## SINGAPORE: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION (content unit: 1sgpea2023001) ## Source details **Canonical URL:** [SINGAPORE: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION (content unit: 1sgpea2023001)](https://www.imf.org/-/media/files/publications/cr/2023/english/1sgpea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1sgpea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1sgpea2023001.pdf.json) --- ### Context: post‑pandemic recovery and price pressures - Recovery status: - Overall output has exceeded pre‑pandemic levels since 2021; post‑pandemic recovery described as "nearly complete". - Recovery underpinned by strong fundamentals and an unprecedented policy stimulus. - Most sectors have rebounded, but high‑frequency data indicate a significant weakening of growth is in the offing. - Distribution and labor supply: - Inequality (Gini index) has continued to decline and is below pre‑pandemic levels. - Rebound accompanied by sharp increases in nominal wages and prices driven by labor shortages and tapering of wage subsidies. ### Recent developments: growth moderation, inflation, and labor market - Real GDP growth (year‑on‑year): - 2017: 4.5 - 2018: 3.6 - 2019: 1.3 - 2020: -3.9 - 2021: 8.9 - 2022: 3.6 - 2023Q1: 0.4 percent (year on year), reflecting weaker global demand. - 2023 (proj.): 1.0; 2024 (proj.): 2.1. - Inflation: - Headline CPI: 6.1 (2022); about 5.7 percent in April 2023 (broad‑based). - CPI inflation projections: 5.5 percent in 2023 (staff projection); CPI inflation excluding food and energy: 5.0 percent in 2023. - MAS core inflation: 4.1 (2022); 3.9 (2023 proj.); 2.8 (2024 proj.). - Headline inflation peaked at "7.3 percent in 2022Q3" before moderating to "5.7 percent in April 2023". - Staff expects inflation to moderate to 3.5 percent in 2024 and stabilize towards 2 percent over the medium term. - Labor market: - Unemployment rate: 2.1 percent in 2022; 1.8 percent projected for 2023 and 2024. - Unemployment rate declined from "3.5 percent in October 2020" to "1.8 percent in 2023Q1". - Total employment (including migrant domestic workers) increased by "40,100 in 2023Q1". - Wage growth: slowed to "5.7 percent in 2023Q1", down from "7.1 percent in 2022Q3". - Beveridge Curve remains shifted outwards indicating weaker matching between firms and workers. ### Monetary, fiscal, and external balances - Monetary policy: - MAS tightened monetary policy five consecutive times since October 2021 and paused in April 2023. - MAS operates a basket, band, and crawl (BBC) exchange rate‑based framework; S$NEER appreciation leads inflation to fall with an estimated lag of around 15-18 months. - Net FX purchases moderated to "US$15.1 billion in 2022H2" from "US$57.8 billion in 2022H1". - Fiscal stance and measures: - FY2022 revised deficit: "1.2 percent of GDP". - FY2023 budget: surplus of "0.7 percent of GDP"; cyclically adjusted fiscal balance excluding land sales improves from "-1.2 percent of GDP in FY2022" to "0.7 percent of GDP in FY2023", implying a negative fiscal impulse of "1.9 percent of GDP". - Assurance Package (AP) raised by "S$3 billion (0.4 percent of GDP)" to "S$9.6 billion". - Top‑up to the GST Voucher Fund of "S$2.4 billion (0.3 percent of GDP)". - Authorities record top‑ups to endowment and trust funds ("2.4 percent of GDP in 2023"); staff records actual spending from these funds ("0.9 percent of GDP in 2023") as expenditure. - FY2023 measures: top up to National Productivity Fund of S$4 billion (0.6 percent of GDP), expansion of scope to include investment promotion. - External sector and reserves: - Current account balance (US$ billions): 2022: 90.2; 2023 (proj.): 84.2; 2024 (proj.): 80.7. - Current account (percent of GDP): 2022: 19.3; 2023: 16.6; 2024: 15.2. - Gross official reserves (US$ billions): 2022: 289.5; 2023 (proj.): 344.2; 2024 (proj.): 394.0. - Total FX reserves declined to "S$388 billion in 2022" from "S$563 billion in 2021", then increased to "S$416.3 billion as of April 2023" and stood at "64.7 percent of GDP". - As of end‑2022, MAS’ outstanding holdings of RMGS was "S$237.6 billion (36.9 percent of GDP)". ### Outlook and risks - Near‑term staff projection: - Growth projected to moderate to 1.0 percent in 2023, reflecting largely weakening external demand. - Inflation projected to remain elevated at 5.5 percent in 2023 due to inflation persistence, the one‑off effect of the GST rate hike, and a relatively tight labor market. - Medium‑term: - Current account surplus expected to decrease gradually as consumption and capital‑related imports recover and public investment increases. - Inflation expected to settle towards 2 percent over the medium term; MAS core inflation projected 3.9 percent in 2023 and 2.8 percent in 2024. - Key downside risks (tilted to the downside): - Abrupt global slowdown or recession (including in China). - Severe tightening of financial conditions and geoeconomic fragmentation (GEF). - Persistent inflation de‑anchoring expectations and wage‑price spirals. - Financial stability risks from highly leveraged corporates (particularly SMEs), households, and liquidity positions in banks and NBFIs. - Supply chain disruptions, regional conflicts, and climate change. ### Executive Board assessment and staff policy recommendations - Broad assessment: - Executive Directors commended authorities for impressive post‑pandemic recovery and sound policy response; noted weakening growth momentum and elevated but moderating inflation. - Near‑term macroeconomic policies should focus on managing price pressures while nurturing growth. - Fiscal policy recommendations: - 2023 fiscal stance considered appropriately constrained while allowing temporary and targeted support to vulnerable households. - Some scope for flexibility to boost domestic demand given softening private consumption and large external surpluses. - If downside risks materialize, fiscal policy should be the first line of defense; fiscal buffers can be deployed with targeted support. - Refrain from price‑distorting measures (e.g., energy subsidies); strengthen social safety nets and maintain incentive compatibility. - Monetary policy recommendations: - Support for authorities’ tight stance; monetary policy should maintain tightening bias and remain data‑dependent. - Further timely tightening may be needed if persistent inflation risks damaging growth prospects. - Financial sector and macroprudential recommendations: - Continue monitoring highly leveraged corporates (particularly SMEs), households, and liquidity in banks and NBFIs. - Maintain a tight macroprudential stance and tighten further if systemic risks rise, including in residential housing. - Ramp up housing supply as planned to ensure a soft landing in residential real estate prices. - Continue enhancing AML/CFT framework. ### Financial conditions, banking system, and NBFIs - Banks and liquidity: - 3‑month Compounded SORA reached "3.6 percent in May 2023". - For Singapore’s largest domestic banks, total CET1 capital ratio stood at "14.8 percent on average in 2023Q1". - SGD and foreign currency non‑bank loan‑to‑deposit ratios steadily declining and well below "100 percent". - Banks maintain healthy buffers over liquidity coverage ratio (LCR) requirements. - Top three Singapore banks reported no direct exposure to US regional failed banks in March 2023; bond holdings represent less than "20 percent of their total assets". - Non‑bank financial sector: - Asset management industry AUM about "$4 trillion in 2021"; "78 percent of AUM was sourced from outside Singapore", "90 percent invested abroad in 2021", "45 percent of AUM was invested in Asia Pacific", "17 percent of investments going to Southeast Asia". - Insurance industry well‑capitalized; stress tests showed insurers met regulatory capital requirements after management actions. - Corporate sector: - Corporate debt‑to‑GDP fell from "156 percent in Q2 2021" to about "130 percent in 2022Q4". - Sectoral NPLs: transport & storage "7.4 percent as of 2022Q4"; construction "6.5 percent as of 2022Q4". - MAS’ PD indicator edged up but remained relatively low in 2022. - Property market and macroprudential: - Private residential property price growth accelerated in 2023Q1 after moderation in 2022. - Authorities tightened measures in April 2023: increased ABSD rates for local and foreign investors; ramp‑up of supply: almost "40,000 public and private residential property completions in 2023", and near "100,000 units expected to be completed from 2023 to 2025". - Existing measures include tightened LTV and TDSR caps. ### External Sector Assessment (Appendix I) — key findings - Overall assessment: - The external position in 2022 was preliminarily assessed to be substantially stronger than implied by medium‑term fundamentals and desirable policies. - Staff assesses the CA gap at "3.3 to 6.9 percent of GDP" after adjustments; staff midpoint CA gap about 5.1 percent of GDP. - Key aggregates (2022, percent of GDP unless stated): - NIIP: 176.1 - Gross Assets: 1125.5 - Res. Assets: 62 - Gross Liab.: 949.4 - Debt Liab.: 332.2 - CA: 19.3 - Cycl. Adj. CA: 21.8 - Real exchange rate: - REER appreciated by 6 percent in 2022; staff assesses the REER to be undervalued by "6.6 to 13.8 percent" in 2022 (midpoint 10.2 percent). - FX reserves and intervention: - Official reserves held by MAS reached US$289.5 billion (62 percent of GDP) in 2022. - Transfers of excess foreign reserves to government via RMGS amounted USD 177.3 billion (about 38 percent of GDP) at end‑2022. - No clear case for further accumulation of official external assets for precautionary purposes; current level appears adequate. ### Sovereign risk and Debt Sustainability Analysis (Appendix IV) - Overall DSA assessment: - Final assessment: The overall risk of sovereign stress is low. - Public debt sustainable; large public financial assets mitigate risks. - Public debt levels and drivers: - Public debt listed as 167.8 percent of GDP for 2022 (DSA table); baseline projections show public debt ~167.5–170.5 percent of GDP through 2032. - Change in public debt (2022–2032 row): 20.1, -0.2, 0.3, 0.0, 0.6, 0.6, 0.8, 0.4, 0.2, 0.1, -0.5 (percent of GDP) — preserved as presented. - Large increase in public debt in 2022 primarily driven by RMGS issuance (two reported figures in source): "S$237.6 billion (about 80 percent of the increase in public debt in 2022)" and elsewhere "S$162.7 billion (about 80 percent of the increase in public debt in FY2022)"; public debt issuance mainly for non‑spending purposes. - All debt is held domestically and issued in local currency; Singapore has no external public debt. - Baseline fiscal and macro assumptions (selected): - Real GDP growth (percent): 2.7 (2022), 1.5 (2023), 2.1 (2024), 2.5 (2025). - Inflation (GDP deflator; percent): 6.0 (2022), 5.0 (2023), 3.2 (2024), 2.4 (2025). - Effective interest rate (percent): 3.2 (2022), 3.2 (2023), 3.0 (2024), 2.7 (2025). - Stress and medium‑term risk indicators: - Fanchart width: 68.0 - Probability of debt not stabilizing (pct): 0.4 - Average GFN in baseline: 13.0 - Normalized medium‑term index points to low risk. ### Geoeconomic fragmentation (GEF) — implications and recommendations - Risks and channels: - GEF defined as policy‑driven reversal of global economic integration; drivers include COVID‑19, war in Ukraine, US‑China tensions. - Channels include trade fragmentation (large costs from restricting high‑tech trade) and financial fragmentation (weaker financial ties, higher funding costs). - Quantified scenarios (IMF, 2022): - Scenario A (division per UN vote): Singapore faces costs of approximately 8 percent of GDP. - More severe fragmentation: Singapore could face a cost of approximately 10 percent of GDP. - High‑tech trade channel is the largest loss driver; high‑tech exports represented 55 percent of Singapore’s manufactured exports in 2020. - Financial channel findings: - Geopolitical tensions reduce FDI inflows on average; effect is mitigated for highly rated global financial centers (Singapore). - Portfolio flows fall immediately by about 3.5 percent for the average destination following a bilateral geopolitical shock; impact muted for highly ranked financial centers. - Policy implications and recommended mitigation strategies: - Trade: diversify export markets and input sources; maintain constructive relationships with all sides; enhance regional integration; strengthen Singapore’s role as an entrepôt hub. - Finance: maintain high‑quality institutions, raise financial and capital buffers, strengthen USD liquidity preparedness, expand stress testing and scenario analysis, consider minimum foreign currency liquidity coverage if needed. ### Climate, digitalization, and social policy priorities - Climate and green finance: - MAS IWST climate scenarios span 2022–2050; scenarios: Orderly Transition, Disorderly Transition, No Additional Policies (includes an acute physical shock). - Government objective to issue up to S$35 billion in public sector green bonds by 2030; inaugural S$2.4 billion 50‑year sovereign green bond issued August 2022. - Coastal and Flood Protection Fund initial funding: S$5 billion. - Carbon tax path: from S$5 per tonne to S$50–80 per tonne by 2030. - Digitalization and innovation: - RIE2025 Plan: S$25 billion between 2021 and 2025 for research and innovation. - Policies include Advanced Digital Solutions, Grow Digital, digital banks licensing, cross‑border payments initiatives. - Labor market and inclusion: - Progressive Wage Credit Scheme (PWCS) enhanced in 2022 and FY2023 to support lower‑wage workers. - New active labor market policies and Jobs‑Skills Integrators to reduce skills mismatch. - Remote work: 77 percent remote work in digitalized sectors in 2020; prevalence of job vacancies offering remote work declined to about 20 percent in 2022. - Fiscal role in medium term: - Higher public spending on health, green infrastructure, and social services would lower net public saving and reduce current account surpluses, supporting stronger consumption. ### Key selected statistics (exact values preserved from source) - Nominal GDP (2022): US$466.7 billion - Population (2022): 5.6 million - GDP per capita (2022): US$82,794 - Main goods exports (2022, percent of total non‑oil goods exports): - machinery & transport equip.: 63.1 percent - chemical products: 14.4 percent - misc. manufactured articles: 9.8 percent - Top three destinations for goods exports (2022, percent of gross goods exports): - China: 12.4 percent - Hong Kong SAR: 11.2 percent - Malaysia: 10.0 percent - Real GDP growth by year (percentage change): 2017: 4.5; 2018: 3.6; 2019: 1.3; 2020: -3.9; 2021: 8.9; 2022: 3.6; 2023 (proj.): 1.0; 2024 (proj.): 2.1 - CPI inflation (period average, percent): 2017: 0.6; 2018: 0.4; 2019: 0.6; 2020: -0.2; 2021: 2.3; 2022: 6.1; 2023 (proj.): 5.5; 2024 (proj.): 3.5 - MAS core inflation: 2022: 4.1; 2023 (proj.): 3.9; 2024 (proj.): 2.8 - Unemployment rate: 2017: 2.2; 2018: 2.1; 2019: 2.3; 2020: 3.0; 2021: 2.7; 2022: 2.1; 2023 (proj.): 1.8; 2024 (proj.): 1.8 - Central government net lending/borrowing (percent of GDP): 2022: 0.9; 2023 (proj.): 2.6; 2024 (proj.): 2.9 - Public Debt to GDP (selected): 2017: 105.9; 2018: 107.5; 2019: 124.7; 2020: 146.6; 2021: 136.6; 2022: 167.8; 2023 (proj.): 168.1; 2024 (proj.): 168.4 *Source: IMF staff report for the 2023 Article IV Consultation (content unit: 1sgpea2023001).* ### 0.4 percent (year on year) in 2023Q1, reflecting weaker global demand. Despite the solid ### SINGAPORE: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION ### Context: Post‑pandemic recovery and price pressures - Singapore’s post‑pandemic recovery is nearly complete; overall output has exceeded pre‑pandemic levels since 2021. - Recovery underpinned by strong fundamentals and decisive policy responses, including an unprecedented policy stimulus. - Most sectors have rebounded, but high‑frequency data suggest a significant weakening of growth is in the offing. - Inequality as measured by the Gini index has continued to decline and is below pre‑pandemic levels. - The rebound has been accompanied by a sharp increase in nominal wages and prices driven by labor shortages and tapering of wage subsidies. ### Recent developments: Growth moderation and elevated inflation - Real GDP growth: - 2021: 8.9 percent - 2022: 3.6 percent - 2023Q1: 0.4 percent (year on year), reflecting weaker global demand. - Sectoral conditions: - Consumer‑facing services (except retail) and construction remained below pre‑pandemic levels as of 2023Q1. - Inflation: - About 5.7 percent in April 2023 (broad‑based), with signs of moderation but persistent inflationary pressures. - CPI inflation projections: 5.5 percent in 2023 (staff projection); CPI inflation, excluding food and energy: 5.0 percent in 2023. - MAS core inflation: 3.9 percent in 2023. - Labor market: - Unemployment rate: 2.1 percent in 2022; 1.8 percent projected for 2023 and 2024. - Continued relatively tight labor market conditions contributing to inflation persistence. - Monetary policy: - MAS tightened monetary policy five consecutive times since October 2021 and has paused so far in 2023 given negative imported inflation and projected below‑trend growth. - Fiscal stance: - 2023 budget: surplus of 0.7 percent of GDP; described as appropriately tight with targeted support to vulnerable households to mitigate short‑term impact of high inflation and the GST rate increase. - External sector and balances: - Current account balance (US$ billions): 2022: 90.2; 2023 (projection): 84.2; 2024 (projection): 80.7. - Current account (percent of GDP): 2022: 19.3; 2023: 16.6; 2024: 15.2. - Gross official reserves (US$ billions): 2022: 289.5; 2023 (projection): 344.2; 2024 (projection): 394.0. ### Outlook and risks - Near‑term projection: - Growth projected to moderate to 1.0 percent in 2023, reflecting largely weakening external demand. - Inflation projected to remain elevated at 5.5 percent in 2023 due to some inflation persistence, the one‑off effect of the GST rate hike, and a relatively tight labor market. - Medium‑term: - Current account surplus expected to decrease gradually as consumption and capital‑related imports recover, notwithstanding gradual pickup in foreign tourism flows post‑pandemic. - Downside risks: - Worsening external conditions, including a slowdown in trading partners, tightening global financial conditions, and geoeconomic fragmentation. - Potential for persistent inflation to damage the basis for sustained growth if not contained. - Financial stability risks from highly leveraged corporates (particularly SMEs), households, and liquidity positions in banks and non‑bank financial institutions. ### Executive Board assessment and staff policy recommendations - Executive Directors’ views: - Commended authorities for impressive post‑pandemic recovery and sound policy response. - Noted weakening growth momentum and elevated but moderating inflation. - Agreed near‑term macroeconomic policies should focus on managing price pressures while nurturing growth. - Fiscal policy: - 2023 fiscal stance considered appropriately constrained while allowing temporary and targeted support to most vulnerable. - Some scope for flexibility to boost domestic demand given softening private consumption and large external surpluses. - If downside risks materialize, fiscal policy should be the first line of defense; fiscal buffers can be deployed with targeted support. - Monetary policy: - Supported the authorities’ tight stance; monetary policy should maintain tightening bias and continue to focus on reining in inflation. - Further timely and data‑dependent tightening may be needed if persistent inflation risks damaging the basis for sustained growth. - Financial sector and macroprudential policy: - Financial sector considered sound; authorities urged to continue monitoring highly leveraged corporates (particularly SMEs), households, and liquidity in banks and NBFIs. - Tight macroprudential stance should be maintained and further tightened as needed to prevent rise of systemic financial risks, including in the residential housing market. - Progress on implementing 2019 FSSA recommendations noted; encouraged continued enhancement of AML/CFT framework. - Contingency in downside plus financial stress scenarios: - In a downside scenario where high inflation combines with severe financial market strains, the pace of tightening would need adjustment to avoid broadening financial stability concerns. - In systemic liquidity stress, swift, targeted, and temporary liquidity provision by MAS could smooth volatility without hindering necessary monetary tightening. - Long‑term priorities: - Accelerate economic transformation toward a green, digital, and more inclusive economy. - Emphasize climate‑related measures and active labor market policies to prepare for sustained, resilient growth and facilitate resource reallocation. ### Key statistics (selected, exact values from source) - Nominal GDP (2022): US$466.7 billion - Population (2022): 5.6 million - GDP per capita (2022): US$82,794 - Main goods exports (2022, percent of total non‑oil goods exports): - machinery & transport equip.: 63.1 percent - chemical products: 14.4 percent - misc. manufactured articles: 9.8 percent - Top three destinations for goods exports (2022, percent of gross goods exports): - China: 12.4 percent - Hong Kong SAR: 11.2 percent - Malaysia: 10.0 percent - Real GDP growth by year (percentage change): 2017: 4.5; 2018: 3.6; 2019: 1.3; 2020: -3.9; 2021: 8.9; 2022: 3.6; 2023 (proj.): 1.0; 2024 (proj.): 2.1 - CPI inflation (period average, percent): 2017: 0.6; 2018: 0.4; 2019: 0.6; 2020: -0.2; 2021: 2.3; 2022: 6.1; 2023 (proj.): 5.5; 2024 (proj.): 3.5 - MAS core inflation: 2022: 4.1; 2023 (proj.): 3.9; 2024 (proj.): 2.8 - Unemployment rate: 2017: 2.2; 2018: 2.1; 2019: 2.3; 2020: 3.0; 2021: 2.7; 2022: 2.1; 2023 (proj.): 1.8; 2024 (proj.): 1.8 - Central government net lending/borrowing (percent of GDP): 2022: 0.9; 2023 (proj.): 2.6; 2024 (proj.): 2.9 - Public Debt to GDP: 2017: 105.9; 2018: 107.5; 2019: 124.7; 2020: 146.6; 2021: 136.6; 2022: 167.8; 2023 (proj.): 168.1; 2024 (proj.): 168.4 *Source: IMF staff report for the 2023 Article IV Consultation (data and forecasts as of May 24, 2022; mission discussions held May 8–17, 2023; data used in the report for staff analyses are as of June 9, 2023).* ### 4. External headwinds have started to ### 4. External headwinds have started to ### Exports and external headwinds - Goods exports growth eased in 2022: "2.8 percent year-on-year in real term" following a strong rebound in 2021. - Sharp decline in 2022Q4 driven by re-exports and non-oil domestic exports, mainly electronics and integrated circuits, in line with moderating global demand for semiconductors, which persisted into 2023Q1. - Service trade continued to recover moderately, driven by higher export and import of transport and travel services in the aftermath of the pandemic. ### Labor market conditions - Unemployment rate declined from a peak of "3.5 percent in October 2020" to "1.8 percent in 2023Q1", below the pre-pandemic level. - Job vacancies to unemployment ratio showed a slight deceleration as foreign workers started returning, alleviating labor shortages. - The Beveridge Curve remains shifted outwards relative to its historical range, indicative of weaker matching between firms and workers as the economy adjusts to post-COVID structural changes. - Total employment (including migrant domestic workers) continued to expand for the sixth consecutive quarter, increasing by "40,100 in 2023Q1". - Retrenchments rose across sectors albeit remaining below pandemic levels. - Employment expansion was broad-based in 2022, with the largest gains in services and construction sectors. - The foreign workforce accounted for most of the employment growth owing to employers backfilling positions after April 2022 border re-openings. - Wage growth slowed to "5.7 percent in 2023Q1", down from "7.1 percent in 2022Q3". ### Inflation and inflation expectations - Headline average inflation peaked at "7.3 percent in 2022Q3" before moderating to "5.7 percent in April 2023". - MAS core inflation fell to "5 percent in March 2023", from "5.5 percent in January", with its rate reflecting the GST hike and passthrough from accumulated business costs and high food prices. - MAS core inflation rose to "5.5 percent y-o-y in January–February 2023" from "5.1 percent in Q4 2022", reflecting in part the increase in the GST rate from January and in tobacco duties from February. - Inflation expectations based on consensus forecasts remain well-anchored. ### Monetary policy stance and FX reserves - Monetary Authority of Singapore (MAS) kept the monetary policy setting unchanged in April 2023 after five consecutive tightening steps. - MAS operates a basket, band, and crawl (BBC) exchange rate-based framework; the S$NEER is managed against an undisclosed basket of currencies. - MAS started tightening in October 2021 and tightened four additional times, including two out-of-cycle moves; the last three moves re-centered the mid-point of the S$NEER policy band upward. - In April 2023 MAS paused the tightening cycle, noting increasingly negative imported inflation and projected below-trend growth for the year. - Net FX purchases moderated to "US$15.1 billion in 2022H2" from "US$57.8 billion in 2022H1". - Total FX reserves declined to "S$388 billion in 2022" from "S$563 billion in 2021", then increased to "S$416.3 billion as of April 2023" and stood at "64.7 percent of GDP". - As of end-2022, MAS’ outstanding holdings of RMGS was "S$237.6 billion (36.9 percent of GDP)". ### Fiscal stance and targeted support - FY2022 revised deficit: "1.2 percent of GDP". - FY2023 budget implies a surplus of "0.7 percent of GDP", mostly driven by winding down pandemic-related support and a modest increase in wealth taxes. - Fiscal consolidation combined with targeted short-term support measures: - Assurance Package (AP) raised by "S$3 billion (0.4 percent of GDP)" to "S$9.6 billion". - Top-up to the GST Voucher Fund of "S$2.4 billion (0.3 percent of GDP)" to support the enhanced permanent GST Voucher (GSTV) scheme. - The cyclically adjusted fiscal balance excluding land sales improves from "-1.2 percent of GDP in FY2022" to "0.7 percent of GDP in FY2023", implying a negative fiscal impulse of "1.9 percent of GDP". - Authorities record top-ups to endowment and trust funds ("2.4 percent of GDP in 2023") as expenditures; staff record actual spending from these funds ("0.9 percent of GDP in 2023") as expenditure. - Planned revenue measures (property taxes, luxury vehicle taxes increase from "220 percent to 320 percent", excise duty on tobacco by "15 percent") expected to yield about "0.1 percent of GDP" in additional revenue. ### Financial conditions and banking system resilience - 3-month Compounded SORA reached "3.6 percent in May 2023" after declining to below "3 percent" towards end-2022. - For Singapore’s largest domestic banks, total CET1 capital ratio stood at "14.8 percent on average in 2023Q1", substantially above the regulatory minimum. - Net interest margins (NIMs) appear to have peaked in 2023Q1 amid record profitability. - Asset quality: NPL ratios declining or stable at low levels; sectoral NPLs noted below. - SGD and foreign currency non-bank loan-to-deposit ratios (LTD) steadily declining and well below "100 percent". - Banks maintain healthy buffers over liquidity coverage ratio (LCR) requirements in all-currency and Singapore dollars LCRs. - Funding structure dominated by deposits; share of current and savings deposits decreased in 2022 as customers shifted to higher-yielding fixed deposits. - Top three Singapore banks reported no direct exposure to the US regional banks that failed in March 2023; bond holdings represent less than "20 percent of their total assets". - Direct exposures to Credit Suisse were insignificant. - Indirect impact via higher cost of AT1 capital limited given small share of such funding in total bank capital. ### Non-bank financial sector - Asset management industry AUM of about "$4 trillion in 2021", expanding at double-digits. - According to MAS’ Asset Management Survey, about "78 percent of AUM was sourced from outside Singapore", and "90 percent invested abroad in 2021", of which "45 percent of AUM was invested in Asia Pacific" and "17 percent of investments going to Southeast Asia". - Insurance industry well-capitalized with average CAR for direct life and general insurers well above regulatory requirements. - MAS stress-testing showed insurers met regulatory capital requirements after management actions (reducing future bonus allocation, adjusting investment allocations). ### Corporate sector and debt risks - Corporate debt-to-GDP fell from "156 percent in Q2 2021" to about "130 percent in 2022Q4". - Asset quality remains healthy overall, but sectoral concerns: - Transport & storage NPL ratio "7.4 percent as of 2022Q4". - Construction NPL ratio "6.5 percent as of 2022Q4". - MAS’ probability of default indicator edged up recently but remained relatively low and around its long-term averages in 2022. - Share of vulnerable SMEs in accommodation and retail sectors remains high and warrants close monitoring. ### Property market and macroprudential measures - Private residential property price growth accelerated in 2023Q1 after signs of moderation in 2022. - Transaction activity in first three quarters of 2022 was driven by resident demand; citizens and permanent residents accounted for about "96 percent of all transactions". - Authorities announced further tightening in April 2023: increase in Additional Buyer’s Stamp Duty (ABSD) rates for local and foreign investors, with a sharper increase to moderate foreign investment demand. - Authorities announced ramp-up of supply: almost "40,000 public and private residential property completions in 2023", and near "100,000 units expected to be completed from 2023 to 2025". - Existing macroprudential measures include tightened LTV and TDSR caps. - Commercial real estate recovery continued; prime office rents rose to pre-pandemic levels at end-2022. - Building and construction sector-related loans constituted "16 percent of total commercial banks non-bank loans at end 2022". - Commercial banks’ sectoral asset quality: less than "1 percent NPLs for real property and development of land"; construction sector NPLs "6.5 percent at Dec-2022, down from 7.3 at end-2021". ### External position and valuation - Current account (CA) surplus rose to "19.3 percent of GDP in 2022" (from "18 percent in 2021"), led by strong goods and services balance. - IMF staff assesses the CA gap at "3.3 to 6.9 percent of GDP" after adjusting for cyclical and country-specific temporary factors. - 2022 real effective exchange rate is assessed to be undervalued by "6.6 to 13.8 percent", having appreciated by "6 percent year-on-year". ### Policy consistency and implementation progress - Economic policies broadly consistent with past Fund advice: policy normalization across levers, decisive monetary tightening to address inflationary pressures, continued government expenditure growth for aging-related spending, climate resilient infrastructure, digitalization, and targeted transfers for skills and inequality reduction. - Authorities made significant progress implementing the 2019 FSSA recommendations, notably in strengthening cyber resilience, payment system oversight, and US dollar liquidity among D-SIBs. - Work ongoing on guidelines and playbooks for new resolution tools and on bank outsourcing guidelines. ### Outlook and risks - Growth projection for 2023: staff projects real GDP to grow by "1.0 percent in 2023", down from "3.6 in 2022", reflecting weakening external demand and tapering of domestic demand recovery post reopening. - Major trade-oriented sectors, including semiconductors, expected to slow due to a fall in global demand for semiconductors. - Growth will be driven by domestic demand as consumer-facing services sectors continue post-pandemic recovery. *Source: 1sgpea2023001 - 4. External headwinds have started to* ### 2.5 percent over the medium term. ### 2.5 percent over the medium term. ### Inflation outlook - Headline inflation is projected to slightly moderate to 5.5 percent in 2023, reflecting: - inflation persistence, - the one-off effect of the GST rate hike, - continued relatively tight labor market, - policies to raise wages of lower wage workers. - Staff expects inflation to moderate further to 3.5 percent in 2024. - MAS core inflation is projected to reach 3.9 percent in 2023 and 2.8 in 2024. - Inflation is expected to stabilize towards 2 percent over the medium term. - Core inflation dynamics noted: - Core inflation visibly moderated in March reaching 5 percent, down from 5.5 percent in February, and remained at 5 percent in April. - MAS latest core inflation outlook is within the 3.5– 4.5 percent range for 2023, and its headline inflation outlook stands at 5.5–6.5 percent. ### External accounts and risks - Current account (CA) outlook: - The CA surplus is projected to decline to about 16.5 percent of GDP in 2023 as imports outpace the continued increase in exports. - Over the medium term, the CA surplus is expected to decrease gradually as consumption and capital-related imports recover, notwithstanding a gradual pick up in foreign tourism flows post-pandemic. - Sectoral exposure and trade integration: - Singapore’s electronic sector is highly integrated into global value chains and accounts for a quarter of the country’s non-oil domestic exports and a fifth of total manufacturing employment. - External risks (tilted to the downside): - An abrupt global slowdown or a recession, including in China. - A severe tightening of financial conditions could increase funding costs and expose balance sheet vulnerabilities of highly leveraged corporates, especially SMEs, households, and financial institutions. - A premature pivot to loosen the monetary policy stance could de-anchor inflation expectations and trigger a wage-price spiral. - Deepening geoeconomic fragmentation (GEF) could impact Singapore, particularly through trade-related channels and potentially via short-term capital flows. - Supply chain disruptions could adversely impact the electronic sector. - Intensification of regional conflicts could lead to supply disruptions and higher energy prices. - Domestic risks: - The banking sector’s exposure to the real estate market remains a source of risk. - Stickiness in service price inflation could pose risk for inertia in core inflation. - Climate change poses a threat to longer-term growth prospects. ### Authorities’ views on growth and external risks - Growth outlook: - The authorities expect growth to be below trend in 2023 with real GDP growth projected between 0.5 to 2.5 percent. - The growth forecast is driven by weak performance of export-oriented sectors amid weak external demand and the unfavorable global electronic cycle. - Risks are tilted to the downside and mainly external. - Inflation and labor market: - Inflation is expected to continue to moderate in the second half of 2023 as commodity prices ease further and past monetary policy tightening is fully transmitted. - The labor market is expected to remain tight in domestic-oriented sectors with continued recovery in tourism demand but to ease in external-facing sectors. - Views on GEF and competitiveness: - Singapore will remain agile to navigate GEF risks. - Singapore remains an attractive destination for foreign investment including in the semiconductor sector and advanced manufacturing. - Authorities emphasize Singapore’s knowledge-based economy and high-skilled human capital as long-term supports. - Authorities caution that macro-based models on GEF may overstate impacts under extreme assumptions and suggest more granular/firm-level data may offer richer insights. - Authorities view that application of industrial policies by some AEs may challenge level playing fields, requiring nimble policy responses. ### Near-term policy mix: tightening across levers - Policy stance summary: - Near-term policies should focus on managing price pressures while nurturing slowing growth momentum. - Under the baseline, fiscal policy should continue to tighten while providing targeted and temporary support to vulnerable households. - The tight monetary policy stance remains appropriate to address risks of inflation inertia; monetary policy should maintain its tightening bias and may need to tighten further. - Macroprudential policies should be tightened when needed to prevent systemic financial risks. - Downside scenario guidance: - Should downside risks materialize, Singapore has fiscal space to deploy further policy support. - Fiscal policy should be the first line of defense, being able to target affected sectors and households and be implemented swiftly. - If high inflation combines with severe financial market strains, the pace of tightening would need to be adjusted to avoid broadening financial stability concerns. - In the face of systemic liquidity stress, swift, targeted, temporary liquidity provision by MAS aimed at smoothing volatility would help avoid market dysfunctions without hindering necessary monetary tightening. - A downside stagflation scenario would call for fiscal loosening and further tightening of monetary policy. ### Fiscal policy: gradual tightening with targeted support - Fiscal recommendations: - Continue to help moderate inflationary pressures without suppressing market price signals. - Provide targeted and temporary support for vulnerable individuals impacted by rising cost of living and the slowing economy. - Refrain from price-distorting measures such as energy subsidies and instead strengthen social safety nets. - Support measures to improve energy efficiency and transition to cleaner energy for firms facing elevated energy prices. - Contingency planning and principles: - Authorities should have contingency plans ready to deploy additional resources tailored to the nature and magnitude of shocks. - Temporary and targeted support to shield low-income and vulnerable households; permanent enhancements to social protection schemes where shocks have large structural components. - Support to firms in systemic financial stress should be swift, targeted, differentiated, and linked to clear eligibility criteria to minimize moral hazard; apply strong insolvency and bankruptcy procedures; require repayment of recapitalization funds as financial situations stabilize. - FY2023 budget measures: - The FY2023 budget includes a top up to the National Productivity Fund of S$4 billion (0.6 percent of GDP) and an expansion of its scope to include investment promotion. - Introduction of new active labor market policies to reduce skills mismatch, strengthen the training and placement ecosystem, and improve inclusiveness. - Medium- and long-term public spending: - Public spending to address medium- and long-term challenges will help reduce Singapore’s large external surplus. - Key challenges include: (1) increased spending needs due to rapidly aging population (healthcare); (2) need to raise productivity and ease transition costs amid technological change and structural transformation; (3) risks from climate change (vulnerability to rising sea levels); (4) risk of future tail shocks such as pandemics; (5) lumpiness in spending to rejuvenate public housing and infrastructure. - Higher public spending, particularly investment and expansion of social services, would lower net public saving and reduce CA surpluses and support stronger consumption. ### Box 1 — Judicious use of fiscal buffers under downside risks (summary) - Key conjunctural risks: - (i) An abrupt global slowdown, including in China. - (ii) A severe tightening of financial conditions increasing vulnerabilities. - (iii) Intensification of regional conflicts disrupting supply chains and increasing prices. - Prudent fiscal spending: - Singapore’s past (fiscal) reserves are sizeable and represent an important risk mitigating factor. - A prudent fiscal response would complement other policy tools without distorting market or price signals. - Support principles: - Supporting households: temporary and targeted support; permanent enhancements to social protection for large structural shocks while maintaining incentive compatibility. - Supporting firms: allow energy demand adjustment; avoid subsidies; provide targeted, temporary support linked to energy efficiency and transition incentives; in systemic stress provide targeted liquidity support and uphold insolvency procedures. - Pandemic experience: - During COVID-19, Singapore deployed fiscal policy prudently with income-based cash transfers, upskilling programs, bridging loans, and tiered industry support. ### Monetary and financial sector policies - Monetary policy stance: - The current monetary policy stance is appropriately tight amid weakening inflation momentum and significantly weaker growth. - Monetary policy should maintain its tightening bias and continue to focus on reining in inflation while facilitating a soft landing. - The S$NEER has appreciated by about 8 percent since the start of the tightening cycle and has hovered slightly above the fundamental value implied by equilibrium interest rates, domestic price level, and the output gap. - Policy-induced S$NEER appreciation works mainly through dampening imported inflation, with about a third of the CPI basket in imported food and energy products. - Given transmission lags, the tight stance may need to remain for longer or be further tightened to prevent inflationary pressures from becoming entrenched. - MAS needs to remain data-dependent and act timely. - Financial stability considerations: - In a downside scenario with high inflation and severe financial strains, the pace of monetary tightening should be calibrated to avoid broadening financial stability concerns. - Pay particular attention to effects of increasing interest rates on highly leveraged lower-income households (including those exposed to floating rate mortgages) and highly leveraged smaller corporates in lagging sectors. *Source: 1sgpea2023001 - 2.5 percent over the medium term.* ### 33. Clear and timely policy communication remains critical in an environment of ### Clear and timely policy communication remains critical in an environment of heightened uncertainty. ### Policy communication and liquidity backstops - MAS should clearly state its unwavering commitment to the disinflation process and to preserving financial stability, using: - S$NEER for price stability. - Rigorous supervision and macroprudential measures for addressing financial vulnerabilities, consistent with its integrated central bank/financial supervisor approach. - In the face of systemic liquidity stress, MAS as lender of last resort should provide swift, targeted, and temporary liquidity provision aimed at smoothing volatility without hindering necessary monetary policy tightening against inflationary pressures. - Stresses can unfold rapidly; maintaining confidence in financial stability can become the overriding objective and is also important for price stability. - Empirical timing: staff’s estimate indicates an appreciation in the S$NEER leads inflation to fall with a lag of around 15-18 months. ### Bank resilience and industry-wide stress testing - MAS 2022 Industry-Wide Stress Test (IWST) downside scenario features: - Global economic downturn as central banks tighten monetary policy sharply in response to heightened inflationary pressures. - Escalation of Russia’s war in Ukraine. - Sharp slowdown in China caused by a resurgence in COVID-19 infections and increased stresses in its real estate sector. - Consequences modeled: potential recession in Singapore, rise in unemployment, and a sharp rise in interest rates in line with global rates. - D-SIBs were expected to remain solvent: - CET1 capital ratios fall significantly mainly due to decline in asset quality and credit impairments but remain above MAS’ minimum regulatory requirements, helped by strong starting capital positions. - MAS IWST 2022 assessed first- and second-order contagion impacts via domestic interbank interconnections and found banks’ adequate capital and liquidity buffers mitigate shock propagation. ### US dollar funding risks and regional spillovers - Key exposures and shares (Q4 2022 / end-2022 references in Box 2): - Cross-border lending exposures in local D-SIBs stood at about half of total lending at end 2022, about 74 percent of which is to emerging Asia. - 60 percent of total local D-SIBs loans are in foreign currencies. - 40 percent of foreign-currency loans are in US dollars. - For local D-SIBs, about 60 percent of deposits are in foreign currencies, and more than half of those are in US dollars. - Funding structure and market characteristics: - Singapore’s FX derivatives market is the third largest globally (BIS 2022 Triennial Central Bank Survey); trading activity grew by 45 percent since 2019. - The cross-currency funding gap drives potential need for synthetic dollar funding via FX swaps; the cost of such borrowing has largely been higher in Singapore than direct funding in the U.S. dollar interbank market (negative cross-currency basis) for the period from June 2021 to March 2023. - Policy implications and recommendations: - Continue close monitoring of Singapore banks’ USD liquidity profiles and likely regional spillovers. - Supervisory approach to encourage banks to strengthen USD liquidity, diversify foreign currency funding sources, conduct regular liquidity stress tests, and maintain adequate liquidity contingency plans. - Keep option open to introduce minimum requirements for foreign currency liquidity coverage ratios. - MAS should stand ready to provide short-term backstop of dollar liquidity in extraordinary situations, noting the temporary MAS USD liquidity facility provided US$24.6 billion since inception and stabilized USD funding conditions during the pandemic. ### Nonbank financial intermediation (NBFI) monitoring and stress testing - Size and risk concentration: - Overall NBFI sector is large in Singapore, but riskier activities (collective investment vehicles susceptible to runs and lending/intermediation dependent on short-term funding) are relatively small compared to peers, amounting to about 16 percent of GDP in 2021. - MAS actions: - Enhancing monitoring of NBFIs for liquidity stresses and mismatches, with a recent focus on OTC derivatives markets. - Closing data gaps and incorporating more NBFIs into industry-wide stress tests are ongoing and welcomed. - Vulnerabilities and cautions: - NBFI stress tends to emerge with elevated leverage, liquidity mismatches, and high interconnectedness; exposures can shift quickly and stresses can have widespread implications (e.g., asset fire sales, margin calls). - Staff encourages MAS to follow global discussions on raising the bar for NBFI surveillance. ### Corporate and household stress vulnerabilities - MAS corporate stress test simulated concurrent shocks: higher interest rates, higher input costs, and weak GDP growth. Results: most corporates remain resilient with cash reserves providing buffers. - Household stress testing: - MAS stress test conservatively does not fully account for households’ substantial financial buffers but shows household debt servicing ratios remain manageable under a simultaneous and immediate large increase in interest rates and a reduction in income. - Noted vulnerabilities: - Mortgage loans account for about 70 percent of household debt. - About 38 percent of mortgages are on adjustable rates. - Highly leveraged households with low buffers and highly leveraged firms are particularly vulnerable to rising input costs and growth slowdown. - Recommendation: Stress testing should continue to focus on vulnerabilities facing highly leveraged entities. ### Macroprudential stance and housing market measures - Staff analysis: private residential house prices remain above long-term fundamentals. - Recommendation: Tight macroprudential stance remains appropriate and should be tightened further if housing price pressures continue. - Specific policy note: Additional Buyer’s Stamp Duty (ABSD) is residency-based and constitutes a capital flow management and macroprudential measure (CFM/MPM); staff recommend phasing out residency-based differentiation once systemic risks from the housing market clearly dissipate. - Authorities’ April 2023 measures rationale: - Investment demand by residents and non-residents increased; share of private housing transaction volumes by non-residents almost doubled to about 7 percent in Q12023, from about 4 percent on average over the last three years; by value of transactions it more than doubled to 13 percent. - ABSD in its differentiated form considered a critical price-based tool to limit speculative demand and manage systemic risk in the residential real estate market. ### Geoeconomic fragmentation (GEF) and financial fragmentation risks - Potential channels and risks: - GEF could raise financial stability risks via increased banks’ funding costs (including in US dollar), decline in profitability, and lower credit provision to the private sector. - Mitigants and recommended actions: - Strengthen Singapore’s role as an entrepôt hub leveraging geographic advantage and efficient trade-logistics to mitigate GEF risks, particularly fragmentation of electronics trade corridors. - Explore incorporating GEF risks and scenario analysis into MAS industry-wide stress tests to develop mitigation and management tools. ### AML/CFT and financial integrity - Framework status and enhancements: - Authorities have a robust AML/CFT framework and should continue enhancing effectiveness to mitigate financial integrity risks given high levels of cross-border flows. - Work underway to publish a consolidated assessment of ML/TF risks at the national level in 2023. - Pilot exercise to integrate cross-border transactional data from selected major banks into surveillance systems is underway. - Thematic inspections of selected Virtual Asset Service Providers have been carried out. - Recommendations: - Continue refinements to AML/CFT regulations and supervision, increase financial institutions’ controls and risk detection capabilities, expand baseline engagement cycles across sectors, deepen analysis of higher-risk countries and associated financial flows, and ensure beneficial ownership information is easily available and accessible. ### Authorities’ views (summary) - Monetary policy: - Continues to be carefully calibrated to ensure medium-term price stability; focus remains on disinflation amid still elevated inflation rates. - Sticky services inflation reflects persistent labor market tightness. - Exchange-rate-based monetary policy has long and variable transmission lags; S$NEER appreciation operates mainly through aggregate demand rather than direct imported inflation channel. - April pause on further policy parameter shifts reflected effects of past tightening and ongoing disinflation momentum amid greater uncertainty; policy likely to remain tight and S$NEER appreciation rate could be adjusted if inflation surprises on the upside. - Financial stability and supervision: - Financial system remains healthy with strong buffers; MAS closely monitors banking sector resilience to high global interest rates and international banking stresses. - MAS views deposit insurance as complementary to safeguards underpinning a safe and resilient banking system. - MAS continues engagement with banks to strengthen USD liquidity risk management and contingency planning; remains open to explore further regulatory or supervisory levers if needed. - MAS is monitoring the growing NBFI sector and international efforts to strengthen NBFI surveillance; it monitors banking and insurance exposures to other NBFIs and fund managers’ liquidity risk management practices. - Property market: - April 2023 property market measures were calibrated to pre-emptively manage investment demand and promote sustainable residential market conditions given supply constraints and rising non-resident investment share. *International Monetary Fund — Staff assessment and recommendations drawn from chapter text.* ### 45. Policies have appropriately shifted to post-pandemic priorities to foster sustained ### 1sgpea2023001 - 45. Policies have appropriately shifted to post-pandemic priorities to foster sustained ### Policies shift and strategic goals - Authorities are implementing the FY2023 budget strategy to transform Singapore into a greener, smarter, and more inclusive economy. - The FY2023 budget contains steps to accelerate transformation towards a green, digital, and more inclusive economy. ### Climate policies and financial stability implications - Singapore is significantly exposed to climate change risks, including financial stability risks from physical and transition risks and their amplification in the financial system. - Geographic and natural endowment constraints limit mitigation options; substantive adaptation investments are required, particularly to address vulnerability to rising sea levels. - MAS’ 2022 IWST climate scenario analysis for selected banks and insurers covers 2022–2050 and outlines three possible pathways: - Orderly Transition — Transition Risks: Moderate; Nature of Transition: Early and orderly; Physical Risks: Limited - Disorderly Transition — Transition Risks: Moderate to High; Nature of Transition: Delayed and disorderly; Physical Risks: Limited - No Additional Policies — Transition Risks: Limited; Nature of Transition: Only policies in place by end-2021; Physical Risks: High (includes an acute physical risk shock of the ASEAN-5 experiencing a severe 1-in-200 years flood event in 2022) - Key findings from MAS IWST 2022: - For banks, the probability of default (PD) of Climate Policy Relevant Sectors were projected to increase across all three scenarios, resulting in a rise in cumulative credit costs. - For insurers, physical and transition risks were projected to adversely impact both assets and liabilities. - The exercise identified data and methodological gaps to inform future data collection and model development for banks and insurers. - Policy developments: - Government objective to issue up to S$35 billion in public sector green bonds by 2030 to fund green infrastructure projects. - Singapore published the Singapore Green Bond Framework in 2022 under the Significant Infrastructure Government Loan Act (SINGA). - Singapore issued a S$2.4 billion 50-year inaugural sovereign green bond in August 2022. - A Coastal and Flood Protection Fund is being set up with initial funding of S$5 billion. - Carbon pricing: - Singapore’s carbon tax is projected to gradually increase from its level of S$5 per tonne of emissions to reach S$50–80 per tonne by 2030. ### Digitalization and innovation - Policies to promote innovation and digitalization include schemes such as Advanced Digital Solutions and Grow Digital to accelerate adoption of digital solutions and upskill the digital workforce. - Singapore’s RIE2025 Plan aims to invest S$25 billion between 2021 and 2025 to promote research and innovation. - Staff analysis indicates advancing innovation and digitalization, especially closing within-country gaps, can boost aggregate productivity. - Labor market evidence: - Following the start of the pandemic in 2020, remote workers accounted for 77 percent of all employees in digitalized sectors such as information and communications and financial services. - The prevalence of job vacancies that offer remote work declined to only about 20 percent in 2022. - A greater majority of Singaporean workers would still prefer to work remotely relative to other countries in the region. - Financial sector digitalization: - MAS advanced digital innovations through licensing digital banks, new initiatives for cross-border payments, and enhancing Fintech in payments and loan generation. ### Equity, labor market policies, and social compact - Post-pandemic social compact aims for more collective action to achieve a more inclusive economy while preserving individual responsibility through incentives to remain in the labor force. - Targeted social assistance mitigated the pandemic’s distributional impact; FY2023 budget builds on these plans to consolidate a discernible trend decline in inequality. - Flexible work arrangements: - Significant variation in remote work by industry and occupation; contact-intensive sectors had sparse remote work. - Gaps between worker preferences and employer offerings suggest room to enhance flexibility, which could help attract and retain workers (including older workers) and support old-age income. - Potential policy supports: wider adoption of the voluntary Tripartite Standard on Flexible Work Arrangements; Productivity Solutions Grant for job redesign. - Active labor market policies: - Government plans to introduce Jobs-Skills Integrators to intermediate between labor market, industry, and training providers, aligning training with industry skills needs and improving employment outcomes. - Measures for low-wage and vulnerable workers: - Progressive Wage Credit Scheme (PWCS), introduced in 2022 and enhanced in the FY2023 budget, provides transitional wage support for employers to adjust to mandatory and voluntary wage increases for qualifying lower-wage workers. - FY2023 budget provides additional support measures to encourage employment of senior and disabled individuals. ### Authorities’ views - Authorities reaffirm commitment to accelerate transformation towards a green, digital, and more inclusive economy. - Structural changes such as automation and artificial intelligence are viewed as potentially beneficial to alleviate labor market bottlenecks; training and upskilling are highlighted as key adaptation strategies. - Authorities encourage flexibility in working arrangements but note actual degree depends on employer preferences and the nature of work; the impact of remote work on productivity remains an open question requiring more research. - Climate change is identified as a key long-term challenge; resilience is being built through mitigation and adaptation measures. - The new social compact aims to ensure equitable growth via improved social mobility, upskilling, and strengthened support for vulnerable groups and seniors. ### Staff appraisal — macro and policy assessment - Recovery status: - Singapore’s post-pandemic recovery is nearly complete, with overall activity surpassing pre-COVID levels since 2021, but recovery remains uneven; consumer-facing services (except retail) and construction are still lagging. - Singapore’s 2022 external position is preliminarily assessed to be substantially stronger than warranted by fundamentals and desired policies. - Downside risks: - Mostly external: possibility of an abrupt global slowdown or recession (including in China), severe tightening of financial conditions raising funding costs and exposing balance sheet vulnerabilities (especially for highly leveraged corporates, SMEs, households, and financial institutions), and deepening geoeconomic fragmentation (GEF) causing supply chain disruptions affecting trade-related channels. - If downside risks materialize, fiscal buffers can be deployed with targeted fiscal support as the first line of defense. - Fiscal policy: - The calibration of fiscal policy in 2023 is aligned to manage inflationary pressures; a tighter fiscal stance combined with targeted support to the most vulnerable will help moderate price pressures from public demand. - Singapore is well-positioned to increase spending to address medium- and long-term challenges; higher public investment will lower net public saving and expansion of social services (healthcare, unemployment support) would reduce incentives for private savings and support stronger consumption. - Monetary and macroprudential stance: - The tight monetary policy stance is appropriate; monetary policy should maintain its tightening bias and remain data-dependent to rein in inflation and facilitate a soft landing. Further timely and data-dependent tightening may be needed if persistent inflation risks damage the basis for sustained growth. - The authorities’ commitment to financial stability is welcome; the financial sector remains sound with systemic risks contained. - Staff recommendations: - Continue to monitor highly leveraged corporates (particularly SMEs), households, and liquidity positions in non-bank financial institutions (NBFIs) and banks. - Maintain the tight macroprudential stance and further tighten as needed. - Ramp up housing supply as planned to help ensure a soft landing in residential real estate prices and prevent rise in systemic financial risks. - Support for policy direction: - Authorities’ efforts to accelerate the transition towards a smarter, greener, more inclusive, and more resilient economy are lauded. - Consultation cycle recommendation: - It is recommended that the next Article IV consultation with Singapore be held on the standard 12-month cycle. ### Key statistics and datapoints cited - MAS IWST climate scenarios period: 2022–2050 - No Additional Policies scenario acute shock: ASEAN-5 1-in-200 years flood event in 2022 - Government green bond issuance objective: up to S$35 billion by 2030 - Singapore inaugural sovereign green bond: S$2.4 billion 50-year, issued August 2022 - Coastal and Flood Protection Fund initial funding: S$5 billion - Carbon tax path: from S$5 per tonne to S$50–80 per tonne by 2030 - RIE2025 Plan investment target: S$25 billion between 2021 and 2025 - Remote work in digitalized sectors in 2020: 77 percent of employees - Prevalence of job vacancies offering remote work in 2022: about 20 percent - Recommendation for consultation cycle: 12-month *International Monetary Fund — 1sgpea2023001 chapter excerpt* ### Appendix I. External Sector Assessment ### Appendix I. External Sector Assessment ### Overall assessment and policy implications - The assessment is preliminary; a final external sector assessment (ESA) would be included in the July 2023 ESR. - Overall Assessment: The external position in 2022 was substantially stronger than the level implied by medium-term fundamentals and desirable policies. - The assessment is subject to a wide range of uncertainty, reflecting Singapore’s very open economy and status as a global trading and financial center. - Over the medium-term, the current account (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, - 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, structural transformation due to a rapidly aging population and transition to a green and digital economy implies a role for higher public investment (health care, green and other physical infrastructures, and human capital) to reduce external imbalances by lowering net public saving. ### Foreign asset and liability position and trajectory - Background: - NIIP stood at 176.1 percent of GDP in 2022, down from 223 percent of GDP in 2021 and below the average level of 237.1 percent of GDP in 2017-2021. - Gross assets and liabilities are high, reflecting Singapore’s status as a financial center. - About half of foreign liabilities are in FDI, and about a fifth are in the form of currency and deposits. - The CA surplus has been a main driver of the NIIP since the global financial crisis; valuation effects were material in some years, driven mainly by the appreciation in S$NEER as the MAS tightened its exchange rate-based monetary policy. - CA and growth projections imply that 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 (442 percent of GDP in 2022)—predominantly cross-border deposit taking by foreign bank branches—present some risks, but these 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 2022 (% GDP) aggregates: - NIIP: 176.1 - Gross Assets: 1125.5 - Res. Assets: 62 - Gross Liab.: 949.4 - Debt Liab.: 332.2 ### Current account - Background: - CA surplus was 19.3 percent of GDP in 2022, up from 18 percent in 2021. - The increase mainly reflects larger surplus in the services balances, in particular transport services, owing to significant hikes in freight rates arising from COVID-19 led disruptions in supply chains. - The CA balance is higher than the average of 17.3 percent since 2017 and slightly 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 the services balance that is partly offset by a deficit in the income account balance. - Structural factors and policies that boost savings include: - Singapore’s status as a financial center, - consecutive fiscal surpluses in most years, - the rapid pace of aging, - a mandatory defined-contribution pension program (whose assets were about 84.7 percent of GDP in 2022). - The CA surplus is projected to narrow over the medium term on the back of increased infrastructure and social spending. - In 2022, public saving increased as the fiscal deficit narrowed further, while private saving decreased slightly. - Assessment: - Guided by the EBA framework, staff assesses the 2022 CA gap to be in the range of 3.3-6.9 percent of GDP, with a midpoint of 5.1 percent. - The identified policy gaps remained close to zero in 2022 reflecting a more contractionary fiscal policy adopted in 2022 in Singapore compared to the rest of the world and low but efficient public health care expenditure. - 2022 (% GDP) CA metrics (as presented): - CA: 19.3 - Cycl. Adj. CA: 21.8 - EBA Gap: COVID-19 Adj.: -3.1 Other Adj.: Staff Gap: 5.1 - Staff adjustments and decomposition for CA norm and gap: - Using EBA estimated coefficients would imply a CA norm of about 15.6 percent of GDP in 2022 (including the multilateral consistency adjustor), but this approach overstates the CA gap for Singapore. - Adjustments applied by staff to account for Singapore specificities: - Downward adjustment of 1.1 percentage points to EBA’s implied contribution of public health expenditures to the norm (efficiency of Singapore’s health expenditure). - COVID-19 shock adjustment of -3.1 percent of GDP in total (travel adjustor of -0.8 percent of GDP and transport adjustor of -2.3 percent of GDP). - Downward adjustment of 3.8 percentage points to the norm to better account for the effect of NFA composition and component-specific return differentials on the CA. - Downward adjustment of -2.9 percentage point of GDP to the underlying CA to account for measurement biases due to inflation and portfolio equity retained earnings (-5.8 and +2.9 percent of GDP respectively). - After adjustments, the staff-estimated CA gap is about 5.1 percent of GDP, with contributions: - fiscal gap: about 0.3 percent of GDP, - credit gap: about -0.6 percent of GDP, - public health spending: about -0.1 percent of GDP, - reserves: about 0.0 percent of GDP. - Note: Singapore has a negative income balance despite its large positive NIIP position, reflecting lower rates of return on its foreign assets relative to returns on its foreign liabilities. ### Real exchange rate (REER) - Background: - The REER appreciated by 6 percent in 2022 reflecting the appreciation of the NEER by 4.3 percent. - This followed a depreciation of the REER by 3 percent and a depreciation of the NEER by 1.8 percent, both cumulative, between 2019 and 2021. - As of April 2023, the REER had appreciated by 6.1 percent relative to 2022 average. - Assessment: - Consistent with the staff CA gap, staff assesses the REER to be undervalued in the range of 6.6 to 13.8 percent, with a midpoint of 10.2 percent in 2022 (applying an estimated elasticity of 0.5). - The staff applies the maximum range of +/-1.8 percent in the EBA sample for the CA gap reflecting the uncertainty around Singapore’s assessment. ### 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 risk aversion may lead to inflows; global stress may lead to outflows). - The financial account reflects reinvestment abroad of income from official foreign assets, sizable net inward FDI, and more volatile net bank-related flows. - In 2022, the capital and financial account featured large outflows of 43.4 percent of GDP from 2 percent in 2021 (outflows ranged from 2 to 19.1 percent in 2017–21). - 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$289.5 billion (62 percent of GDP) in 2022. - 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. - Additional notes: - Since March 2022, MAS has been transferring official foreign reserves that are not needed for the conduct of monetary policy and financial stability to the government, for long-term investment (Reserves Management Government Securities – RMGS). RMGS related transfers amounted USD 177.3 billion (about 38 percent of GDP) in end-2022. - External assets managed by the government’s investment corporation and wealth fund (GIC and Temasek) amount to at least 100 percent of GDP. *Source: Appendix I. External Sector Assessment (Content unit: 1sgpea2023001).* ### Appendix IV. Sovereign Risk and Debt Sustainability Analysis ### Appendix IV. Sovereign Risk and Debt Sustainability Analysis ### DSA summary assessment and sovereign stress risk - Final assessment: The overall risk of sovereign stress is low. - Commentary findings: - Singapore's public debt is sustainable and large public financial assets are important risk mitigating factors. - The impact of fiscal support in response to the COVID-19 pandemic and the associated widening of the fiscal deficit was partly mitigated by a drawdown of public reserves. - While public debt rose during the pandemic, the strong post-pandemic rebound, combined with a tightening of fiscal policy and large net assets imply that the risk of sovereign stress is low. - Singapore is a low scrutiny country in the debt sustainability analysis framework for market access countries. - Note definitions: - "The risk of sovereign stress is a broader concept than debt sustainability." - Near-term assessment note: "The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published." - DSA assessment note: "A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement." ### Public debt levels, drivers, and structure - Key headline figures: - Debt-to-GDP: "about 168 percent of GDP at end-FY2022." - DSA table: Public debt listed as 167.8 percent of GDP for 2022 (with projections 167.5 for 2023, 167.9 for 2024, 167.9 for 2025, 168.5 for 2026, 169.1 for 2027, 169.8 for 2028, 170.2 for 2029, 170.4 for 2030, 170.5 for 2031, 170.0 for 2032). - Change in public debt (2022–2032 row): 20.1, -0.2, 0.3, 0.0, 0.6, 0.6, 0.8, 0.4, 0.2, 0.1, -0.5 (percent of GDP). - Primary drivers of the 2022 increase: - RMGS issuance and purpose: - "The large increase in public debt in 2022 was primarily driven by the issuance of RMGS amounting to S$237.6 billion (about 80 percent of the increase in public debt in 2022)." (first mention) - Later text: "The large increase in public debt in FY2022 was primarily driven by the issuance of RMGS amounting to S$162.7 billion (about 80 percent of the increase in public debt in FY2022)." (second mention) - Public debt is primarily issued for non-spending purposes: development of Singapore’s debt market, meeting investment needs of the CPF, and facilitating transfer of excess official foreign reserves from MAS to the government using Reserves Management Government Securities (RMGS). - As of end-FY2022, only 1.1 percent of public debt comprised debt issued for spending purposes under SINGA. - Structure and mitigation factors: - "All debt is held domestically and issued in local currency." - Singapore does not have any external public debt. - Debt issuance objectives include deepening the domestic debt market, meeting CPF investment needs, providing long-term saving options for individual investors, and facilitating transfer of official foreign reserves not needed by MAS to the government using RMGS. - Perimeter: central government. ### Baseline projections and macrofiscal contributors - Baseline projection highlights (percent of GDP, unless indicated otherwise): - Public debt (selected years): 167.8 (2022), 167.5 (2023), 167.9 (2024), 167.9 (2025), 168.5 (2026), 169.1 (2027), 169.8 (2028), 170.2 (2029), 170.4 (2030), 170.5 (2031), 170.0 (2032). - Primary deficit row (percent of GDP): -5.2 (2022), -8.8 (2023), -8.2 (2024), -8.3 (2025), -7.5 (2026), -7.4 (2027), -7.3 (2028), -7.3 (2029), -7.4 (2030), -7.4 (2031), -7.4 (2032). - Noninterest revenues: 17.4 (2022), 17.5 (2023), 18.2 (2024), 18.8 (2025), 19.3 (2026), 19.5 (2027), 19.5 (2028), 19.6 (2029), 19.6 (2030), 19.7 (2031), 19.7 (2032). - Noninterest expenditures: 12.1 (2022), 8.7 (2023), 10.0 (2024), 10.5 (2025), 11.8 (2026), 12.1 (2027), 12.2 (2028), 12.3 (2029), 12.2 (2030), 12.3 (2031), 12.3 (2032). - Automatic debt dynamics: -7.7 (2022), -5.3 (2023), -3.9 (2024), -3.6 (2025), -3.2 (2026), -3.5 (2027), -3.5 (2028), -3.4 (2029), -3.6 (2030), -3.7 (2031), -3.8 (2032). - Gross financing needs: 16.8 (2022), 12.7 (2023), 10.5 (2024), 11.4 (2025), 13.1 (2026), 14.3 (2027), 15.8 (2028), 17.4 (2029), 19.3 (2030), 21.3 (2031), 21.1 (2032). - Of which: debt service (percent of GDP): 22.1 (2022), 21.4 (2023), 18.7 (2024), 19.7 (2025), 20.6 (2026), 21.7 (2027), 23.0 (2028), 24.7 (2029), 26.6 (2030), 28.7 (2031), 28.6 (2032). - Macro assumptions (memo): - Real GDP growth (percent): 2.7 (2022), 1.5 (2023), 2.1 (2024), 2.5 (2025), 2.5 (2026), 2.5 (2027), 2.4 (2028), 2.2 (2029), 2.2 (2030), 2.2 (2031), 2.2 (2032). - Inflation (GDP deflator; percent): 6.0 (2022), 5.0 (2023), 3.2 (2024), 2.4 (2025), 2.0 (2026), 2.0 (2027), 2.0 (2028), 2.0 (2029), 2.0 (2030), 2.0 (2031), 2.0 (2032). - Nominal GDP growth (percent): 8.9 (2022), 6.6 (2023), 5.4 (2024), 5.0 (2025), 4.5 (2026), 4.6 (2027), 4.4 (2028), 4.2 (2029), 4.2 (2030), 4.2 (2031), 4.2 (2032). - Effective interest rate (percent): 3.2 (2022), 3.2 (2023), 3.0 (2024), 2.7 (2025), 2.6 (2026), 2.4 (2027), 2.3 (2028), 2.2 (2029), 2.1 (2030), 2.0 (2031), 1.9 (2032). - Staff commentary on projections: - "Public debt is projected to stabilize in the near-term, moderated by positive growth and a tight fiscal stance." - "In the medium-run, debt is expected to rise modestly due to a rise in investment needs by the CPF (reflected in the projected GFN) as employment growth slows in line with population aging." ### Realism of baseline assumptions - Overall finding: "The realism tools do not indicate any major concerns: the projected debt reduction and fiscal adjustment is within norms." - Visual/metric highlights (from realism tools): - 3-year debt reduction percentile rank: 54. - 3-year adjustment above 75th percentile threshold: 2 ppts of GDP noted as example. - Historical comparator: Advanced Economies, Non-Commodity Exporter, Surveillance group used for benchmarks. - Laubach (2009) rule note: "a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio." ### Debt coverage, disclosures, and recording - Coverage used in the DSA: - Chosen coverage: central government. - Subsectors included in baseline: - Budgetary central government: Yes - Extra budgetary funds (EBFs): No - Social security funds (SSFs): Yes - State governments: No - Local governments: No - Public nonfinancial corporations: No - Central bank: No - Other public financial corporations: No - Commentary: "Consistent with the data on government debt reported by the authorities, the fiscal assumptions in this DSA are based on the central government debt." - Reporting notes and definitions: - Several methodological footnotes appear, including explanations of stock of arrears as proxy, Insurance/Pension/Standardized Guarantee Schemes, basis of recording (accrual, cash), valuation definitions (nominal value, face value, market value). ### Medium-term risk analysis and stress modules - Medium-term tools summary: - Debt Fanchart Module and GFN Financeability Module suggest moderate levels of risk; the normalized medium-term index suggests low level of risk. - Key indicator values (as presented): - Fanchart width: 68.0 - Probability of debt not stabilizing (pct): 0.4 - Terminal debt level x institutions index: -0.6 - Average GFN in baseline: 13.0 - Bank claims on government (pct bank assets): 10.6 - Change in claims on govt. in stress (pct bank assets): 1.2 - GFN financeability index (module): 7.6 - Normalized medium-term index and weights summarized: Debt fanchart index weight 0.5, GFN financeability index weight 0.2 (normalized MTI results point to low risk). - Probabilities (prediction performance): - "Prob. of missed crisis, 2023-2028 (if stress not predicted): 9.1 pct." - "Prob. of false alarm, 2023-2028 (if stress predicted): 58.0 pct." - Stress-test and scenario notes: - Final fanchart (pct of GDP) and Gross Financing Needs (pct of GDP) charts presented; financing provided by banks under baseline and stress scenarios shown. - Medium-term index timeline (2020–2023) displays levels relative to low/high risk thresholds. - Commentary: Despite some moderate signals from the medium-term modules, the overall normalized MTI suggests a low level of medium-term risk. *Source: Fund staff.* ### Appendix V. Status of Main Recommendations of the 2019 FSSA ### Appendix V. Status of Main Recommendations of the 2019 FSSA ### Summary of MAS actions and authorities’ status updates (as of May 2023) - Recommendation 1 — Strengthen U.S. dollar liquidity among D-SIBs (MT) - Status: Ongoing. - Actions and findings: - MAS engaged banks following a 2019/20 review, issued bank-specific recommendations and shared industry sound practices. - Example guidance: consider time horizon when estimating FX swap capacity, e.g., using daily (rather than monthly) swap volumes in assessing swap capacity for single-day currency shortfalls. - Between Dec 2018 to Mar 2023, the proportion of more stable USD funding sources, comprising non-bank deposits and debt issuance, increased since 2018 and constituted the bulk of D-SIBs' USD funding sources. - MAS will continue to monitor USD funding profile through regular engagements and USD liquidity indicators. - D-SIBs consider central bank interest rate normalization, inflation, geopolitical situation in funding assessments; these are discussed in ALCO and internal forums. - Impact of recent banking turmoil: limited — a very slight increase in funding premium in the initial days following SVB’s collapse; banks did not face funding tightness otherwise. - Contingency funding plans include repo or sale of US Treasuries and FX swap from SGD to USD. - MAS is conducting a review of D-SIBs’ liquidity stress test practices. - Recommendation 2 — Establish a core staff within the MAS Resolution Unit (RSU) dedicated to resolution work and transfer resolution planning to the RSU over time (I) - Status: Not implemented. - Authorities’ rationale and current arrangement: - RSU comprises staff from policy, legal and supervisory departments who retain operational responsibilities in their home departments as well as RSU. - Within RSU, two staff (one each from policy and supervisory departments) have main responsibility for resolution work. - Authorities concluded the current structure allows leveraging deep expertise and institutional knowledge across departments. - MAS continues to keep RSU adequately staffed and trained. - Recommendation 3 — Expand the scope of bail-in to include senior unsecured debt securities (MT) - Status: Not implemented. - Authorities’ rationale: - Preference for narrower scope confined to subordinated unsecured debt securities and equities due to trade-off between increased loss-absorbing capacity and higher contagion risk to financial system and household balance sheets. - Current approach considered in context of Singapore's capital requirements, which are stated as two percentage points higher than the Basel capital standards, and close supervisory oversight. - Bail-in tool assessed as relatively untested; authorities opted against broader bail-in scope. - Recommendation 4 — Continue to develop guidelines and playbooks for new resolution tools; train staff and test processes (I) - Status: Ongoing. - Actions and developments: - Conducted an internal crisis simulation exercise in May 2019 simulating failure of a D-SIB to test procedural familiarity and role clarity within MAS. - Participated in EMEAP SGR table-top exercise in April 2022 and FSI-Asia Pacific Crisis Simulation Exercise in July 2022 (six jurisdictions). - Updated the “Handbook on Management of Distressed Banks” in 2020 to clarify regulatory requirements in liquidity stress scenarios; currently reviewing operational procedures for the Intervention Team’s functional area plans to include in the Handbook. - Conducted training (July and August 2021, and January 2022) for Intervention Team members covering accounting, liquidity, payments and operations. - Organized two external-consultant-led training runs (October 2019 and February 2020) covering choice of resolution strategy, strategy execution and resolvability assessment. - Planned further updates to the “Handbook” and “Guidance on Resolution Tools” once progress made on: - Valuation — studying independent valuers and considering establishing a panel of independent valuers for resolution. - Resolution Fund Trustee and Bank Holding Company — preparing preliminary proposals and consulting stakeholders on possible set up to hold distressed bank assets and administer resolution fund. - Bail-in execution — continue developing exchange mechanics based on the FSB’s practices paper on bail-in execution (finalized December 2021). - Recommendation 5 — Formalize MAS ability to require pre-notification of material outsourcing arrangements (MT) - Status: Ongoing. - Planned action: - MAS plans to issue revised Outsourcing Guidelines in the first half of 2023 which will formalize and clarify expectation that MAS may require pre-notification where MAS is not satisfied a bank has managed outsourcing risk adequately. - Recommendation 6 — Devote more resources to oversight and supervision of payment systems (NT) - Status: Completed. - Actions and findings: - From 2019, MAS allocated an additional 40 percent of dedicated resources to oversight and supervision of payment systems. - Payments and Infrastructure Division expanded to Payments Department in 2020, supervising both payment services and payment systems. - Recommendation 7 — Enhance cyber resiliency of the central bank and MEPS+ by: (i) clarifying Chief Cyber Security Officer (CCSO) role; and (ii) strengthening cybersecurity resiliency (I) - Status: (i) Completed; (ii) Completed. - Actions and findings: - (i) CCSO role clarified: CCSO now serves as an independent second line of defense to challenge MAS Information Technology Department / Data & Technology Architecture Department on technology risk and cyber resilience matters; a new CCSO office independent from FI technology risk supervisory divisions has been set up to support independent assurance. - (ii) Completed cybersecurity initiatives include Netflow, Database Activity Monitoring and User Behavioral Analytics to enhance protection of MAS’ critical systems. - MAS has embarked on a cybersecurity transformation roadmap to continue strengthening resiliency, including implementing new measures (e.g., Data Loss Prevention) and enhancing existing security tools. - Recommendation 8 — Develop a cyber network map incorporating financial linkages and ICT connections for cyber risk surveillance (MT) - Status: Completed. - Features of the cyber map: - Maps cyber interconnections of key financial institutions (banks, insurers, payment service providers, capital market services licensees and financial market infrastructure providers), including connections to other key financial institutions and third-party service providers. - Integrates each entity’s relative financial importance via a financial measure of potential financial impact to the banking system if an entity fails due to a cyber incident, used to prioritize nodes. - Uses of the map: - Identify key nodes to inform and prioritize cyber risk surveillance efforts. - Engage FIs on outsourcing, third-party and supply chain risk management for key service providers identified. - Coordinate with fellow regulators to engage key service providers common across many FIs globally. - Example engagement: MAS has engaged FSB to address concentration risks posed by major cloud service providers (Amazon, Google and Microsoft) by proposing a Cloud Oversight Forum formed by global financial regulators. - Time classification note included in source: - “I-Immediate” is within one year; “NT-near-term” is 1–3 years; “MT-medium-term” is 3–5 years. *Source: Fund staff and the authorities’ self-assessment.* ### Appendix VI (excerpt): Geoeconomic Fragmentation — background and potential channels (opening paragraphs) - Definition and context: - Geoeconomic fragmentation (GEF) is defined as policy-driven or policy-induced reversal of global economic integration. - Recent drivers: COVID-19 pandemic, war in Ukraine, rising geopolitical tensions between the United States and China. - Observed developments and impacts: - Trade uncertainty peaked amid US-China trade tensions in 2018. - During the pandemic many countries imposed export restrictions on medical goods and food; export bans accounted for about 90 percent of trade restrictions, causing a peak in global uncertainty (IMF, 2023a). - War in Ukraine and related sanctions caused dislocations in energy and agricultural commodity markets and triggered spikes in global uncertainty. - Rising geopolitical tensions have led to more protectionism and increasing use of cross-border restrictions on national security grounds; firms are reconfiguring supply chains. - Channels through which GEF can affect economies: - Changing patterns of trade, labor, capital, technology, and provision of global public goods. - Specific consequences noted: - Reduced productivity, quality, and wages via lower specialization, economies of scale, investment, and knowledge spillovers. - Technological fragmentation and reduced technological diffusion could bottleneck productivity spillovers and income convergence. - Restrictions on cross-border labor flows, particularly skilled migration, could hinder innovation and worsen demographic trends. - Financial fragmentation may induce capital misallocation and increase vulnerability by limiting diversification of cross-border exposure, exacerbating macro-financial volatility. - GEF could hamper global provision of public goods such as climate change mitigation and pandemic prevention. - Recent studies estimate large economic costs of GEF, with potential up to 12 percent loss in GDP from global trade fragmentation. ### Singapore-specific trade and financial linkages (key figures and findings) - Trade openness and partners: - Total trade is described as three times larger than the world average and four times the average in Asia. - 2021 export shares: 17.1 percent to China, 9.9 percent to the USA, and 17.1 percent to Europe. - 2021 import shares: 13.8 percent from China, 10.2 percent from the USA, and 15.7 percent from Europe. - High-tech and foreign value added (2018): - More than 50 percent of foreign value added in gross exports came from high-tech products including computers, electronic and electronic equipment. - Almost 75 percent of foreign value added in computer, electronic and electric equipment originated from China, Japan and USA in 2018, with China alone representing a fifth. - Financial linkages and diversification: - Singapore is a financial center with broadly diversified foreign assets and liabilities; the US and Europe are prominent counterparties. - Herfindahl-Hirschman index findings: - Index for total gross financial assets held by other countries in Singapore has trended downward since 2007, indicating increasingly diversified inflows. - Index for Singapore’s assets held abroad shows low concentration and has been broadly stable after a marked decline in 2001. - The relatively diversified profile of Singapore’s financial flows is noted as a mitigating factor in the context of financial fragmentation. *Source: Fund staff and the authorities’ self-assessment.* ### 5. Recent work (IMF, 2022) ### 1sgpea2023001 - 5. Recent work (IMF, 2022) ### Trade fragmentation: scenarios and projected GDP losses - IMF (2022) models a hypothetical global economy divided according to votes on the March 2, 2022 UN General Assembly motion to condemn Russia’s invasion of Ukraine. - Scenario A (division of trade in energy and high-tech goods between countries that voted for the motion and those that voted against or abstained): - Singapore faces costs of approximately 8 percent of GDP. - More severe fragmentation scenario (trade barriers extended to all sectors; non-tariff barriers in other sectors increased between blocs until they reach a level equivalent to the maximum restrictiveness that prevailed at the height of the Cold War): - Singapore could face a cost of approximately 10 percent of GDP. - Key drivers: - The largest loss stems from restricting high-tech trade due to very low elasticity of substitution for such exports. - High-tech exports represented 55 percent of Singapore’s manufactured exports in 2020 (Source: World Bank) and rely heavily on foreign value added. - Cross-country context: - Korea shows a large impact as well (up to 6 percent), driven by restriction on high-tech trade; Korea’s share of high-tech exports was 36 percent in 2020. - Modeling notes: - The decoupling is modeled as effective barriers to trade following Cerdeiro et al. (2021). - Estimates are obtained from a sectoral, computable general equilibrium model with firm heterogeneity and input-output links (see technical annex). - The model captures long-term productivity losses as there is no more trade between economies, undoing gains from specialization and scale and forcing some firms to exit. ### Financial fragmentation: empirical approach and FDI inflows - Definition and sample: - Financial fragmentation is defined as a weakening of financial relationships between specific groups of countries and a deepening of financial ties within them based on geopolitical considerations. - Sample: 69 countries comprising 34 advanced economies (AEs) including Singapore and 35 emerging and developing economies (EMDEs). The analysis covers the period 2000-2018. - Subsample note: The sample includes 54 countries with at least a financial center of which 31 are AEs and 23 are EMDEs. - Empirical specification for FDI inflows (equation 1): - Dependent variable: ∆FDI_Inflow_ct, the change in FDI inflows as share of GDP of country c in year t. - Key regressor: ∆FPP_ct, change in weighted bilateral foreign policy proximity (geopolitical distance), weights are lagged cross-border liability exposure normalized by total cross-border liabilities. - Interaction term: ∆FPP_ct × FCC, where FCC is an indicator whether the average rating of a country is above the sample median based on the financial center index. - Controls: X_ct includes real GDP growth, current account to GDP, log of real GDP per capita, capital account openness index, and institutional quality (average of ICR indexes). - Fixed effects: country, time, and country-specific trend. - Findings on FDI: - Geopolitical tensions reduce FDI inflows for the average country (test whether α1 < 0). - This negative impact is mitigated for highly rated global financial centers (β1 < 0 implies amplification; here evidence shows mitigation). - Interpretation: Highly ranked global financial centers face less disruption to net FDI inflow following geopolitical tensions, consistent with a safe-haven/mitigating status. - Singapore’s competitiveness as an investment destination could limit vulnerabilities to financial fragmentation; results robust when focusing only on the subsample of countries with global financial centers. - Data sources and construction: - Weights use the JRC-ECFIN database (Nardo et al, 2017); UN votes from Voeten et al (2009) and Bailey et al (2017). - Financial center ratings source: The Z/Yen Group: Global Financial Centres Index (average rating over 2007-2018; non-financial-center countries assumed zero rating; for countries with more than one financial center, maximum rating used). ### Portfolio flows: local projection gravity framework and results - Empirical specification for portfolio flows (equation 2): - Dependent variable: Y_c,c',t = log of portfolio flow from country c to country c' at time t. - Regressors: ∆FPP_cc',t and ∆FPP_cc',t × FC_C' (destination country financial center rating). - Fixed effects: country-pair fixed effects, source country-time and recipient country-time fixed effects. - Horizon: h = 0, 1, ..., 6 (cumulative response). - Impact computed for a one standard deviation in geopolitical distance (σ) as (α_h + β_h) * σ for highly ranked financial centers. - Findings on portfolio flows: - For the average destination country, portfolio flows are reduced immediately (the same quarter) following a bilateral geopolitical shock, by about 3.5 percent. - Negative impact persists until the fourth quarter before recovery. - For highly ranked financial centers, the immediate impact is muted, becomes slightly negative two quarters later, and portfolio flows recover more strongly compared to the average country. - Implication: Non-linearities exist; severe GEF risks could affect bilateral portfolio flows even in top rated global financial centers such as Singapore, indicating a need to raise financial and capital buffers. - Estimation details: - Quarterly bilateral data used. - Clustered standard errors at the country-pair level; 90 percent confidence intervals reported in impulse response figures. ### Conclusions on geoeconomic fragmentation (GEF) for Singapore - Main conclusions: - Geoeconomic fragmentation could have significant implications for Singapore, a trade and financial hub. - Trade channel: - Decoupling of global trade in energy and high-tech goods poses very severe output costs for Singapore given the large share of high-tech sectors. - Financial channel: - Singapore’s status as a global financial center can mitigate the effects of GEF on FDI inflows; geopolitical tensions have negative impacts on FDI inflows on average, but the impact could be mitigated in highly rated financial centers such as Singapore. - Overall: - Given the sizeable impact through the trade channel, GEF would have negative implications for Singapore, in particular in terms of output loss. - Financial-stability considerations: - Financial fragmentation could affect financial stability through impacts on international payment systems and asset prices, increased banks’ funding costs including in US dollar, reduced profitability, and lower credit provision to the private sector. - Singapore’s well capitalized financial sector is an important mitigating factor. - Further investigation needed on transmission of geopolitical shocks to the broad financial system, and development of mitigation and management tools including stress testing and scenario analysis. ### Policy implications and recommended mitigation strategies - Trade-side recommendations: - Diversification of export markets and input sources. - Maintain constructive relationships with all sides of potential geoeconomic fragmentation. - Enhance regional integration, for instance among ASEAN countries. - Strengthen and entrench Singapore’s role as an entrepôt hub by leveraging geographical advantage and efficient trade-logistics ecosystem to mitigate risks from narrowing and fragmentation of electronics trade corridors. - Financial-side recommendations: - Maintain high-quality institutions and regulatory environment to reduce aggregate vulnerability to relocation of FDI. - Raise the bar on rebuilding financial and capital buffers to mitigate GEF risks. - Continue to leverage Singapore’s competitiveness as an investment destination to limit vulnerabilities to financial fragmentation. - Further work on stress testing, scenario analysis, and tools to manage market segmentation and frictions in financial flows. ### Annex: CGE trade model features and sectoral elasticities - Model key features: - Multi-sector computable general equilibrium (CGE) model (Caliendo et al., 2017; 2023) captures: - Monopolistic competition with free entry of heterogeneous firms. - Input–output linkages within and between economies, including trade in intermediate inputs. - Firms may enter or exit export markets in response to implied tariff changes; captures long and complex global supply chains. - Calibration and data: - Calibration combines the Eora MRIO table (latest table 2015) linking 26 sectors across 190 countries with 2015 applied tariff data from UNCTAD’s TRAINS/WITS. - Resulting input-output database: 17 sectors aggregated into ten sectors across 165 countries. - Electronics sector has very low elasticity of substitution between foreign and domestic suppliers and between foreign suppliers, implying high costs from trade restrictions for economies like Singapore. - Table: Selected sectoral elasticities and tech intensity (from Caceres and others (2019), OECD (2011), authors' calculations) - Sector 1: Agriculture, Hunting, Forestry, and Fishing — Elasticities 1/: 9.1 — Tech-Intensity: N.A. - Sector 2: Extractive Industries — Elasticities 1/: 19.0 — Tech-Intensity: N.A. - Sector 3: Food, Beverages, and Tobacco — Elasticities 1/: 2.5 — Tech-Intensity: Low - Sector 4: Textiles, Textile Products, Leather, and Footwear — Elasticities 1/: 3.0 — Tech-Intensity: Low - Sector 5: Wood, Paper, Printing, and Publishing — Elasticities 1/: 5.4 — Tech-Intensity: Low - Sector 6: Petroleum, Chemical, Non-Metallic Mineral Products — Elasticities 1/: 12.1 — Tech-Intensity: Medium-Low 3/ - Sector 7: Metal Products — Elasticities 1/: 13.9 — Tech-Intensity: Medium-Low - Sector 8: Electrical Equipment and Machinery — Elasticities 1/: 2.6 — Tech-Intensity: Medium-High 4/ - Sector 9: Transport Equipment — Elasticities 1/: 8.0 — Tech-Intensity: Medium-High - Sector 10: Other Manufacturing; Recycling — Elasticities 1/: 4.0 — Tech-Intensity: Low - Notes in source: 1/ See Table 2 in Caceres and others (2019), column "Preferred". 2/ From OECD (2011). 3/ Aggregates three ISIC sub-sectors listed as Medium-Low and one listed as Medium-High. 4/ Aggregates one ISIC sub-sector listed as Medium-High and another listed as High. *Source: IMF (2022) as presented in 1sgpea2023001 - 5. Recent work (IMF, 2022).* ### Annex II. How Do US Multinationals Respond to Geopolitical ### Annex II. How Do US Multinationals Respond to Geopolitical Tensions ### Data and Empirical Strategy - Data: majority-owned foreign affiliates of U.S. multinational enterprises, covering 62 countries over the period 2009-2019 from the U.S. Bureau of Economic Analysis. - Main estimating equation (as presented): ∆LogY_{ct} = θ_1 ∆log(GPD_{US})_{ct} + δX_{ct} + μ_c + τ_t + trend_c + ε_{ct} - ∆LogY_{ct}: change in logarithm of a decision variable of US MNC affiliates (Investment, employment, number of affiliates, R&D Expenditure) operating in country c in year t. - ∆log(GPD_{US})_{ct}: the change in the logarithm of bilateral foreign policy proximity between country c and the US (measure of geopolitical distance). - X_{ct}: country-level macro controls including real GDP growth, current account to GDP, log real GDP per capita, and institutional quality (average of ICR indexes). - μ_c, τ_t, trend_c: country, time fixed effects and country-specific trends. - Decision variables definitions and thresholds: - Investment ratio: ratio of capital expenditures over total asset (approach similar to Husted et al (2020)). - Employment: number of employees. - Number of affiliates: affiliates with assets, sales or net income greater than USD 25 million. - Contextual note: The US is also the largest source of FDI to Singapore. ### Key Findings on Multinational Responses - Primary result: - US multinationals tend to reduce their presence as measured by the number of their affiliates in a given country following geopolitical tensions with the US. - Table 2 (referenced) shows a negative and statistically significant effect of geopolitical distance with the US on the number of large affiliates of US multinationals. - Null results: - No statistically significant effect found for other decision variables considered: investment, number of employees, and R&D expenditure. - Authors note this could reflect a relatively small sample covering only a decade. ### Interpretation and Implications - Short-run adjustment channel: - The evidence suggests that in the short-run, US multinationals may reduce the number of affiliates (presence) in countries experiencing geopolitical tensions with the US, while other margins (investment, employment, R&D) do not show statistically significant short-run responses in this sample. - Measurement and sample considerations: - The lack of significant effects on investment, employment, and R&D could be due to the limited sample period (2009-2019) and sample size. ### Singapore-relevant Points Cited in the Annex - Singapore appears in the country sample and is highlighted because the US is the largest source of FDI to Singapore. - The affiliate threshold and definitions apply to Singapore as part of the sample (affiliates with assets, sales or net income greater than USD 25 million). *Source: Annex II. How Do US Multinationals Respond to Geopolitical Tensions (content unit: 1sgpea2023001 - Annex II).* ### 11. Self-assessed productivity is another key determinant of the desire for employees to ### 1sgpea2023001 - 11. Self-assessed productivity is another key determinant of the desire for employees to ### Determinants of the value placed on working from home (WFH) - Self-assessed WFH productivity is a key determinant: Singaporeans with higher perceived productivity have a significantly greater value of working from home. - Evidence from other studies indicates much of the observed productivity boost is attributable to reduced commute times rather than conventionally measured productivity: - Barrero, Bloom, and Davis (2021) estimate re-optimizing working arrangements in the United States could boost productivity by 4.6 percent relative to pre-pandemic levels. - Of this 4.6 percent improvement, only 1.0 percent is from conventionally measured productivity; the remaining 3.6 percent is from reduced commute times. - Employers may not perceive the same productivity boost as workers when remote work is permitted because the worker gains from reduced commute times may not reflect firm-level productivity gains. ### Other personal characteristics and cross-country patterns - In Singapore, the value placed on WFH is not significantly associated with education or gender, differing from global averages where these factors are important (Aksoy, et al., 2022). - Nevertheless, education and gender are associated with a general desire to WFH: - Individuals with tertiary education and a graduate degree are more likely to want to WFH (by about half an extra day). - Men are slightly less likely to indicate a desire to WFH than women. - Singaporean workers resemble U.S. workers more than other Asian countries in key drivers: - In both Singapore and the United States, perception of productivity during the pandemic and age are associated with placing a significant monetary value on WFH and outweigh many other personal characteristics. - In other Asian countries, education and number of actual days working from home, in addition to perceived productivity, are more important. ### Empirical estimates and key statistics (regression results and descriptive figures) - Table 1 (Singapore drivers of amenity value to WFH): - Sample size: Observations = 800 (or 799 in some columns); R2 ranges from 0.056 to 0.290 across specifications. - Age coefficient: -1.387*** (column 1) through -1.220*** (column 5); age is measured in decades (20-29, 30-39, 40-49, 50-59). - WFH productivity during COVID, relative to expectations: 0.213*** (column 1), 0.217*** (column 2), 0.039*** (column 6). - Number of days working from home this week: 0.257*** (column 5); dependent variable in column (6) is desired days WFH per week (0 to 5). - Tertiary Education coefficient in column (6): 0.400**; Graduate Degree in column (6): 0.339*; Male in column (6): -0.182**. - Table 2 (United States drivers): - Observations vary; example: Observations = 480 (columns 1-5), 1241 (column 6). - WFH productivity during COVID, relative to expectations: 0.318*** (columns 1-3), 0.303*** (column 2), 0.044*** (column 6). - Number of days working from home this week: 0.765** (column 1), 0.384 (column 2), 0.806*** (column 3), 0.312*** (column 4), 0.392*** (column 5). - Age and gender effects appear in some specifications (e.g., Male = -1.834** in column 6; Age = -0.964*** in column 6). - Table 3 (Asia regional drivers): - Observations = 3337 (or 3334 in some columns); R2 ranges from 0.056 to 0.251. - WFH productivity during COVID, relative to expectations: 0.238*** (column 1), 0.229*** (column 2), 0.039*** (column 6). - Tertiary Education coefficients are positive and significant in columns (1)-(5) (e.g., 1.861** in column 1). - Graduate Degree coefficients are positive and significant across columns (e.g., 3.056*** in column 1). - Number of days working from home this week: 0.464*** (column 1), 0.276*** (column 2), 0.244*** (column 3). - Descriptive and sectoral statistics: - In 2020, sectors with high digitalization had the highest share of employed residents working remotely: Information and communications = 77.6 percent; Financial services = 76.3 percent. - Singaporeans save over 90 minutes on their commute when working remotely and allocate most of these time savings to work. - Labor productivity indexed to 2019 (Figure 3) shows digitalized sectors were relatively unscathed during the pandemic but have been witnessing a decline in productivity more recently. - Rate of remote work has stabilized around 20 percent in Singapore (Figure 1). ### Policy implications and recommendations - Align policies to bolster labor supply with changing preferences for flexible work arrangements and employer needs: - Sectors with high vacancy rates should be flexible in WFH policies to attract local and foreign workers. - For in-person jobs, targeting older workers may be advantageous since they are more willing to work in person than younger workers; this could help reduce unemployment rates among seniors. - For jobs feasible to be done partially or fully remotely, employers may need to offer flexibility to attract workers; partial flexible arrangements can help ensure workers still live in Singapore and contribute to the local economy and tax base. - Existing flexible work practices (e.g., Tripartite Standard on Flexible Work Arrangements) can provide a roadmap for employers. - Invest in skilling, re-skilling, and up-skilling local and foreign workers to match workers with sectors that have high vacancy rates: - Programs that upskill retired workers can integrate and retain old-age workers and help supplement pension incomes. - This is important given rapid population aging and expected substantial government spending pressures over the medium term. - Support digitalization and innovation to boost long-run productivity and accommodate remote work: - Digitalization and innovation (e-commerce, robotization, R&D) are associated with higher labor productivity growth (Kinda, 2021). - Policies to invest in e-commerce and R&D and programs like job-skills integrators, DigitalAccess@Home and Mobile Access for Seniors schemes, and the TechSkills Accelerator for ITE and Polytechnics Alliance can help match skills to employer needs, improve employment opportunities, and raise worker productivity. - These policies can also support efficient reallocation of productive capital and labor to the most productive firms and boost aggregate productivity. - Need for further research and monitoring: - More research is needed on what drives employers’ remote work policies and the macroeconomic impacts of remote work, including fiscal implications (e.g., reduced commercial property tax revenues, greater spending on training). - The productivity impacts of hybrid work arrangements (partial in-person/partial remote) are not yet well measured and should be analyzed as more data becomes available. - Continued study is needed on the effects of evolving technologies—such as recent advances in artificial intelligence—on routine tasks, the labor market, remote work, and productivity. *Source: IMF staff analysis in 1sgpea2023001 (chapter/section on work from home preferences and policy implications).* ### References ### 1sgpea2023001 - References ### References (selected literature) - Adrjan, P., Ciminelli, G., Judes, A., Koelle, M., Schwellnus, C., & Sinclaire, T. (2021). Will It Stay or Will It Go? Analyzing Developments in Telework. OCED Productivity Working Papers. - Aksoy, C., Davis, S., Barrero, J., Dolls, M., Bloom, N., & Zarate, P. (2022). Working from home around the world. NBER Working Paper No 30446. - Barrero, J., Bloom, N., & Davis, S. (2021). Why working from home will stick. NBER Working Paper No 28731. - Barrero, J., Bloom, N., Davis, S., Meyer, B., & Mihaylov, E. (2022). THE SHIFT TO REMOTE WORK LESSENS WAGE-GROWTH PRESSURES. NBER Working Paper No 30197. - Bloom, N., Liang, J., Roberts, J., & Ying, Z. (2015). Does working from home work? Evidence from a Chinese experiment. The Quarterly Journal of Economics, 165-218. - Brinatti, A., Cavallo, A., Cravino, J., & Drenik, A. (2021). The international price of remote work. NBER Working Paper No. 29437. - Causa, O., Abendschein, M., Luu, N., Soldani, E., & Soriolo, C. (2022). The post-COVID-19 rise in labour shortages. OECD Economics Department Working Papers No. 1721. - Criscuolo, C., Gal, P., Leidecker, T., Losma, F., & Nicoletti, G. (2021). The role of telework for productivity during and post-COVID-19: Results from an OECD survey among managers and workers. OECD Productivity Working PAper 31. - Gibbs, M., Mengel, F., & Siemroth, C. (2021). Work from Home & Productivity: Evidence from Personnel & Analytics Data on IT Professionals. Working Paper, Becker Friedman Institute. - Hansen, S., Lambert, P., Bloom, N., Davis, S., Sadun, R., & Taska, B. (2023). Remote Work across Jobs, Companies, and Countries. NBER Working Paper 31007. - IMF. (2021). Boosting Productivity in the Aftermath of COVID-19. Washington D.C.: International Monetary Fund. - Kinda, T. (2021). The Digital Economy: A Potential New Engine for Productivity Growth. Washington D.C.: International Monetary Fund 2021 Singapore Article IV Report. - Manpower, M. o. (2001). Flexible Work Arrangements. Ministry of Manpower and Ministry of Community Development and Sport. - Pizzinelli, C., & Shibata, I. (2023). Has COVID-19 induced labor market mismatch? Evidence from the US and the UK. Labour Economics, Volume 81. - Shen, L. (2023). Does working from home work? A natural experiment from lockdowns. European Economic Review. ### Key macroeconomic findings and outlook - Growth: - Economy grew by 0.5 percent in 2023Q2 (year-on-year basis), extending the 0.4 percent growth in 2023Q1 and compared to 3.6 percent in 2022. - Staff maintain an annual growth forecast of 1 percent for 2023. - Singapore’s GDP growth is expected to ease from 3.6% in 2022 to a below- potential pace of 0.5%–1.5% this year. - Output gap is estimated to turn negative, to around −0.5% of potential GDP, from the positive 0.6% recorded last year. - On a q-o-q seasonally adjusted basis, GDP averaged flat growth from Q4 2022 to Q2 2023. - Inflation and prices: - Headline inflation moderated to 4.5 percent in June 2023 from 6.1 percent in Q1 2023. - MAS core inflation eased to 4.2 percent in June from 5.4 in Q1. - Core inflation is forecast to average between 3.5–4.5% for the year as a whole (end-2023 significant decline expected). - CPI-All Items inflation is forecast to come in at 4.5–5.5%. - Import price inflation has turned negative and should remain so for the rest of the year. - Labor market and wages: - Some easing of overall labor market tightness due to continuing inflows of non-resident workers, which have helped to backfill job vacancies (vacancies have fallen from their peaks). - Domestic wage growth has been elevated above historical norms and is anticipated to ease over H2 2023 alongside moderation in labour market tightness. - External and sectoral developments: - Trade-related sectors hit by the global manufacturing downturn; financial sector performance sluggish. - Post-pandemic rebound in tourism reached almost 90 percent of its pre-pandemic level in July 2023. ### Policy stance and recommendations - Monetary policy: - In April 2023, MAS maintained the prevailing positive rate of appreciation of the Singapore Dollar Nominal Effective Exchange Rate (S$NEER) policy band, with no change to its width and the level at which it was centred. - MAS assessed the prevailing monetary policy stance as sufficiently tight and appropriate for securing medium-term price stability, while closely monitoring growth-inflation dynamics. - Fiscal policy: - Fiscal policy sought to balance risks to inflation and growth; enhanced support measures were provided for vulnerable households and firms. - Overall, the fiscal stance in FY2023 was less expansionary than in the previous year. - Structural measures focused on enhancing economic competitiveness, strengthening the social compact, and building resilience. - Macroprudential and housing: - Macroprudential policy was tightened in April 2023 to promote sustainable conditions in the residential property market. - Private residential property price growth moderated from 11.4 percent in 2023Q1 to 7.5 percent in 2023Q2. - Authorities plan to ramp up housing supply; tight macroprudential stance and supply measures expected to temper price growth and contain systemic financial risks. - Financial sector policy and digital assets: - Singapore’s domestic financial system remains sound and resilient with strong buffers; banks are well-capitalised with sound liquidity positions. - MAS fosters an innovative and responsible digital asset ecosystem, issuing licenses for digital banks, bolstering cross-border payment efficiency, and regulating stablecoin-related activities to strengthen consumer protection. - Social and structural policies: - Progressive Wage Credit Scheme was enhanced in Budget 2023 to co-fund wage increases of lower-wage workers. - Authorities increased subsidies for housing and child-raising, expanded investments in early childhood sector, and prioritized preventive care and long-term healthcare support for seniors. - Carbon tax will be raised progressively from 2024; transitional support and Energy Efficiency Grant (EEG) provided to businesses in targeted industries. ### Medium-term challenges and projections - Fiscal pressures and demographics: - Fiscal expenditure associated with structural spending needs has increased steadily and is projected to rise further, including ageing-related expenditure and major infrastructure investments. - The anticipated increase in fiscal expenditure is expected to reduce the public sector’s contribution to the current account surplus. - A quarter of Singaporeans are expected to be over the age of 65 by 2030. - Ageing demographic outlook will lead to slower trend growth and a gradual reduction in private net savings. ### Data adequacy and statistical practices - General: Data provision is broadly adequate for surveillance; authorities expanded publicly available data and updated methodologies. - National accounts: May 2019 benchmark update from 2010 to 2015; moved to annually reweighted chained volume measurement; updated methods aligned with 2008 System of National Accounts. - Price statistics: CPI updated in 2020 to reference period 2019 with 95 detailed consumption categories (previously 8). - Government finance: Information on government assets held abroad is neither published nor provided to the Fund; partial annual information on interest and dividends is published. - Monetary statistics: MAS does not report monetary statistics in IMF standardized report forms introduced in 2004. - Financial Soundness Indicators: Singapore reports 12 core and 7 encouraged FSIs for Deposit Takers quarterly; metadata available on IMF’s FSI website. - External sector: Balance of Payments and IIP compiled according to BPM6; IIP not provided on a disaggregated sectoral basis; participates in Coordinated Direct Investment Survey and reports Reserves Data Template monthly. - SDDS subscriber since 2001; publishes advance release calendars and annually certifies metadata. No data ROSC available. ### Key statistical dates and reporting frequencies (Table highlights) - Exchange rates: Latest observation 05/24/2023; Date received 05/24/2023; Frequency: D (Daily). - International reserve assets and reserve liabilities of the Monetary Authorities: Latest observation 04/2023; Date received 05/2023; Frequency: M (Monthly). - Reserve/base money: Latest observation 04/2023; Date received 05/2023; Frequency: M. - Broad money: Latest observation 04/2023; Date received 05/2023; Frequency: M. - Central bank balance sheet: Latest observation 03/2023; Date received 05/2023; Frequency: M. - Consolidated balance sheet of the banking system: Latest observation 03/2023; Date received 04/2023; Frequency: M. - Interest rates: Latest observation 05/2023; Date received 05/2023; Frequency: M. - Consumer price index: Latest observation 04/2023; Date received 05/2023; Frequency: M. - Revenue, expenditure, balance and composition of financing—general government: Latest observation 2022; Date received 5/2023; Frequency: A (Annual). - Stocks of central government and central government-guaranteed debt: Latest observation 2023:Q1; Date received 5/2023; Frequency: Q (Quarterly). - External current account balance: Latest observation 2023:Q1; Date received 5/2023; Frequency: Q. - GDP/GNP: Latest observation 2023:Q1; Date received 5/2023; Frequency: Q. - Gross external debt: Latest observation 2022:Q4; Date received 3/2023; Frequency: Q. - Net international investment position: Latest observation 2022:Q4; Date received 3/2023; Frequency: Q. - Note: Official external debt is zero. *Source: 1sgpea2023001 - References (IMF staff report and annexes).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1sgpea2023001.pdf_