## _cr04105

## Source details

**Canonical URL:** [_cr04105](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04105.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04105.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04105.pdf.json)

---

### Executive summary — macroeconomic impact and outlook
- Economy contracted sharply in Q2 2003; real GDP growth for 2003 registered almost 1 percent (staff earlier: 0.8 percent; revised DOS: 1.1 percent).
- Outlook: GDP growth of around 5 percent is expected in 2004 (staff projects 5 percent; authorities’ official projection: 3–5.5 percent).
- SARS impact:
  - Q2 2003 near‑record contraction of 10 percent (seasonally adjusted annualized q/q) per staff preliminary estimate; DOS revised 2003 Q2 contraction to 7 percent (seasonally adjusted annualized q/q).
  - Staff’s preliminary estimate: negative impact of SARS on annual growth amounts to about 1½ percentage points.
  - Visitor arrivals declined by 71 percent (y/y) in May 2003; visitor arrivals and hotel occupancy recovered to pre‑SARS levels by December 2003.
- Sectoral effects:
  - Services sector (over 60 percent of GDP), especially tourism and transport‑related activities, most severely hit.
  - Manufacturing and external trade not significantly affected; pharmaceuticals expanded.

### Fiscal policy response and fiscal statistics
- FY2003/04 revised budget targeted a surplus of 0.7 percent of GDP, down from 4.3 percent in the previous year.
- Fiscal impulse in FY2003/04 estimated by staff at 1.8 percent of GDP.
- Specific fiscal/support measures:
  - S$230 million aid package (0.2 percent of GDP) in April 2003 for SARS‑inflicted tourism and transport‑related sectors.
  - S$1 billion package (0.6 percent of GDP) in August 2003 of rebates, incentive schemes, and infrastructure projects.
  - Programs: utility rebates, training programs, accelerated infrastructure projects to assist low‑income earners and the unemployed.
- Fiscal aggregates (central government, percent of GDP):
  - Revenue: 2003 revised 21.1; 2004 (Proj.) 22.4 (table shows 21.2 in consolidated set—note multiple table variants in source).
  - Expenditure: 2003 revised 20.1; 2004 (Proj.) 21.4 (alternate table: 20.0).
  - Overall balance: 2003: 0.7 (staff table) / 1.0 (revised DOS table); 2004 (Proj.): 0.9 (staff table) / 1.2 (concluding table).
  - Primary operating balance: 2003: -4.8 (staff table) / -3.9 (revised DOS); 2004 (Proj.): -4.5 (staff table) / -3.6 (concluding table).
- FY2004/05 budget measures (proposed/announced):
  - 2 percentage point cut in corporate income tax rate to 20 percent beginning in 2005.
  - Extension of tax exemption to individuals on foreign-sourced and domestic financial investment income beginning in 2005.
  - Tax exemptions for start-up companies.
  - A 2 percentage point cut in the top personal income tax rate deferred.

### Monetary and exchange rate policy response
- MAS eased monetary policy in July 2003 by recentering its exchange rate policy band at the prevailing lower level of the NEER, maintaining a “zero percent appreciation” path, and keeping band width unchanged.
- MAS estimated easier stance since January 2002 would increase real GDP growth by ½ percentage points in 2003.
- NEER depreciated by 3½ percent (period average) for 2003.
- Official reserves:
  - Official reserves increased by US$14 billion during 2003 to US$96 billion (7 months of imports) at end‑December 2003.
  - DOS reported US$101 billion at end‑February 2004.
- Exchange arrangement: Singapore dollar permitted to float; MAS monitors against an undisclosed basket and intervenes within an undisclosed target band. As of December 31, 2003, US$1 = S$1.7008.

### Supply‑side measures and labor market support
- CPF and wages:
  - Cut in employer CPF contribution rate from 16 percent to 13 percent effective October 1, 2003.
  - CPF contribution rate: currently set at 33 percent of wages (subject to a salary ceiling); employee contribution 20 percent; employer variable envisaged between 10–16 percent (overall 30–36 percent variable).
  - Reduction in civil service wages by 1–9 percent for July 2003–June 2004.
  - Reforms: permitted CPF contributors to invest a portion of savings in privately managed funds; tightened withdrawal rules; increased CPF and Medisave minimum sums; reduced CPF salary ceiling.
- Retirement adequacy:
  - Projected income replacement ratio remains low at about 20–40 percent per government estimates.
  - Mission encouraged refocusing CPF toward retirement, reducing withdrawals for housing, and returning to a stable contribution rate.

### External sector and trade developments
- Current account and trade:
  - Strong rebound in exports widened the current account surplus; current account estimated at almost 30 percent of GDP in 2003 (staff table: (29.5) percent; DOS revised to (30.9) percent).
  - Non‑oil exports to China grew by almost 35 percent in 2003 and have more than doubled since 2000.
  - Electronics exports grew by 5 percent in 2003; non‑electronics (notably pharmaceuticals and chemicals) showed stronger gains.
- Key external figures (selected):
  - Exports, f.o.b.: 2003 staff table 148.2 (US$ billion); DOS revised 157.8 (US$ billion).
  - Imports, f.o.b.: 2003 staff table -120.5 (US$ billion); DOS revised -128.5 (US$ billion).
  - Current account balance: 2003 staff table US$27.1 billion; DOS revised US$28.2 billion.
  - Overall balance: staff table US$11.7 billion (2003); DOS revised US$6.8 billion (2003).
  - Gross official reserves: 2003: 96.3 (US$ billion) per staff table; DOS noted US$96 billion at end‑2003 and US$101 billion end‑February 2004.

### Financial sector and corporate resilience
- Banking and finance:
  - Bank lending began to rise since mid‑2003; housing loans led growth; corporate loan growth showing tentative strengthening.
  - Local bank indicators: regulatory capital to risk‑weighted assets around the high teens; capital adequacy ratio of local banks: 2003 (Sep) 17.8 percent.
  - NPL ratio (Singapore‑incorporated banks): 2003 (Sep) 7.0 percent.
  - Three‑month interbank rate (end‑year): 2003: 0.8 percent; (As of February 6, 2004): 0.8 percent.
- Corporate sector:
  - Nonfinancial corporate sector remained consistently profitable, with relatively low debt‑equity ratios and high liquidity.
  - Corporate sector indicators (selected historical):
    - Debt‑equity ratio: 1996: 0.8; 1997: 0.9; 1998: 1.0; 1999: 0.8; 2000: 0.8; 2001: 0.8.
    - Current ratio: 1996–1999: 1.0; 2000–2001: 1.1.
    - Return on asset pre‑tax: 1996: 6.6; 1997: 5.6; 1998: 3.7; 1999: 5.3; 2000: 6.0; 2001: 3.8.
    - Return on equity pre‑tax: 1996: 13.9; 1997: 11.6; 1998: 6.0; 1999: 11.7; 2000: 13.3; 2001: 7.3.
- FSAP/FSSA findings and recommendations:
  - Financial sector robust; high degree of observance of international standards.
  - Recommendations: enhance legal/regulatory frameworks for risk‑based capital, reduce conflicts of interest from MAS Chairman multiple roles, disclose more supervisory information, strengthen macroprudential monitoring (cross‑border flows, derivatives, household and corporate balance sheets), review constraints on corporate bond market development.

### Inflation and labor market
- CPI inflation subdued: CPI inflation 0.7 percent (y/y) at end‑2003 (staff); DOS reported CPI inflation 1.3 percent (y/y) in January 2004 reflecting GST increase.
- Unemployment:
  - Unemployment remained high by historical standards.
  - Spike to 5.5 percent in September 2003 (noted in staff text as spike); staff and tables show unemployment rate period averages: 2003: 4.7 percent; 2004 (Proj.): 4.2 percent.

### Near‑term outlook, risks, and projections
- Staff projections and medium‑term outlook:
  - Real GDP growth: 2003: 0.8 (staff) / revised 1.1 (DOS); 2004 (Proj.): 5.0.
  - Staff projects potential growth over medium term around 4–5 percent.
  - Inflation projected around 1 percent in 2004.
- Risks:
  - Downside: strength of global and regional recovery; unemployment and depressed property market dragging on growth; geo‑political tensions; possible return of SARS.
  - Upside: stronger external demand and export‑led spillover to domestic demand.
- Illustrative medium‑term scenario (real growth selected series):
  - 2004: 5.0; 2005: 4.0; 2006: 4.3; 2007: 4.5; 2008: 4.6; 2009: 4.6.
- Gross official reserves projected path (US$ billion):
  - 2004: 99.0; 2005: 103.0; 2006: 107.5; 2007: 112.1; 2008: 116.7; 2009: 121.4.

### Structural reforms and policy recommendations
- Mission encouraged maintaining supportive macroeconomic policy stance until recovery broadens given sizeable output gap and weak domestic demand.
- Key structural reforms encouraged:
  - Divestment/privatization of non‑strategic GLCs to foster private sector growth and entrepreneurship; accelerate planned divestments where appropriate.
  - Further CPF reforms: refocus on retirement savings, reduce withdrawals for housing, return to a stable contribution rate.
  - Shift from direct to indirect taxation (including income tax reductions and GST adjustments).
  - Enhance labor market flexibility: increase variable wage component, strengthen training and job search programs.
  - Improve transparency: monetary policy transparency progress noted; encourage further fiscal transparency (publish consolidated fiscal accounts, medium‑term budget framework, consider fiscal ROSC).
  - MAS governance: review MAS Act to address potential conflicts of interest and improve accountability and disclosure.
- ERC recommendations and status (selected):
  - Reduce corporate and personal income tax rates to 20 percent by YA2005 (status: cut to 22 percent in YA2003; intention to bring to 20 percent by YA2005).
  - GST raised from 3 percent to 5 percent (3→4 percent on January 1, 2003; 4→5 percent on January 1, 2004); GST offset package implemented.
  - CPF refocus and contribution rate adjustments described above.
  - Land, labor, entrepreneurship, and human capital measures summarized; status entries provided in source.

### Data revisions, dissemination, and SDDS compliance
- Singapore meets SDDS specifications for coverage, periodicity, timeliness, and dissemination of advance release calendars.
- DOS rebased national accounts to reference year 1995 from 1990 in early 2003 and improved methodologies; reconciliation reduced statistical discrepancies.
- Revised GDP outturn for 2003: 1.1 percent (DOS), revised from earlier staff estimate 0.8 percent.
- Balance of payments and reserves revisions noted (see External sector bullets).
- Data gaps and reporting:
  - Merchandise trade statistics do not fully include trade with Indonesia; improvements underway.
  - Quarterly financial account data provided to STA not sufficiently detailed for IFS publication; authorities working to improve estimates.
  - Information on government assets held abroad and consolidated public sector financial position not published.
  - Official external public debt: none.

### Selected key statistics (preserved from tables)
- Real GDP growth (percent change, selected years): 1998: -0.9; 1999: 6.4; 2000: 9.4; 2001: -2.4; 2002: 2.2; 2003: 0.8 (staff) / 1.1 (DOS revised); 2004 (Proj.): 5.0.
- Total domestic demand (percent change): 2003: -7.5; 2004 (Proj.): 6.2.
- Exports of goods and services (percent change): 2003: 9.3; 2004 (Proj.): 7.0.
- Gross national savings (percent of GDP): 2003: 44.5 (staff) / 44.2 (DOS revised); 2004 (Proj.): 44.9.
- Gross capital formation (percent of GDP): 2003: 15.0 (staff) / 13.4 (DOS revised); 2004 (Proj.): 17.0.
- CPI inflation (period average): 2003: 0.5 (staff) / 0.7 (staff text end‑2003) / DOS January 2004: 1.3; 2004 (Proj.): 1.2 (various tables) / ~1 percent (staff narrative).
- Unemployment rate (period average): 2003: 4.7; 2004 (Proj.): 4.2.
- Current account (US$ billion): 2003: staff 27.1 / DOS revised 28.2; 2004 (Proj.): 27.9.
- Exports, f.o.b. (US$ billion): 2003: staff 148.2 / DOS revised 157.8; 2004 (Proj.): 163.4.
- Imports, f.o.b. (US$ billion): 2003: staff -120.5 / DOS revised -128.5; 2004 (Proj.): -133.9.
- Gross official reserves (US$ billion): 2003: 96.3 (staff table); DOS: US$96 billion end‑2003; US$101 billion end‑February 2004.

### Staff and Board appraisal highlights
- Authorities commended for pragmatic countercyclical fiscal and monetary policies cushioning SARS shock.
- Recommended actions:
  - Maintain supportive fiscal and monetary stance until recovery broadens.
  - Continue structural reforms to enhance medium‑term competitiveness: tax reductions, CPF reforms, GLC divestment, labor market flexibility.
  - Improve fiscal and institutional transparency (consolidated fiscal accounts, disclosure of government investment income, MAS Act review).
  - Implement FSAP/FSSA recommendations: strengthen macroprudential monitoring and supervisory transparency; address governance issues.

*Source: _cr04105 - 1. Economic Impact of the SARS Outbreak and Policy Response (IMF staff report excerpts).*

### 1. Economic Impact of the SARS Outbreak and Policy Response.................................. 6

### 1. Economic Impact of the SARS Outbreak and Policy Response

### Executive summary — macroeconomic impact and outlook
- The economy contracted sharply in Q2 2003 but began to recover thereafter; real GDP growth for 2003 registered almost 1 percent.
- The outlook improved on strong external demand; GDP growth of around 5 percent is expected in 2004.
- Domestic demand remained weak and unemployment remained high despite the recovery.
- The SARS outbreak of early 2003 caused a near‑record contraction of 10 percent (seasonally adjusted annualized q/q) in Q2 2003.
- The staff’s preliminary estimate indicates the negative impact of SARS on annual growth amounts to about 1½ percentage points.
- Visitor arrivals declined by 71 percent (y/y) in May 2003; visitor arrivals and hotel occupancy recovered to pre‑SARS levels by December 2003.
- The services sector (over 60 percent of GDP), especially tourism and transport‑related activities (hotels, restaurants, retail, airlines, taxis), was most severely hit; manufacturing and external trade were not significantly affected, with pharmaceuticals expanding.

### Fiscal policy response and fiscal statistics
- The FY2003/04 revised budget targeted a surplus of 0.7 percent of GDP, down from 4.3 percent in the previous year.
- The fiscal impulse in FY2003/04 is estimated by staff at 1.8 percent of GDP.
- Specific fiscal and support measures implemented:
  - A S$230 million aid package (0.2 percent of GDP) in April 2003 for SARS‑inflicted tourism and transport‑related sectors.
  - A S$1 billion package of rebates, incentive schemes, and infrastructure projects (0.6 percent of GDP) in August 2003 to assist businesses, low‑income earners, and the unemployed.
  - Programs to assist low‑income earners and the unemployed including utility rebates, training programs, and accelerated infrastructure projects.

### Monetary and exchange rate policy response
- Monetary policy was eased in July 2003: the Monetary Authority of Singapore (MAS) recentered its exchange rate policy band at the prevailing lower level of the nominal effective exchange rate, maintained a “zero percent appreciation” path, and kept the width of the band unchanged.
- The MAS estimated that the easier monetary policy stance taken since January 2002 would increase real GDP growth by ½ percentage points in 2003.
- The nominal effective exchange rate (NEER) depreciated by 3½ percent (period average) for 2003, though international reserves rose by about US$5 billion during Q4 2003 amid some appreciation pressure.
- Official reserves increased by US$14 billion during 2003, to stand at US$96 billion (7 months of imports) at end‑December 2003.

### Supply‑side measures and labor market support
- Supply‑side measures to reduce business costs and save jobs included:
  - Changes to the Central Provident Fund (CPF), including a cut in the employer contribution rate from 16 percent to 13 percent effective October 1, 2003.
  - A reduction in civil service wages by 1–9 percent for the period July 2003–June 2004, following a National Wages Council recommendation.
- These measures aimed to lower labor costs and support employment in affected sectors.

### External sector and trade developments
- A strong rebound in exports contributed to a sharp widening of the current account surplus, estimated at almost 30 percent of GDP in 2003.
- Non‑oil exports to China grew by almost 35 percent in 2003 and have more than doubled since 2000.
- Electronics exports grew by 5 percent in 2003, reversing two consecutive years of contraction; non‑electronics (notably pharmaceuticals and chemicals) showed stronger gains.
- Imports were sluggish for much of 2003, with a sharp rise toward year‑end.

### Financial sector and corporate resilience
- Bank lending began to rise since mid‑2003, led by robust gains in housing loans; loan growth to the corporate sector showed tentative strengthening.
- Local bank balance sheets remained healthy; key financial indicators for local banks included regulatory capital to risk‑weighted assets around the high teens and classified loans ratios declining.
- The nonfinancial corporate sector remained consistently profitable, with relatively low debt‑equity ratios and high liquidity, despite competitive pressures and structural change.

### Inflation and labor market
- CPI inflation remained subdued after mild deflation through October 2002; CPI inflation was 0.7 percent (y/y) at end‑2003.
- Weak domestic demand and soft labor market conditions continued to dampen inflationary pressures despite one‑off cost shocks (including a GST increase).
- Unemployment remained high by historical standards; a spike to 5.5 percent in September 2003 reflected labor force entrants and improved confidence, while the December decline in unemployment reflected a pickup in jobs led by services and manufacturing.

### Policy issues, structural reforms, and staff recommendations
- The mission welcomed the authorities’ pragmatic use of macroeconomic policies to counter shocks and encouraged maintaining a supportive macroeconomic policy stance until the recovery broadens given the sizeable output gap and weak domestic demand.
- To enhance medium‑term growth potential, the mission encouraged accelerating and deepening structural reforms, including:
  - The divestment of government‑linked companies (GLCs) to foster private sector growth and entrepreneurship.
  - Implementation of further reforms to the Central Provident Fund (CPF) to ensure adequate financial savings for retirees.
  - Adoption of further steps to enhance transparency of economic information and policy making; progress had been made on monetary policy transparency but additional efforts were desirable, especially for fiscal policy.
- The Financial Sector Assessment Program (FSAP) concluded Singapore’s financial sector remains robust despite the downturn and declines in asset prices; the authorities agreed with key FSAP findings and recommendations.

### Context and longer‑term challenges
- Singapore’s growth has slowed from pre‑1997 decade averages of over 9 percent to markedly lower rates after three major shocks: the Asian crisis (1997–98), the tech bubble burst (2000–01), and the SARS outbreak (early 2003), compounded by external uncertainties.
- Structural challenges include competitive pressures from low‑cost regional producers (including China and India), an industrial restructuring toward capital‑intensive sectors, and concerns that a growth model with extensive government involvement may be losing effectiveness.
- Recent reform actions and the Economic Review Committee (ERC) recommendations (endorsed by authorities) emphasize reducing tax rates, divesting non‑strategic GLCs, liberalizing sectors, enhancing labor flexibility, and improving transparency.

*Source: _cr04105 - 1. Economic Impact of the SARS Outbreak and Policy Response (IMF staff report excerpts).*

### Box 2. Changes in Monetary Policy Stance, 2001-03

### Box 2. Changes in Monetary Policy Stance, 2001-03

### Corporate sector indicators (selected)
- Debt-equity ratio:
  - 1996: 0.8
  - 1997: 0.9
  - 1998: 1.0
  - 1999: 0.8
  - 2000: 0.8
  - 2001: 0.8
- Current ratio (current assets/current liabilities):
  - 1996–1999: 1.0
  - 2000–2001: 1.1
- Profitability (pre-tax):
  - Return on asset:
    - 1996: 6.6
    - 1997: 5.6
    - 1998: 3.7
    - 1999: 5.3
    - 2000: 6.0
    - 2001: 3.8
  - Return on equity:
    - 1996: 13.9
    - 1997: 11.6
    - 1998: 6.0
    - 1999: 11.7
    - 2000: 13.3
    - 2001: 7.3
- Note: "Data for 2002 and 2003 are not yet available."

### Near-term outlook and projections
- Growth and drivers:
  - Staff projects real GDP growth to rebound by 5 percent in 2004 (toward the top of the authorities’ official growth projection of 3–5 percent).
  - Exports expected to be the driver of the recovery; domestic demand to contribute via:
    - modest recovery in consumption as confidence improves and the unemployment rate declines,
    - pickup in investment as slack dissipates and inventories are rebuilt.
- Inflation:
  - Projected to remain modest at around 1 percent in 2004, due in part to soft labor market conditions and persistent output gap (Text Figure 7).
- Risks:
  - Main downside risks: strength of the global and regional recovery; unemployment and the still depressed property market becoming drags on growth; geo-political tensions and possible return of SARS.
  - Upside potential: stronger pickup of external demand and spillover of export sector growth to domestic demand.
- External and fiscal balances:
  - Net international investment position: 52 percent of GDP at end-2002.
  - Singapore does not have any external public debt.
  - Government net asset position: estimated at over 50 percent of GDP.
  - Stock of domestic public debt: about 100 percent of GDP at end-2003 (consists of CPF investments in nonmarketable government bonds, and government securities issued to stimulate development of the domestic capital market).

### Medium-term growth and structural outlook
- Potential growth:
  - Staff estimates potential growth over the medium term likely to be around 4–5 percent, in line with authorities’ estimates.
- Structural challenges and opportunities:
  - Competition from China and other regional low-cost producers; loss of lower-end manufacturing; competition for foreign direct investment flows.
  - Potential reduction in demand for Singapore-based financial intermediation, transportation, and shipping services over the medium term.
- Current account surplus:
  - High level projected to narrow as high savings rate declines due to population ageing and as investment recovers.

### Fiscal policy stance and recommendations
- Recent stance:
  - Authorities moved to an expansionary fiscal policy in 2003/04; mission commended and urged maintaining a supportive stance in the coming year.
- 2004/05 budget preparation:
  - Authorities agreed with staff on merits of maintaining a supportive stance by aiming for an unchanged fiscal stance (i.e., unchanged structural surplus).
  - Intended measures: further initiatives on the tax side through additional income tax cuts and rebates rather than spending initiatives.
    - Policy example: a reduction in the top personal and corporate income tax rate from 22 to 20 percent is envisaged by 2005.
- Staff recommendations:
  - Scope for additional targeted spending to assist unemployed workers and enhance labor market flexibility through a well-designed targeted assistance scheme.
  - Encourage publication of consolidated fiscal accounts and a medium-term budget framework; consider a fiscal ROSC (authorities still under consideration).
- Authorities’ medium-term objective:
  - Plan to gear fiscal policy toward achieving broad balance, with preference to save accumulated surpluses as a cushion against rising health care and social services costs associated with an ageing population.

### Exchange rate and monetary policy discussion
- Monetary stance:
  - Mission expressed support for maintaining an easy monetary policy stance given low inflation and widened output gap.
  - Staff projects scope for some tightening once the recovery takes hold, consistent with price stability objectives.
- Exchange rate framework:
  - Authorities consider the exchange rate–based monetary policy framework to be performing well and do not envisage significant changes.
  - Staff observed framework loosely resembles an inflation-targeting approach; queried potential gains from explicit adoption.
  - Authorities prefer flexibility over rigid rules and continue to evaluate the regime; any future changes likely to strengthen efficiency and transparency.
- Transparency initiatives by MAS:
  - Publication of twice-yearly Macroeconomic Review and Monetary Policy Statement (disclosing broad parameters of the policy band).
  - Dissemination of monographs and guides on monetary policy operations and information to market participants on money market transactions.
  - Authorities do not disclose weights used in the trade-weighted exchange rate index or precise limits of the band, but will assess benefits of releasing additional information and will consider annual publication of a review of MAS’ monetary operations.
- Governance and conflicts of interest:
  - FSAP recommendation: address potential conflicts of interest from multiple functions of the MAS Chairman (who also serves as Minister of Finance); authorities receptive and planning a review of the MAS Act.
- Remaining exchange restrictions:
  - In 2002 all but two restrictions on the use of the Singapore dollar in international transactions were removed.
  - Remaining restrictions pertain to:
    - (i) requirement that nonresident financial entities swap Singapore dollar proceeds into foreign currency to finance activities abroad;
    - (ii) prohibition on extension of credit facilities (in excess of S$5 million) by domestic financial institutions to nonresidents for speculative purposes.
  - Authorities consider remaining restrictions effective in deterring currency speculation and are evaluating pros and cons of removal.

### Structural reforms and policy priorities
- Key reform areas encouraged by the mission:
  - Divestment and privatization of non-strategic government-linked corporations (GLCs).
  - Shift from direct to indirect taxation.
  - Increase in the variable component of wages.
  - Reforms to the CPF scheme to enhance its core retirement savings objective.
  - Strengthening job training programs and labor market flexibility.
- GLC divestment:
  - Mission urged acceleration of planned divestment, particularly for small- and medium-sized GLCs where no clear government role exists.
  - Authorities maintain objective to privatize GLCs except where national strategic and security interests are at stake or where firms have potential to grow beyond the domestic market (consistent with ERC recommendations and Temasek Charter).
  - Authorities planned to publish a list of all GLCs during 2004 but prefer divestments on a case-by-case basis and cite constraints such as limited pool of domestic entrepreneurial talent.

*Source: Box 2. Changes in Monetary Policy Stance, 2001-03 (from the provided IMF content).*

### 25.      The mission discussed other ways to enhance the economy’s competitiveness. The

### _cr04105 - 25.      The mission discussed other ways to enhance the economy’s competitiveness. The

### Competitiveness measures and tax policy
- Recent measures taken by the authorities include cuts in corporate and personal income tax rates, a reduction in the employer contribution rate to the CPF, reductions in user fees and charges, and implementation of programs to facilitate job search and training.
- The mission suggested considering an acceleration of planned tax cuts; noted that while Singapore’s income tax rates are low by international standards, its corporate tax rate is still some 4½ percentage points above that in Hong Kong SAR.
- The mission recommended ongoing reviews of government fees and charges, including rents on industrial land owned by the government, to determine scope for further lowering business costs.
- The authorities broadly agreed but did not see scope to accelerate tax cuts, citing the objective of ensuring adequate revenues in advance of fiscal demands associated with an ageing population.

### CPF reforms and retirement adequacy
- CPF contribution rate: currently set at 33 percent of wages, subject to a salary ceiling.
- Despite reforms, projected income replacement ratio remains low, at about 20–40 percent (defined as the amount of cash available at retirement as a share of recent wage earnings, according to the government’s estimates).
- Reforms implemented:
  - Permitted CPF contributors to invest a portion of their savings in privately managed investment funds to enhance returns.
  - Tightened rules for withdrawing contributions for purposes other than saving for retirement, with a notable reduction in amounts available for housing financing.
- The mission encouraged:
  - Considering more fundamental reform of the CPF system, including further reducing withdrawals from retirement accounts for home financing.
  - Refraining from using the employer contribution rate as a counter-cyclical instrument; authorities envision a variable employer contribution rate of 10–16 percent, or an overall contribution rate of 30–36 percent, which would fluctuate depending on economic conditions.
  - Returning early to a stable contribution rate to refocus the CPF toward its core savings objective.
- Timing concern: further reforms become more pressing after the year 2010, when the number of retirees is projected to accelerate (Text Figure 9).

### Trade policy and FTAs
- The mission commended continued support for free trade and the authorities’ full commitment to the multilateral approach, including the Doha Round.
- Recent FTA developments:
  - Concluded a pact with the United States; agreement came into force on January 1, 2004.
  - FTAs also concluded with New Zealand, Japan, European Free Trade Association (EFTA), and Australia; negotiations ongoing with ASEAN, Canada, China, Korea, India, Jordan, Mexico, “Pacific-3,” Panama, and Sri Lanka.
- Trade dependence and impacts:
  - Singapore’s trade-to-GDP ratio: at over 270 percent of GDP.
  - U.S. constitutes 14 percent of Singapore’s total trade and is its largest source of foreign investment and second largest trading partner.
  - Under the U.S. FTA: the U.S. is to eliminate tariffs on all products originating from Singapore (92 percent of such tariffs will be eliminated within the first four years of the FTA), resulting in an estimated S$200–300 million worth of tariff savings per year for Singapore companies. In return, Singapore is to remove its existing tariffs on goods (alcoholic beverages) from the U.S.
  - Japan-Singapore FTA (implemented 2002): about 94 percent of Singapore’s exports to Japan made duty-free.

### Financial sector stability (FSAP findings and recommendations)
- FSAP conclusion: Singapore’s financial sector remains robust despite recent economic shocks and asset price declines.
- Banking and insurance:
  - Local and major foreign bank branches remained profitable; balance sheets healthy.
  - Local banks: profitable, well capitalized, liquid, adequately provisioned, and conservative in management practices.
  - Insurance sector: well capitalized and profitable overall; links to banking sector not systemically important despite some cross-ownership.
- Stress tests: systemically important banks (including major foreign bank branches) and insurance companies could still withstand significant shocks.
- Regulatory observations and recommendations:
  - High degree of observance of international standards and codes across financial sector segments.
  - Recommendations for MAS and authorities include:
    - Further enhancing legal and regulatory frameworks for risk-based capital requirements.
    - Reducing potential conflicts of interest arising from the multiple responsibilities of the Chairman of the MAS.
    - Disclosing more information on recent developments in the financial sector and supervisory actions to enable public assessment of supervisory performance.
    - Strengthening macro prudential monitoring in areas of cross-border flows, derivative activities, and balance sheets of the household and corporate sectors.
- Capital adequacy and bank returns:
  - Local banks face relatively high capital adequacy requirements (12 percent of total risk-weighted assets), which have put pressure on local banks’ returns on equity; MAS is reviewing regulatory minimum requirements for capital.
- Corporate bond market development:
  - Market not yet at an advanced stage; constrained by size and structure of domestic economy and ample liquidity in the banking system.
  - FSAP encouraged review of factors constraining corporate bond market, including limited use of credit ratings, the guaranteed interest rates of the CPF, and the CPF investment policy which segments large long-term funds from local capital markets.
- Anti–money laundering/combating the financing of terrorism (AML/CFT):
  - Singapore has a sound and comprehensive legal, institutional, policy and supervisory framework for AML/CFT.
  - Scope for improving effectiveness of cross border mutual legal assistance.

### Staff appraisal — macroeconomic outlook and policy advice
- Recent performance and outlook:
  - 2003 output growth for the year: close to 1 percent.
  - GDP growth for 2004 appears likely to reach around 5 percent.
  - Unemployment rate remains high by historical standards.
- Policy assessment:
  - Authorities commended for pragmatic macroeconomic response to 2003 downturn; supportive fiscal and monetary policies helped cushion SARS-induced shock.
  - Fiscal policy: FY2003/04 became appropriately expansionary with targeted support for SARS-inflicted sectors; authorities encouraged to maintain supportive fiscal stance as domestic demand recovers.
  - Monetary policy: easing in July 2003 via recentering of MAS’ exchange rate policy band was welcome; in absence of inflationary pressures and weak domestic demand, supportive stance remains appropriate; scope for tightening once recovery takes hold consistent with price stability objective.
  - MAS has improved transparency of policy setting; staff encourages continuation of these efforts.
- Structural reform priorities:
  - Most significant medium-term challenges are structural: shift toward higher value added activities amid rising competition from low-cost regional producers.
  - Endorsement of ERC recommendations seen as helpful.
  - Priority initiatives: lower income tax rates, enhance labor market flexibility, reduce government role via divestment of GLCs.
  - Staff encourages accelerating divestment of GLCs where possible to promote entrepreneurship and increase private sector role.
  - Commends initiatives to ensure adequate savings for retirees under CPF and steps to increase returns by permitting private fund investment and shifting scheme back toward retirement function; staff encourages early return to a stable contribution rate.
- Institutional transparency:
  - Staff welcomes review of the MAS Act to address potential conflicts arising from multiple responsibilities of the Chairman of the MAS and to improve institutional decision-making process and disclosure policy.
  - Authorities encouraged to implement remaining FSAP recommendations, including enhancing transparency of supervisory decisions, disclosing more information to assess supervisory performance, and strengthening MAS’ macro-prudential monitoring.
- Fiscal transparency recommendation:
  - Authorities encouraged to develop and publish consolidated sets of fiscal accounts and provide more information on the government’s investment income, including financial operations of the GIC, to facilitate fiscal policy analysis.

*Italic: IMF staff report content as provided in the supplied source text.*

### 36.      It is recommended that the next Article IV consultation with Singapore be held

### _cr04105 - 36.      It is recommended that the next Article IV consultation with Singapore be held

### Recommendation on Article IV Consultation
- It is recommended that the next Article IV consultation with Singapore be held on the standard 12-month cycle.

### Macroeconomic performance and projections
- Real GDP (growth, percent change):
  - 1998: -0.9
  - 1999: 6.4
  - 2000: 9.4
  - 2001: -2.4
  - 2002: 2.2
  - 2003: 0.8
  - 2004 (Proj.): 5.0
- Total domestic demand (percent change):
  - 1998: -10.7
  - 1999: 7.1
  - 2000: 15.5
  - 2001: -7.4
  - 2002: -2.3
  - 2003: -7.5
  - 2004 (Proj.): 6.2
- Exports of goods and services (percent change):
  - 1998: -5.3
  - 1999: 9.0
  - 2000: 14.2
  - 2001: -6.6
  - 2002: 4.0
  - 2003: 9.3
  - 2004 (Proj.): 7.0
- Imports of goods and services (percent change):
  - 1998: -10.8
  - 1999: 9.5
  - 2000: 17.8
  - 2001: -9.5
  - 2002: 1.9
  - 2003: 6.2
  - 2004 (Proj.): 7.9

### Saving, investment, inflation, and labor market
- Gross national savings (percent of GDP):
  - 1998: 55.0
  - 1999: 51.1
  - 2000: 46.8
  - 2001: 43.2
  - 2002: 42.1
  - 2003: 44.5
  - 2004 (Proj.): 44.9
- Gross capital formation (percent of GDP):
  - 1998: 32.3
  - 1999: 32.4
  - 2000: 32.3
  - 2001: 24.2
  - 2002: 20.6
  - 2003: 15.0
  - 2004 (Proj.): 17.0
- CPI inflation (period average, percent):
  - 1998: -0.3
  - 1999: 0.0
  - 2000: 1.3
  - 2001: 1.0
  - 2002: -0.4
  - 2003: 0.5
  - 2004 (Proj.): 1.2
- Unemployment rate (period average, percent):
  - 1998: 3.2
  - 1999: 3.5
  - 2000: 3.1
  - 2001: 3.3
  - 2002: 4.4
  - 2003: 4.7
  - 2004 (Proj.): 4.2

### Fiscal sector (central government, percent of GDP)
- Revenue:
  - 1998: 30.8
  - 1999: 29.9
  - 2000: 29.6
  - 2001: 27.5
  - 2002: 23.2
  - 2003: 22.0
  - 2004 (Proj.): 22.4
- Expenditure:
  - 1998: 29.1
  - 1999: 24.3
  - 2000: 20.7
  - 2001: 24.0
  - 2002: 18.9
  - 2003: 21.3
  - 2004 (Proj.): 21.4
- Overall balance:
  - 1998: 1.7
  - 1999: 5.6
  - 2000: 8.9
  - 2001: 3.5
  - 2002: 4.3
  - 2003: 0.7
  - 2004 (Proj.): 0.9
- Primary operating balance (definition note: overall balance excluding investment income, capital revenue, net lending, debt service, and fund transfers):
  - 1998: 0.5
  - 1999: 3.5
  - 2000: 1.1
  - 2001: -3.5
  - 2002: -2.8
  - 2003: -4.8
  - 2004 (Proj.): -4.5

### External sector and balance of payments
- Current account balance (US$ billion):
  - 1998: 18.5
  - 1999: 15.2
  - 2000: 13.3
  - 2001: 16.1
  - 2002: 18.7
  - 2003: 27.1
  - 2004 (Proj.): 27.9
- Current account (percent of GDP):
  - 1998: (22.6)
  - 1999: (18.7)
  - 2000: (14.5)
  - 2001: (19.0)
  - 2002: (21.5)
  - 2003: (29.5)
  - 2004 (Proj.): (27.9)
- Balance on goods (US$ billion):
  - 1998: 14.3
  - 1999: 12.0
  - 2000: 12.3
  - 2001: 14.8
  - 2002: 18.5
  - 2003: 27.7
  - 2004 (Proj.): 29.5
- Exports, f.o.b. (US$ billion):
  - 1998: 110.4
  - 1999: 116.6
  - 2000: 139.9
  - 2001: 124.4
  - 2002: 128.4
  - 2003: 148.2
  - 2004 (Proj.): 163.4
- Imports, f.o.b. (US$ billion):
  - 1998: -96.1
  - 1999: -104.6
  - 2000: -127.6
  - 2001: -109.7
  - 2002: -109.8
  - 2003: -120.5
  - 2004 (Proj.): -133.9
- Overall balance (US$ billion):
  - 1998: 3.0
  - 1999: 4.3
  - 2000: 6.9
  - 2001: -0.9
  - 2002: 1.3
  - 2003: 11.7
  - 2004 (Proj.): 3.0
- Gross official reserves (US$ billion):
  - 1998: 75.0
  - 1999: 77.2
  - 2000: 80.4
  - 2001: 75.8
  - 2002: 82.3
  - 2003: 96.3
  - 2004: ...
- Gross official reserves (in months of next year's imports of goods and services):
  - 1998: (7.0)
  - 1999: (6.0)
  - 2000: (7.1)
  - 2001: (6.6)
  - 2002: (6.6)
  - 2003: (7.0)
  - 2004: ...
- Gross external debt (US$ billion) (based on BIS data; corporate bonds outstanding and the external bank claims by the BIS reporting countries):
  - 1998: 9.2
  - 1999: 11.7
  - 2000: 11.9
  - 2001: 15.2
  - 2002: 15.9
  - 2003: ...
  - 2004: ...
- Net international investment position (memorandum):
  - (In billions of U.S. dollars): ...40.4 45.1......
  - (In percent of GDP): ...47.6 51.8......

### Monetary and financial indicators
- Broad money (M3) (annual percent change):
  - 1998: 8.0
  - 1999: 7.3
  - 2000: -1.8
  - 2001: 4.0
  - 2002: -0.8
  - 2003: 5.9
  - 2003 (Dec): ...
- Credit to private sector (annual percent change):
  - 1998: 8.0
  - 1999: -3.0
  - 2000: 5.9
  - 2001: 16.3
  - 2002: -8.6
  - 2003: 5.4
  - 2003 (Dec): ...
- Three-month interbank rate (percent, end-year):
  - 1998: 1.9
  - 1999: 2.8
  - 2000: 2.8
  - 2001: 1.3
  - 2002: 0.8
  - 2003: 0.8
  - (As of February 6, 2004): 0.8
- NPL ratio (Singapore-incorporated banks, percent):
  - 1998: 11.0
  - 1999: 12.2
  - 2000: 9.1
  - 2001: 8.0
  - 2002: 7.7
  - 2003 (Sep): 7.0
- Capital adequacy ratio of local banks (percent):
  - 1998: 18.1
  - 1999: 20.6
  - 2000: 19.6
  - 2001: 18.1
  - 2002: 16.9
  - 2003 (Sep): 17.8

### Asset markets and property
- Stock prices (percent change, y/y):
  - 1998: -7.6
  - 1999: 78.0
  - 2000: -22.3
  - 2001: -15.7
  - 2002: -17.4
  - 2003: 31.6
- Real estate prices (1998Q4=100; based on four-quarter moving average):
  - Residential (2003Q4): 113.3
  - Office space (2003Q4): 67.5

### Illustrative medium-term scenario (selected series, 2000–2009)
- Real growth (percent change) selected series:
  - 2000: 9.4
  - 2001: -2.4
  - 2002: 2.2
  - 2003: 0.8
  - 2004: 5.0
  - 2005: 4.0
  - 2006: 4.3
  - 2007: 4.5
  - 2008: 4.6
  - 2009: 4.6
- Gross official reserves (in billions of U.S. dollars) projected path:
  - 2000: 80.4
  - 2001: 75.8
  - 2002: 82.3
  - 2003: 96.3
  - 2004: 99.0
  - 2005: 103.0
  - 2006: 107.5
  - 2007: 112.1
  - 2008: 116.7
  - 2009: 121.4

### Key recommendations and status from the Economic Review Committee (ANNEX I)
- Taxation:
  - Reduce corporate and personal income tax rates to 20 percent by year of assessment (YA) 2005.
    - Status: Government cut corporate and top personal tax rates from 24.5 percent and 26 percent respectively to 22 percent in YA2003; FY2003/04 budget announced intention to bring both down to 20 percent by YA2005.
  - Raise GST from 3 percent to 5 percent.
    - Status: GST rate raised from 3 to 4 percent on January 1, 2003, and to 5 percent on January 1, 2004.
  - Create GST offset package to help Singaporeans adjust to GST increase.
    - Status: Implemented in 2003 offset package that includes income transfers (Economic Restructuring Shares (ERS)); additional ERS will be distributed in 2004 and 2005.
- Central Provident Fund (CPF):
  - Refocus CPF on providing basic retirement savings, home ownership and medical needs, and on addressing labor market flexibility.
  - Defer returning CPF contribution rate to 40 percent from 36 percent (20 percent employee; 16 percent employer) for two years.
    - Status: In August 2003, government made further changes. A lower long-term variable contribution rate of 30 percent to 36 percent (with employer rate between 10 percent and 16 percent) was set; for older workers, CPF rate will be reduced to 27 percent by 2006. From October 1, 2003, cut employer contribution rate from 16 percent to 13 percent. Employees continue to contribute 20 percent. Increased CPF and Medisave minimum sums; revised Special and Medisave Accounts contribution rates; strengthened withdrawal rule at age 55; and further reduced CPF salary ceiling.
- Land:
  - Pursue policies that ensure the adequate supply of land at competitive, stable prices.
    - Status: Lowered rentals and prices for industrial properties; extended rental rebates for industrial tenants and lessees until June 2004; expanded eligibility for tax deductions for upfront land premium payments for industrial land to 60-year leases from 30 years previously.
- Labor Market:
  - Enhance labor market flexibility by raising variable wage component and drop seniority-based wage system.
    - Status: Changes to CPF (see above); FY2003/04 budget introduced portable medical benefits; January 2004 Tripartite Taskforce on Wage Restructuring encouraged companies to adopt more flexible wage models.
- Entrepreneurship and Internationalization:
  - GLCs should be commercially run and operate globally; review for divestiture.
    - Status: Companies to be divested include Ascendas, PSB Corp and Hdbay. Subject non-core government services to market-testing. Exempt from tax foreign income in the form of dividends, branch profits and services income. Allow companies to defer income taxes for two years if their overseas investment incurs operating losses.
- Manufacturing and Services:
  - Continue to attract multinationals in electronics, chemicals, biomedical sciences and engineering; encourage new sectors.
    - Status: Promote private wealth management; exempt foreign trusts administered by all trust companies from income tax from 2004; allow approved companies to claim capital allowances on equipment used by subsidiaries outside Singapore from FY2003.
- Human Capital:
  - Develop flexible school curriculum; assist unemployed through comprehensive re-employment approach.
    - Status: Singapore Workforce Development Agency established in September 2003; tax relief for course fees increased from S$2,500 to S$3,500 and extended to courses that eventually result in a career switch.

### Fund relations and institutional data (ANNEX II)
- Membership: Joined August 3, 1966; Article VIII.
- Quota: SDR 862.50 (100.00 percent)
  - Fund holdings of currency: 483.32 (56.04 percent)
  - Reserve position in Fund: 379.27 (43.97 percent)
- SDR Department:
  - Net cumulative allocation: 16.48 (100.00 percent)
  - Holdings: 139.61 / 847.42
- Outstanding Purchases and Loans: None
- Financial Arrangements: None
- Projected Obligations to Fund: None
- Exchange Arrangement:
  - Singapore follows a policy under which the Singapore dollar is permitted to float. MAS monitors its value against an undisclosed basket and intervenes to maintain value within an undisclosed target band. The U.S. dollar is the intervention currency.
  - As of December 31, 2003, US$1 = S$1.7008.
  - Singapore has accepted the obligations of Article VIII, Sections 2, 3, and 4.
  - Restrictions: Singapore maintains restrictions on Singapore-dollar credit facilities, and bond and equity issuance by non-resident financial entities; Singapore-dollar proceeds obtained by non-resident financial entities from loans, equity listings or bond issuance to finance activities outside Singapore have to be swapped or converted into foreign currency upon draw-down. Financial institutions are prohibited from extending Singapore-dollar credit facilities in excess of S$5 million to nonresident financial entities if there is reason to believe the proceeds may be used for Singapore-dollar currency speculation.
- Last Article IV Consultation:
  - The 2002 Article IV consultation discussions were held in Singapore during September 5–17, 2002, and the consultation was concluded by the Executive Board on December 9, 2002.
- FSAP Participation:
  - The FSAP has been undertaken in conjunction with the 2003 Article IV consultation. FSAP missions took place in November 2002, July-August 2003, and September 2003.
- Technical Assistance: None
- Resident Representative: None

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04105.pdf*

### 1. Singapore provides data to the Fund on a generally timely basis and meets the SDDS

### 1. Singapore provides data to the Fund on a generally timely basis and meets the SDDS

### Data dissemination and SDDS compliance
- Singapore provides data to the Fund on a generally timely basis and meets the SDDS specifications for coverage, periodicity, timeliness, and dissemination of advance release calendars.
- Most staff data flows come from published sources, via the Reuters monitor, official websites, and the TREND database; most data are received on a timely basis.
- Singapore has complied with the expanded SDDS requirements to include data on the international investment position.

### National accounts and GDP revisions
- In early 2003, the Singapore Department of Statistics (DOS) rebased the Singapore System of National Accounts to reference year 1995 from 1990 and improved data sources and methodology.
- The rebasing exercise addressed the treatment of the Goods and Services Tax (GST) introduced in April 1994.
- A reconciliation of various national accounts estimates reduced statistical discrepancies; work on further improvements is ongoing.
- Revised GDP outturn for 2003: economy grew by 1.1 percent in 2003, compared to the earlier staff estimate of 0.8 percent.
- SARS-induced quarter details for 2003:
  - Second-quarter contraction: 7 percent (seasonally adjusted annualized q/q basis), revised from 10 percent.
  - Fourth-quarter rebound: 11 percent, revised from 8 percent.
- Staff’s 2004 GDP growth projection remains at 5 percent; government raised its official growth forecast to 3.5 percent to 5.5 percent.

### External sector and balance of payments
- Merchandise trade statistics do not fully include trade with Indonesia, though transactions with Indonesia are captured elsewhere in the current account. In January 2004 the authorities released some 2003 trade data with Indonesia; further publication planned as part of acceding to the Harmonized System Convention of the WCO.
- In December 2003, DOS introduced a new reporting format for the BOP services account including standard services components (except communication services), in line with BPM5. Previously, substantial "other goods and services" receipts/payments were not disaggregated.
- DOS uses the Survey on International Trade in Services (launched in 1996) as an additional source for detailed services statistics.
- Annual balance of payments data are reported to STA each year. Quarterly financial account data provided to STA are not sufficiently detailed for publication in IFS; authorities are working to improve quarterly financial flow estimates.
- Key revised external figures for 2003 (from table):
  - Current account balance: US$28.2 billion (revised), previously US$27.1 billion.
  - (In percent of GDP): (30.9) revised, previously (29.5).
  - Balance on goods: 29.3 (revised), previously 27.7.
  - Exports, f.o.b.: 157.8 (revised), previously 148.2.
  - Imports, f.o.b.: -128.5 (revised), previously -120.5.
  - Overall balance: 6.8 (revised), previously 11.7.
  - Official reserves increased to US$101 billion at end-February 2004 (also noted: US$96 billion at end-2003).
- Note: Official external debt is zero; data from official sources on private external debt are not available, though a survey to improve reporting was recently launched.

### Fiscal data, government financial positions, and budget stance
- Information on government assets held abroad is not published nor provided to the Fund. Interest on these assets and debt service payments on domestic debt made from the extrabudgetary Government Securities Fund are published annually but are not fully reflected in the fiscal position.
- Data on the financial position of the consolidated public sector are not published.
- Detailed data to assess the FY2004/05 budget stance in GFS-consistent format become available to staff only after budget approval around end-March.
- Based on preliminary budget information, the proposed FY2004/05 budget appears broadly in line with consultation discussions.
- Staff estimate: budget targets a slightly higher overall surplus by about 0.2 percent of GDP compared to the latest projected outturn for FY2003/04 — implying an unchanged fiscal stance (no provision or withdrawal of fiscal stimulus).
- Fiscal measures announced or proposed (from Minister of Finance’s budget speech and staff note):
  - (i) a 2 percentage point cut in the corporate income tax rate to 20 percent beginning in 2005;
  - (ii) an extension of the tax exemption to individuals on foreign-sourced and domestic financial investment income beginning in 2005;
  - (iii) tax exemptions for start-up companies.
  - A 2 percentage point cut in the top personal income tax rate (an ERC recommendation) is being deferred to preserve revenues.
- Revised central government budget indicators for 2003 (from table):
  - Revenue: 21.1 (revised), previously 22.0 (percent of GDP).
  - Expenditure: 20.1 (revised), previously 21.3.
  - Overall balance: 1.0 (revised), previously 0.7.
  - Primary operating balance: -3.9 (revised), previously -4.8.

### Macroeconomic indicators and outlook (2003–2004)
- 2003 headline and recent indicators:
  - GDP growth in 2003: 1.1 percent (revised).
  - CPI inflation: 1.3 percent (y/y) in January 2004, up from 0.7 percent in the previous month, partly due to a 1 percentage point increase in the Goods and Services Tax effective January 1.
  - Gross national savings: 44.2 (revised), previously 44.5 (percent of GDP).
  - Gross capital formation: 13.4 (revised), previously 15.0 (percent of GDP).
  - Change in inventories (contribution to GDP growth): -6.2 (revised), previously -4.6.
  - Net exports (contribution to GDP growth): 8.7 (revised), previously 7.2.
- Staff outlook and risks:
  - Staff’s outlook: growth to rebound by around 5 percent in 2004; CPI inflation projected around 1 percent in 2004.
  - Recovery drivers: strong external demand and a modest pickup in domestic demand (consumption recovery, declining unemployment, pickup in investment and inventory rebuilding).
  - Downside risks: sustainability of global and regional recovery; high unemployment and depressed property market could drag on growth.
  - Upside potential: stronger external demand momentum and export-led spillover to domestic demand.
  - Medium-term staff expectation: growth around 4–5 percent.

### Structural reforms, labor, and financial sector
- Structural challenges and ERC recommendations:
  - Increased competition from low-cost regional economies and vulnerability to external shocks (electronics sector prominence).
  - ERC recommendations finalized in early 2003 aim to enhance competitiveness and entrepreneurship and diversify the economy.
  - Key ERC elements: shift from direct to indirect taxation (including reductions in personal and corporate income tax rates), CPF reforms to enhance retirement savings, divestment of non-strategic government-linked companies (GLCs), policies to foster labor market flexibility and strengthen job training.
- Labor and CPF measures:
  - Reduction in Central Provident Fund (CPF) employer contribution rate by 3 percentage points from October 2003 to reduce business costs.
  - Directors supported steps to encourage higher retirement savings under CPF, enhance returns by permitting investment in privately managed funds, make the fund more marketable, refocus CPF on retirement (including reducing its role in housing finance), and saw benefit in returning to a stable contribution rate.
- Financial sector resilience and supervision:
  - Based on the Financial System Stability Assessment (FSSA), Singapore’s financial system is resilient despite shocks.
  - High degree of observance of international standards and codes; ongoing initiatives to strengthen corporate governance, legal and regulatory framework for risk-based supervision.
  - Directors supported the MAS Act review to strengthen MAS accountability and independence, and encouraged early implementation of FSSA recommendations (including strengthened macroprudential monitoring and improved transparency of supervisory actions).

### Executive Board assessment and policy recommendations
- Board observations:
  - Commended authorities for pragmatic countercyclical fiscal and monetary policies that cushioned the SARS downturn.
  - Emphasized main policy challenges: advance structural reforms to enhance medium-term competitiveness and resiliency to external shocks.
- Fiscal policy recommendations:
  - Maintain a supportive fiscal stance until the recovery broadens.
  - Support for budget measures taken in 2003 and for continuation of tax reform toward goods and services taxes while aiming for budget balance over the medium term to address rising health care and pension costs.
  - Encourage development of a consolidated set of fiscal accounts and a fiscal Report on the Observance of Standards and Codes.
- Monetary policy recommendations:
  - Easing of monetary policy in mid-2003 was appropriate; maintain supportive stance while domestic demand is weak and inflation absent.
  - Once recovery takes hold, scope for some tightening consistent with price stability.
  - Continue enhancing transparency of monetary policy setting and dissemination of operational background materials.
- Structural policy recommendations:
  - Continue facilitating shift to higher value-added activities, stimulate private and foreign direct investment.
  - Consider accelerating divestment of GLCs where appropriate.
  - Reduce unemployment through job training and search programs; consider strengthening the social safety net for the unemployed.
- Financial sector recommendations:
  - Implement FSSA recommendations early, strengthen macroprudential monitoring, and improve transparency of supervisory actions.

*Source: IMF staff report and supplementary material for the 2003 Article IV Consultation with Singapore (March 10, 2004); Public Information Notice No. 04/41 (April 26, 2004).*

### conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to

### conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to

### Singapore: Growth indicators (percent change)
- Real GDP: 2000: 9.4; 2001: -2.4; 2002: 2.2; 2003: 1.1; 2004 (Est./Proj.): 5.0
- Consumption: 2000: 14.8; 2001: 3.6; 2002: 1.7; 2003: -0.4; 2004: 3.1
- Gross fixed investment: 2000: 7.9; 2001: -5.8; 2002: -9.7; 2003: -3.8; 2004: 3.0
- Change in inventories (contribution to GDP growth) 1/: 2000: 2.6; 2001: -6.2; 2002: 0.3; 2003: -6.2; 2004: 1.9
- Net exports (contribution to GDP growth) 1/: 2000: -2.6; 2001: 3.9; 2002: 4.1; 2003: 8.7; 2004: 0.8

### Saving and investment (percent of GDP)
- Gross national savings: 2000: 46.8; 2001: 43.2; 2002: 42.1; 2003: 44.2; 2004: 44.9
- Gross capital formation: 2000: 32.3; 2001: 24.2; 2002: 20.6; 2003: 13.4; 2004: 17.0

### Inflation and unemployment (period average, percent)
- CPI inflation: 2000: 1.3; 2001: 1.0; 2002: -0.4; 2003: 0.5; 2004: 1.2
- Unemployment rate: 2000: 3.1; 2001: 3.3; 2002: 4.4; 2003: 4.7; 2004: 4.2

### Central government (percent of GDP) 2/
- Revenue: 2000: 29.6; 2001: 27.5; 2002: 23.2; 2003: 21.1; 2004: 21.2
- Expenditure: 2000: 20.7; 2001: 24.0; 2002: 18.9; 2003: 20.1; 2004: 20.0
- Overall balance: 2000: 8.9; 2001: 3.5; 2002: 4.3; 2003: 1.0; 2004: 1.2
- Primary operating balance 3/: 2000: 1.1; 2001: -3.5; 2002: -2.8; 2003: -3.9; 2004: -3.6

### Money and credit (end of period, percent change)
- M3: 2000: -1.8; 2001: 4.0; 2002: -0.8; 2003: 5.9; 2004: ...
- Credit to private sector: 2000: 5.9; 2001: 16.3; 2002: -8.6; 2003: 5.4; 2004: ...
- Interest rate (three-month interbank, in percent): 2000: 2.8; 2001: 1.3; 2002: 0.8; 2003: 0.8; 2004: ...

### Balance of payments (US$ billion)
- Current account balance: 2000: 13.3; 2001: 16.1; 2002: 18.7; 2003: 28.2; 2004: 27.9
- (In percent of GDP): 2000: (14.5); 2001: (19.0); 2002: (21.5); 2003: (30.9); 2004: (27.9)
- Overall balance: 2000: 6.9; 2001: -0.9; 2002: 1.3; 2003: 6.8; 2004: 3.0
- Gross official reserves: 2000: 80.4; 2001: 75.8; 2002: 82.3; 2003: 96.3; 2004: ...

### Exchange rate and effective indices
- S$/US$ (end of period): 2000: 1.732; 2001: 1.851; 2002: 1.737; 2003: 1.701; 2004: ...
- Nominal effective exchange rate 4/ (period average, 1990=100): 2000: 119.5; 2001: 121.2; 2002: 120.2; 2003: 115.8; 2004: ...
- Real effective exchange rate 4/ (period average, 1990=100): 2000: 106.9; 2001: 107.7; 2002: 105.2; 2003: 100.3; 2004: ...

### Notes and data sources
- Sources: Data provided by the Singapore authorities; and IMF staff estimates and projections.
- 1/ Contribution to GDP growth.
- 2/ Fiscal year beginning on April 1.
- 3/ Overall balance excluding capital revenue, investment income, net lending and fund transfers.
- 4/ IMF, Information Notice System monthly index (1990=100); period average.

*Source: conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public (Singapore: Selected Economic Indicators).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2004/_cr04105.pdf_