 (2025), 2.7 (2026), 3.1 (2027).
  - Change in gross public sector debt (percent of GDP): 3.2 (2020), 23.7 (2021), 8.3 (2022), -5.0 (2023), -0.8 (2024), 0.2 (2025), -2.7 (2026), -2.2 (2027), -2.3 (projection), cumulative -12.7.
  - Primary deficit (percent of GDP): -8.0 (2020), 3.0 (2021), -3.6 (2022), -5.4 (2023), -5.3 (2024), -6.2 (2025), -6.4 (2026), -6.6 (2027), -7.3 (projection), cumulative -37.4.
  - Revenue and grants (percent of GDP): 17.7 (2020), 17.9 (2021), 18.4 (2022), 17.6 (2023), 16.7 (2024), 17.4 (2025), 17.7 (2026), 18.0 (2027), 18.1 (projection), cumulative 105.5.
  - Primary (noninterest) expenditure (percent of GDP): 9.6 (2020), 20.9 (2021), 14.8 (2022), 12.2 (2023), 11.3 (2024), 11.2 (2025), 11.3 (2026), 11.4 (2027), 10.8 (projection), cumulative 68.2.
  - Automatic debt dynamics (percent of GDP): -1.7 (2020), 12.5 (2021), -14.7 (2022), -7.3 (2023), -3.7 (2024), -1.9 (2025), -4.7 (2026), -4.6 (2027), -3.9 (projection), cumulative -26.1.
  - Of which: real interest rate contributions: 2.0 (2011-2019 actual), 7.1 (2020), -4.0 (2021), -2.4 (2022), 0.5 (2023), 1.7 (2024), -1.0 (2025), -1.0 (2026), -0.4 (2027), cumulative -2.6.
  - Of which: real GDP growth contributions: -3.7 (2011-2019 actual), 5.4 (2020), -10.7 (2021), -4.9 (2022), -4.2 (2023), -3.6 (2024), -3.7 (2025), -3.6 (2026), -3.6 (2027), cumulative -23.5.
  - Residual, including asset changes (percent of GDP): 12.9 (2020), 8.2 (2021), 26.6 (2022), 7.7 (2023), 8.2 (2024), 8.3 (2025), 8.5 (2026), 9.1 (2027), 9.0 (projection), cumulative 50.7.
- Notes and definitions (selected):
  - "Public sector is defined as central government."
  - Effective interest rate defined as "interest payments divided by debt stock (excluding guarantees) at the end of previous year."
  - Primary balance defined here as "net lending/borrowing minus interest payments."
  - Automatic debt dynamics formula provided in the source text footnote.

### Assets, NIRC framework, and risk mitigation
- "A high level of financial assets mitigates the risks associated with public debt."
- GFN and asset accumulation:
  - "The projected GFN, mostly driven by the CPF’s investment needs, are expected to be mirrored one-for-one with an accumulation of assets by the government."
- Net Investment Returns Contribution (NIRC) framework:
  - "Under the Net Investment Returns Contribution (NIRC) framework, only up to 50 percent of the long-term expected returns earned on net assets (i.e. assets net of interest costs and liabilities) can be used as budget revenue."
  - "The NIRC to the budget comprises up to 50 percent of the expected long-term real returns on the net assets invested by GIC, MAS and Temasek, and up to 50 percent of the investment income from the remaining assets."

### Alternative scenarios and underlying assumptions (selected from Figure 2)
- Baseline underlying assumptions (in percent):
  - Real GDP growth: 3.3 (2022), 2.8 (2023), 2.4 (2024), 2.5 (2025), 2.5 (2026), 2.5 (2027).
  - Inflation: 4.2 (2022), 2.2 (2023), 1.5 (2024), 3.3 (2025), 3.3 (2026), 3.3 (2027).
  - Primary Balance: 5.4 (2022), 5.3 (2023), 6.2 (2024), 6.4 (2025), 6.6 (2026), 7.3 (2027).
  - Effective interest rate: 2.7 (2022), 2.6 (2023), 2.7 (2024), 2.7 (2025), 2.7 (2026), 3.1 (2027).
- Historical scenario (selected):
  - Real GDP growth: 3.3 (2022), 3.2 (2023-2027).
  - Primary Balance: 5.4 (2022) then 6.2 (2023-2027).
  - Effective interest rate: 2.7 (2022), 2.6 (2023), 3.1 (2024), 3.5 (2025), 3.8 (2026), 4.6 (2027).
- Constant Primary Balance scenario:
  - Primary Balance held at 5.4 (2022-2027).

### Public debt composition and maturity (figures referenced)
- Gross nominal public debt trajectory shown in the source for 2020–2027.
- Public gross financing needs (percent of GDP) trajectory shown for 2020–2027.
- Debt by maturity: charts indicate composition by medium and long-term vs short-term for 2011–2027 projection.
- Debt by currency: charts indicate local currency-denominated vs foreign currency-denominated composition for 2011–2027 projection.

### Appendix V — Income inequality and the COVID-19 pandemic in Singapore: key findings
A. Background: Pre-COVID trends
- Inequality trends:
  - "After peaking successively in 2007 and in 2012, inequality in Singapore has been on a declining trend but remained high pre-pandemic compared to peers after taxes and transfers."
  - Gini index peaks: "0.48 in 2007 and 2012."
- Real income per capita growth:
  - "Real GDP per capita almost tripled between 2000 and 2019 (from USD 23,853 to USD 65,831)."
  - "Resident employed households’ incomes have grown on average by 3.1 percent over the same period (2000-2019)."
  - Growth across deciles (2000-2019): bottom 10 percent growth "1.7 percent", ninth decile "3.5 percent".
  - 2000–2009 vs 2009–2019: in 2009–2019, "real income of the bottom decile grew by 3.8 percent on average, surpassing 2.7 percent for the top decile."

B. Inequality during pandemics and COVID-19
- Literature summary:
  - Pandemics tend to increase inequality by disproportionately affecting the poorest and most vulnerable.
  - Evidence from prior epidemics (SARS 2003, H1N1 2009, MERS 2012, Ebola 2014, Zika 2016) indicates increases in inequality through output contractions and job losses for low-educated workers.
- Role of initial conditions and fiscal support:
  - Rise in inequality after pandemics is higher in episodes "with a lack of fiscal support."
  - Fiscal support (public health spending, redistribution, social protection) can mitigate distributional consequences.
  - Countries with strong initial conditions (low informality, high family benefit, high health expenditure per capita) experience lower pandemic-induced inequality.

C. Singapore-specific pandemic impacts and policy response
- Inequality and income dynamics in 2020:
  - "The Gini coefficient remained unchanged from 2019 at 0.45 in 2020, after accounting for government transfers and taxes, it decreased to 0.38."
  - Household income changes in 2020:
    - "Income contracted by about 6 percent in the first decile" and "declined at top tenth decile by only 2.3 percent."
  - Government transfers in 2020:
    - Authorities deployed transfers "amounting an average of SGD 2,200 per household member as part of COVID-19 schemes in 2020", with larger support toward the bottom of the income distribution.
- 2021 developments:
  - Inequality "continued to decrease in 2021, as income recovers strongly for the bottom of the distribution" though "the unwinding of the support led to an increase in the Gini after taxes and transfers compared to 2020, although remaining below the pre-pandemic level."
  - Labor market income in 2021: income from work increased by "4.7 percent in the first decile" and declined by "about 1 percent in the top decile."
- Labor market heterogeneity:
  - Unemployment: after a peak in 2020Q3 overall unemployment decreased as the economy recovers, but remains above pre-pandemic level especially for intermediate education levels (non-tertiary post-secondary and diploma & professional qualification).
  - Youth unemployment (below 30) "rose at the beginning of the pandemic but has decreased below pre-pandemic level" while other age groups remain above pre-pandemic levels except "50-59 age group."
  - Occupation-specific impacts (June 2021): unemployment remained particularly high above pre-pandemic level for "plant, machine operators and assemblers" and also "managers and administrators."
  - Time-related under-employment (June 2021) remained above overall rate for individuals with education below diploma and professional qualification, and for non-PMET occupation groups such as "service & sales workers" and "cleaners, laborers & related workers."
- Policy measures deployed:
  - Wage and income support: "Jobs Support Scheme, Enhanced Wage Credit Scheme, COVID-19 Support Grant, COVID-19 Recovery Grant, Self-Employed Person (SEP) Income Relief Scheme, Temporary Relief Fund, Workfare Special Payment."
  - Reskilling, employment and training programs: "SEP Training Support Scheme and SGUnited Jobs and Skills Package, which included the Jobs Growth Incentive to boost local hiring."
  - The policy response "accounted for the different challenges of the labor market segments and was consistently targeted."

*Source: IMF staff (as presented in the provided content).*

### 9.      Given the structural pre-pandemic initial conditions of Singapore, going forward risks

### 9.      Given the structural pre-pandemic initial conditions of Singapore, going forward risks

### Risks to inequality: assessment and drivers
- Historical pandemic experience:
  - Singapore experienced SARS in 2003 and H1N1 in 2009.
  - Inequality slightly increased in 2003 during the SARS pandemic; it did not change during the 2009 H1N1 event.
  - Footnote data: 2003 SARS had 238 total cases with 33 death counts; 2009 H1N1 had 415,000 cases and at least 18 deaths (Singapore’s authorities). COVID-19 cases reached 1,174,390 with 1,322 deaths as of April 22, 2022 (source: Ministry of Health).
- Pre-pandemic structural initial conditions (as measured against G20 advanced economy peers):
  - Low health spending.
  - Low social protection.
  - Low redistribution.
  - Low informality (shadow economy among the lowest compared to peers).
  - Strong fiscal support (estimated at 20 percent of GDP in 2020).
  - Absolute redistribution (difference between market Gini and net Gini) was among the lowest compared to peers.
- Net balance of factors:
  - Mitigating factors: large fiscal support and low informality.
  - Contributing factors to higher inequality risk: low health spending, low social protection spending, low redistribution.
  - As evidenced by the increase in the Gini index after taxes and transfers in 2021, the number of structural factors that could contribute to further increases in inequality is slightly higher than the mitigating factors.
  - It remains difficult to anticipate whether fiscal support and low informality will outweigh other structural factors.

### Labor market outcomes and distributional effects
- Effectiveness of labor market policies during COVID-19:
  - Singapore’s bold and comprehensive labor market policies have proved effective during the COVID-19 pandemic.
  - Programs helped keep the unemployment rate low and provided appropriate support to most affected sectors and lower income people.
  - The decrease in the Gini coefficient before taxes and transfers suggests that labor market policies have been progressive.
- Recent distributional trends:
  - Inequality after taxes and transfers has been on a declining trend since 2007, but there was a temporary rise of inequality after taxes and transfers during the pandemic.
  - Recovery and labor market developments were progressive, with income rebounding strongly especially in the lower part of the income distribution.
  - For certain groups, unemployment remains significantly above pre-pandemic levels and time-related under-employment was higher than the overall level in June 2021, affecting income and well-being.

### Groups at risk (to be targeted)
- Unemployment:
  - Workers with an intermediate level of education (post-secondary non-tertiary and diploma & professional qualification).
  - PMETs (in particular, professionals, managers & administrators and, plant & machine operators & assemblers).
- Time-related under-employment:
  - Workers with a non-tertiary education.
  - Workers in the services sector (in particular, accommodation & food services, art, entertainment & recreation).
  - Non-PMETs.

### Policy recommendations and recent measures
- Proactive policy response recommended given structural risks and recent rise in inequality after taxes and transfers.
- Medium-term structural reforms:
  - Continue reforms to taxes and transfer schemes toward more progressivity to mitigate risks to inequality.
  - Boost inclusive policies to facilitate external rebalancing, recognizing the marginal propensity to consume of lower income households.
- FY 2022 Budget measures highlighted as welcome:
  - Expansion of the social safety net system through the extension of the progressive wage model to the retail, food services and waste management sectors.
  - Transitional support for wage increase of lower-income workers through the Progressive Wage Credit Scheme (PWCS).
  - Enhancement of the workfare income supplement.
  - Enhanced progressivity of the income tax system.
- Rationale:
  - These measures would help mitigate the distributional effects of the pandemics and foster an inclusive recovery, noting that pandemics typically have delayed and persistent effects on inequality.

*International Monetary Fund. 1sgpea2022001 — Chapter content on inequality risks and policy implications for Singapore.*

### 7.      Risks to Singapore’s ongoing recovery from continued normalization in monetary

### 7.      Risks to Singapore’s ongoing recovery from continued normalization in monetary policy appear small.

### Monetary policy scenario and methodology
- Conditional forecasts are produced predicated on the S$NEER appreciating by around 6 percent over the next 3 years.
- Forecasts of other variables are conditioned on a path of the exchange rate that further tightens the monetary policy stance.
- The policy scenario and resultant macro forecasts are produced using Bayesian VAR models containing real GDP, inflation, inflation expectations, employment, the exchange rate, and the interest rate.
- The approach follows similar VAR models in Antolin-Diaz et al. (2021) and uses the Kalman filter/smoother implementation of Banbura, Giannone, and Reichlin (2015) to mitigate Lucas-critique concerns.

### Forecast findings
- In the baseline, economic activity and inflation are projected to moderate to their long-run steady-state values.
- A forecast of real GDP conditional on a phased appreciation path in the exchange rate suggests that the path of real GDP growth does not fundamentally deviate from the baseline.
- Similar dynamics hold for inflation, inflation expectations, and employment growth.
- Findings are consistent with Singapore’s historically low sacrifice ratio—the cost to growth from dis-inflating is small—reflected in Singapore’s Phillips curve flattening.
- Time-varying Phillips curve estimates suggest that the pass-through of exchange rate changes on inflation has progressively waned.
- Recent supply bottlenecks resulting from the conflict in Ukraine and/or from the China COVID-19 lockdown could potentially increase the size of the sacrifice ratio by steepening the slope of the Phillips curve, consistent with a lower growth-higher inflation environment.

### Policy implications and risks
- The confluence of multiple global shocks—including the ongoing slowdown in China amid global economic fragmentation risks—could materially shift the magnitude of the sacrifice ratio and warrant a more nimble and carefully calibrated monetary policy stance.
- Sustained low-for-long interest rate environment:
  - The neutral rate in Singapore has been low and is likely to remain low because of structural factors: (i) large savings surplus reflecting the current account; (ii) aging; (iii) some risk aversion (reflected in Singapore’s equity market constantly trading at a discount); and (iv) growing economic leverage.
  - Partly for these reasons, the risk-free market interest rate is likely to remain low for the foreseeable future, reflected in the pricing of the long-term forward rate.
  - Risks to financial stability may grow; persistently low rates help sustain elevated house prices and encourage further debt accumulation.
  - Persistently low interest rate environments generally tend to harm productivity, increase market power of fewer firms, and give rise to other challenges.
  - This reinforces the importance of macroprudential policies to control the growing buildup of financial imbalances.
- Larger external shocks:
  - The size of import price shocks has grown in recent years. Under a managed exchange rate this implies greater real sector volatility.
  - MAS has a track record of handling acute policy tradeoffs in a nimble and agile fashion within its monetary policy making regime.

### Related recent macro developments and outlook (selected statistics)
- GDP growth and sectoral developments:
  - 7.6% growth last year.
  - GDP grew by 0.8% on a quarter-on-quarter, seasonally adjusted basis (q-o-q SA) in Q1 2022, moderating from the 2.3% expansion recorded in Q4 2021.
  - The overall economy has fully recovered from the COVID-19 shock, with Q1 GDP close to 6% above its level in Q4 2019.
  - GDP growth in Q2 is expected to have slowed further.
  - Current assessment: Singapore’s GDP growth in 2022 to come in at the lower half of the 3-5% forecast range.
  - Five-year (2015–19) average growth rate prior to the pandemic: 3.2%.
- Inflation and labor market:
  - Core inflation: 3.4% in April–May, compared to 2.5% in Q1 2022.
  - CPI-All Items inflation: 5.5% in April–May, from 4.6% in Q1 2022.
- Exchange control and financial thresholds:
  - Singapore dollar proceeds obtained by nonresident financial entities from loans exceeding S$5 million, or any amount for equity listings or bond issuance to finance activities outside Singapore, must be swapped or converted into foreign currency upon draw down.
  - Financial institutions are prohibited from extending Singapore dollar credit facilities in excess of S$5 million to nonresident financial entities if there is reason to believe that the Singapore dollar proceeds may be used for Singapore dollar currency speculation.

*Source: IMF staff report excerpt from "Singapore: Staff Report for the 2022 Article IV Consultation — Informational Annex" (selected section on risks and monetary normalization).*

### 2.6 Amid improving demand in the consumer-facing sectors, a pick-up in the pass-through

### 2.6 Amid improving demand in the consumer-facing sectors, a pick-up in the pass-through

### Inflation outlook and short-term dynamics
- Accumulating business costs are expected to pass through, supporting core inflation significantly above its historical average through this year.
- MAS Core Inflation is forecast to pick up further in the coming months, before moderating towards the end of the year as some external inflationary pressures recede and domestic labour market tightness gradually eases with inflows of non-resident workers.
- Core inflation is currently expected to come in at 2.5–3.5% in 2022.
- Headline inflation is expected to increase at a faster pace of 4.5–5.5% in 2022 as private transport and accommodation inflation are expected to stay firm in the near term.

### Monetary policy
- External and domestic sources of inflation in the Singapore economy have intensified.
- October 2021: MAS began to withdraw monetary policy accommodation by adopting a slight positive (appreciating) slope for the Singapore dollar nominal effective exchange rate (S$NEER) policy band.
- January 2022: MAS subsequently steepened the slope again in an off-cycle move.
- April 2022: MAS tightened monetary policy for the third time in six months by re-centring the mid-point of the S$NEER policy band up to its prevailing level and increasing slightly the band’s rate of appreciation, to slow the inflation momentum.
- MAS will continue to monitor external developments and their impact on the Singapore economy, and is prepared to respond as necessary to ensure medium-term price stability.

### Fiscal policy
- Fiscal policy played a key role in mitigating the impact of COVID-19 on businesses, workers and households, enabled by prudent accumulation and management of reserves in prior decades.
- Budget 2022 (introduced in February) provided targeted and scaled-down support as rising inflation confronted the economy; further supportive measures were announced subsequently.
- April 2022 measures included bringing forward and enhancing measures such as additional Public Transport Vouchers (PTV) for lower-income households.
- June 2022: government introduced an additional S$1.5 billion support package targeted at providing immediate relief for lower-income and more vulnerable groups.
- Budget 2022 also introduced and enhanced measures to accelerate technological adoption and spur productivity (examples: investments in broadband and communications infrastructure; expansion of the Productivity Solutions Grant (PSG)).
- Changes were made to taxes and transfers to improve progressivity and finance expected increases in government expenditures.
- Introduction of the Significant Infrastructure Government Loan Act (SINGA) to borrow for and capitalise major, nationally significant, and long-term infrastructure.
- The government’s overall fiscal position is expected to come in at a S$3.0 billion deficit in Financial Year (FY) 2022.
- The cyclically-adjusted budget balance (CABB) is projected to register a shortfall of 4.4% of GDP in Calendar Year 2022, indicating a mild expansionary fiscal stance.
- The government will continue to review its financing position and plan for future revenue and expenditure measures in a fiscally sustainable manner.

### Financial sector policies and resilience
- Domestic financial conditions were generally accommodative through to early 2022, with resident lending increasing alongside the recovery in economic activity.
- Banking system non-performing loan ratios had come down over 2021; local banks registered healthy profitability and remained well-capitalised, with sufficient domestic and foreign currency liquidity.
- Corporate sector profitability broadly improved, mostly returning to pre-pandemic levels; SME credit quality remained stable despite tapering of government support.
- Authorities continue to monitor corporates with pre-existing vulnerabilities that need to adjust to rising interest rates and increases in business costs.
- MAS stress testing suggests most households and corporates are able to service debts under adverse scenarios of sharp interest rate hikes and significant income/earnings losses.
- MAS’ regular Industry-Wide Stress Test for 2022 will examine key conjunctural downside risks including stagflation and a global resurgence in COVID-19 infections, alongside an exploratory analysis exercise involving a range of long-term climate scenarios.
- Recent tightening of macroprudential policy was necessary to moderate the increasingly buoyant property market; authorities will continue to review property market developments to ensure sustainable conditions consistent with medium-term fundamentals.
- Developments in crypto assets have taken on increased focus among international regulators; while spillovers to Singapore’s mainstream financial system and the economy are limited, MAS closely monitors risks in the crypto ecosystem and is actively reviewing its regulatory approach.
- Since 2017, authorities have consistently warned that cryptocurrencies are not suitable investments for the retail public given their highly speculative nature.
- MAS has been carefully considering additional consumer protection safeguards, including placing limits on retail participation and rules on the use of leverage when transacting in cryptocurrencies, while balancing the need to build an institutional environment for digital asset innovation.

### Medium-term issues and structural policies
- Authorities continue steps to ensure readiness for technological advancements, demographic shifts and climate change, and to equip businesses and workers with future-ready capabilities.
- Climate change initiatives:
  - Carbon taxes introduced in 2019.
  - Singapore Green Plan 2030 launched in 2021.
  - Budget 2022 accelerated the timetable for achieving net zero emissions to by or around mid-century, including increasing carbon taxes more quickly than previously set out.
  - Investments to support new technologies under the Research, Innovation and Enterprise (RIE) 2025 Plan and Energy Transition plans; support for transition towards a low-carbon built environment.
- Social compact and inclusivity:
  - Government aims to foster an inclusive economy through: (1) mitigating income inequality by uplifting incomes of lower-wage workers and targeting support at vulnerable households; (2) enhancing social mobility via investments in early childhood, formal education and lifelong learning; (3) strengthening resilience through collective social support.
  - Workfare Income Supplement (WIS) supplements employment income of eligible Singaporean workers at the bottom 20 percent of the wage distribution, with greater support for older workers; WIS was significantly enhanced at Budget 2022.
  - Progressive Wage Model (PWM) raises wages sustainably through skills upgrading and productivity improvements; PWM to be expanded to include retail, food services and waste management sectors over the next two years.
  - Progressive Wage Credit Scheme (PWCS) introduced to co-fund wage increases for lower-wage workers.
- Social spending and public investment:
  - Social spending (including education and healthcare) almost doubled from S$17 billion to S$31 billion over the last decade and now takes up close to half of the annual Budget.
  - Healthcare expenditure tripled from FY2010 to FY2019.
  - Expected acceleration of such spending, together with major infrastructure investments (including expanded rail lines) and sustainable infrastructure development, are expected to contribute to external rebalancing, alongside anticipated increases in government expenditure and dissaving in the household sector resulting from an ageing population.

### Final remarks and policy stance
- Amid elevated global uncertainties, authorities will remain vigilant over global and domestic developments and assess how these could impinge on macroeconomic and financial stability.
- Authorities stand ready to undertake appropriate policy responses should conditions deteriorate more sharply than anticipated.
- Authorities remain committed to longer-term domestic restructuring to enable Singapore to embrace new economic opportunities and promote greater inclusive and sustainable growth.
- Authorities agree to the publication of the 2022 Singapore Article IV Consultation Report.

*Source: 2.6 Amid improving demand in the consumer-facing sectors, a pick-up in the pass-through (1sgpea2022001).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1sgpea2022001.pdf_