## _cr09269

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---

### Executive Summary — Background and outlook
- Singapore entered a recession among the first in Asia and is set for its worst economic contraction since independence in 1965.
- The economy is projected to shrink by about 8 percent in 2009, mainly due to a slump in external demand and private investment.
- Economic fundamentals described as strong, providing a buffer against external shocks.
- Downturn transmitted primarily through the trade channel; financial markets experienced substantial turbulence but largely continued to operate in an orderly fashion.

### Executive Summary — Major macroeconomic developments
- Growth:
  - Decline in GDP began in Q2 2008 and accelerated in H2 2008.
  - Activity dropped by nearly 13 percent (q/q, saar) in Q1 2009 as external demand collapsed.
  - Export-oriented sectors (electronics, engineering, transport and storage) hit hardest; services including financial services also suffered; construction held up due to large projects.
- Inflation:
  - Headline inflation receded from a peak of 7½ percent (y/y) in mid-2008 to 1½ percent in March 2009.
  - Fall in inflation initially driven by lower food and commodity prices; became more broad-based with falling import prices and slack demand.
- Labor market:
  - Unemployment rate of the resident workforce (seasonally adjusted) rose from 2.8 percent in Q1 2008 to 4.8 percent in Q1 2009.
  - Overall unemployment rose from 2 percent to 3¼ percent over the same period.
  - Monthly earnings growth decelerated sharply; resident employment fell less than in previous downturns; anecdotal evidence suggests foreign workers bore a larger share of adjustment.
- External sector and reserves:
  - Current account surplus fell from an average of 16.3 percent of GDP in the first three quarters of 2008 to 10.4 percent of GDP in Q4 2008.
  - FDI and portfolio inflows fell; lower capital outflows (weaker corporate profits and asset-quality concerns abroad) more than offset these declines.
  - Official reserves declined from a peak of US$177 billion at end-March 2008 to about US$172 billion as of end-May 2009.

### Financial developments and market functioning
- Context and market functioning:
  - Singapore is a major funding center for South-East Asia; domestic conditions highly influenced by global developments.
  - Global financial volatility in late September 2008 spilled into domestic asset prices; markets were tested but largely remained orderly.
- Contribution to GDP:
  - Contraction in financial activity contributed 1 percentage point to the y/y fall of quarterly real GDP in Q4 2008 and Q1 2009 (of 4.2 percent and 10.1 percent, respectively).
- Outward spillovers and liquidity:
  - Domestic banks, net lenders in U.S. dollars in late 2008, became more cautious; some foreign banks faced much higher costs for U.S. dollar liquidity.
  - Rates in the Asian dollar market exceeded U.S. dollar SIBOR at times; strains largely over by end-2008.
  - Money markets: liquidity pressures in fall 2008; interbank rates spiked but did not seize up; pressures eased by January 2009 after coordinated central bank actions with reduced TED and OIS spreads.
- Asset markets:
  - Equity market fell almost 24 percent in October 2008; equity prices rose by 54 percent from the trough in March 2009.
  - Foreign exchange turnover fell by about 40 percent between September and December 2008; Singapore dollar weakened by 3¼ percent against the U.S. dollar in that period; turnover and S$ strengthened since March 2009 as U.S. dollar liquidity improved.
- Credit and corporate financing:
  - Credit growth declined from about 20 percent (y/y) in mid-2008 to 8¾ percent in March 2009.
  - Singapore dollar loans to nonbank customers fell by 2 percent between October 2008 and March 2009; foreign currency loans to nonbank customers outside Singapore dropped by 12 percent during that period.
  - Tiering in credit access: banks maintained lines for prime customers while many SMEs experienced difficulties accessing bank credit.
  - Issuance of corporate debt securities, especially U.S. dollar-denominated, fell sharply.
- Property market:
  - Private home prices slipped by almost 14 percent (q/q) in Q1 2009 and are down 21 percent from their peak in 2008, but remain about 20 percent higher than in 2005.
  - Slowdown beginning to affect public housing (HDB) resale market; private transaction volumes picked up in Q1 2009.

### Financial sector resilience and risks
- Short-term earnings of most financial institutions expected to be negatively affected by global turmoil.
- Financial system assessed as sound and expected to withstand a deeper and more prolonged downturn due to:
  - Robust supervision and regulation;
  - Local institutions’ internal risk management and business models.
- Authorities proactive in supporting confidence and market functionality.
- Consensus that credit quality will deteriorate as recession continues, but pressures appear manageable at present.
- Priority recommendation: rigorous stress tests covering multi-year scenarios, tail events, and correlated shocks.

### Policy response and assessments
- Overarching strategy:
  - Government deployed a broad range of instruments to lessen impact of external shocks and position Singapore to rebound with global recovery.
- Monetary policy:
  - With inflation concerns receding, monetary settings judged appropriate.
  - MAS loosened monetary conditions in two steps: removed the appreciating trend from the undisclosed NEER policy band in October 2008; in April 2009 re-centered the band around the prevailing exchange rate level that had drifted down. The width of the band and the zero appreciation trend were kept unchanged.
  - April 2009 move validated a weaker currency and implied a slight “devaluation” of the trend NEER.
  - Staff and authorities agreed that, barring a significant deterioration in growth or inflation, monetary policy should stay the course until recovery is well established.
  - A return to trend appreciation for the NEER recommended to safeguard price stability further along the recovery path.
- Fiscal policy:
  - Large stimulus package introduced in January 2009 estimated to provide a fiscal impulse of about 3 percent of GDP in 2009−10.
  - Implementation began in FY 2008 (ending in March) and pushed the budget deficit (as defined by the authorities) to ¾ percent of GDP.
  - Fiscal package described as timely, appropriately large, and diversified; supports growth beyond the near term through accelerated infrastructure spending.
  - Authorities intend to undertake additional measures if the economy’s trajectory proves more fragile than expected.
  - Staff and authorities shared the view that a premature fiscal withdrawal could undermine positive confidence effects.
- Exchange rate assessment:
  - Staff estimates the real effective value of the Singapore dollar to be somewhat weaker than its equilibrium, providing countercyclical support.
  - Authorities’ valuation models suggest the real effective S$ is broadly in line with fair value.
  - Both staff and authorities agreed that unusual uncertainty clouds these assessments.

### Key policy priorities going forward
- Maintain monetary settings until recovery is well established; use fiscal policy for additional countercyclical fine-tuning if needed.
- Preserve flexibility in the NEER policy band with a view to returning to trend appreciation as recovery firms to safeguard price stability.
- Continue timely and diversified fiscal support, including infrastructure spending; avoid premature fiscal withdrawal that could undercut confidence.
- Strengthen financial sector vigilance:
  - Conduct rigorous stress tests incorporating multi-year, tail-event, and correlated-shock scenarios.
  - Monitor credit quality deterioration and SME access to finance.
  - Maintain measures to support market liquidity and functionality where necessary.

### Box 2 — Resilience Package (FY 2009)
- Overview:
  - Package amounts to S$20.5 billion (about 8 percent of GDP).
  - Some measures took effect in last quarter of FY 2008; bulk implemented during FY 2009.
  - Key elements: Jobs Credit Scheme (estimated to lower labor costs by 7−9 percent) and Special Risk-Sharing Initiative (government assumes 80 percent of loan loss risk to encourage lending).
- Key components and amounts (In billions of Singapore dollars):
  - Preserve jobs: 5.1
    - Jobs Credit Scheme: 4.5
  - Stimulate bank lending: 5.8
    - Special Risk-Sharing Initiative: 5.8
  - Enhance business cashflow and competitiveness: 2.6
    - Property tax rebate for commercial and industrial property: 0.8
    - Rental rebate for selected industrial and commercial tenants: 0.3
  - Support families: 2.6
    - Personal income tax rebates: 0.5
    - Doubling GST credits and Senior Citizen Bonuses: 0.5
  - Build for the future: 4.4
    - Expanded and accelerated infrastructure spending: 1.1
    - Spending on security, health, education, transport: 1.7
  - Total package: 20.5
- Implementation timing and fiscal context:
  - Bulk of measures in FY 2009; FY 2009 deficit projected to increase to 3½ percent of GDP, the largest on record.
  - Given ample fiscal reserves, no public borrowing required to finance the package.
- Policy intent and expected effects:
  - Primary focus: saving jobs and helping viable companies stay afloat while enhancing competitiveness.
  - Jobs Credit Scheme: grants of 12 percent of the wages of employees who contribute to the mandatory pension scheme, up to a specified maximum.
  - Special Risk-Sharing Initiative: government assumes 80 percent of loan loss risk to encourage bank lending.
  - Package expected to mitigate decline in aggregate demand, shore up private consumption by limiting unemployment rise and softening cash-flow impacts; accelerated infrastructure spending to support longer-term growth.
- Related measures:
  - MAS adopted a blanket guarantee on S$ and foreign-currency nonbank deposits in domestic and foreign banks through 2010, entered a precautionary US$30 billion currency swap agreement with the Fed, and intensified financial-sector surveillance.
  - MAS to inject additional liquidity through standing facilities if needed.
  - Measures to help SMEs access bank credit introduced in November and subsequently adjusted and expanded.
  - Staff recommended considering strengthening automatic stabilizers by assessing taxes on current rather than previous year’s income, subject to administrative and compliance cost considerations.

### Response to the global crisis — Policy recommendations (condensed)
- Monetary policy:
  - Loosened to fend off deflation risks while preserving exchange-rate stability and avoiding higher credit costs.
  - MAS two-step elimination of appreciation bias and re-centering of NEER target band achieved objectives.
  - Recommendation: maintain current stance barring significant deterioration; later shift to tightening including return to targeted trend appreciation for NEER to safeguard price stability.
- Fiscal policy:
  - Large fiscal stimulus implemented to mitigate impact on households and businesses.
  - Design intended to balance limiting downturn and preserving microeconomic incentives for adjustment.
  - Recommendation: consider further measures if economic trajectory weakens; avoid premature fiscal withdrawal; medium-term role includes stepped-up public investment and flexible labor/product markets.
- Financial sector policies:
  - Starting position strong; asset quality expected to deteriorate as recession continues.
  - Recommendations: prioritize rigorous stress tests (multi-year, tail events, correlated shocks), upgrade contingency planning and cross-jurisdictional coordination (including unwinding deposit guarantees), and adapt supervisory/regulatory frameworks as lessons emerge.

### Article IV consultation timing and selected real/financial statistics
- Article IV cycle:
  - Next Article IV discussions recommended on standard 12-month cycle.
  - 2008 consultations held May 5−12, 2008; Executive Board discussed staff report and concluded consultation on July 16, 2008.
- Real GDP growth (2003–2010 series as presented): 3.8 9.3 7.3 8.4 7.8 1.1 -7.7 2.5
- Components (selected):
  - Total domestic demand (growth, percentage change): -8.3 14.3 3.3 6.8 6.9 15.9 -4.5 2.4
  - Net exports contribution (percentage points): 10.8 -0.5 5.6 3.1 3.6 -10.6 -4.9 0.5
  - Gross capital formation (growth, percentage change): -30.6 49.8 0.6 12.4 12.3 42.8 -11.1 -1.8
- Labor and inflation (2003–2010 series):
  - Unemployment rate (period average, percent): 4.0 3.4 3.1 2.7 2.1 2.2 3.9 3.6
  - CPI inflation (period average, percent): 0.5 1.7 0.5 1.0 2.1 6.5 0.3 1.3
- Nominal GDP (2008): US$181.9 billion
- GDP per capita (2008): US$37,597

### Asset-market, external, fiscal, and financial indicators (selected series and levels)
- Asset markets:
  - Stock prices (percent change, y/y, selected 2003–2008): 32.8 15.6 14.0 28.0 18.7 -49.2
  - P/E ratio (selected years): 24.9 16.6 15.4 19.4 18.0 6.2
  - Real estate price changes (residential, percent change, y/y): -1.8 -0.4 2.9 7.1 23.6 12.3
- External sector (2003–10 series):
  - Current account balance (US$ billion): 22.1 19.9 27.5 35.4 39.2 27.0 20.8 22.1
  - Current account as percent of GDP (memorandum): 23.7 18.1 22.7 25.4 23.5 14.8 13.3 13.2
  - Exports, f.o.b. (US$ billion): 161.7 199.3 232.7 274.7 303.7 343.3 258.6 287.9
  - Imports, f.o.b. (US$ billion): -132.3 -168.6 -196.3 -232.0 -256.5 -312.6 -233.7 -260.4
  - Gross official reserves (US$ billion, selected): 96.2 112.6 116.2 136.3 163.0 174.2 184.0 194.1
    - In months of imports (memorandum): (5.3) (5.4) (4.7) (4.9) (5.0) (6.9) (6.8) (7.0)
- Banking-sector indicators (2004–08, selected):
  - Regulatory capital to risk-weighted assets (percent): 16.2 15.8 15.4 13.5 14.1 13.9 14.3
  - Regulatory tier-1 capital to risk-weighted assets (percent): 11.5 11.4 11.2 9.8 10.5 10.6 11.3
  - NPLs to nonbank loans (percent): 5.0 3.8 2.8 1.5 1.5 1.4 1.4
  - Total provisions to NPLs (percent): 73.6 78.7 89.5 115.6 118.9 117.2 119.9
  - After-tax return on equity (percent, selected series): 11.6 11.2 13.7 12.9 12.9 12.2 12.5 11.9
- Fiscal and government finances:
  - Public debt (2008): 99 percent of GDP
  - Central government revenue (percent of GDP, 2003–10 series): 20.3 20.1 21.0 21.1 25.4 24.5 23.5 23.7
  - Central government expenditure (percent of GDP, 2003–10 series): 14.1 14.2 12.9 13.9 13.0 20.3 22.0 21.9
  - Overall balance (percent of GDP, 2003–10 series): 6.2 5.9 8.1 7.3 12.4 4.2 1.5 1.8
  - Primary operating balance (percent of GDP, 2003–10 series): -2.9 -1.9 -1.2 -1.5 0.9 -3.6 -6.4 -6.2
- Monetary and liquidity indicators (2003–08 series):
  - Broad money (M3, percent change, y/y): 5.9 6.1 6.4 19.1 14.1 11.6
  - Lending to nonbank sector (percent change, y/y): 6.3 4.5 2.2 6.3 19.9 16.6
  - Three-month interbank rate (percent, end-year): 0.8 1.4 3.3 3.4 2.4 1.0

### Recent data, outlook, and Executive Board highlights (June–Q2 2009 focus)
- Recent activity:
  - GDP growth (q/q saar) jumped to 20.4 percent in Q2 2009 after 4 quarters of contraction.
  - On a year-on-year basis, GDP fell 3.7 percent in Q2 2009 (compared to 9.6 percent in Q1 2009 and 4.2 percent in Q4 2008).
  - June industrial production down 9.3 percent; electronics exports still falling about 20 percent y/y.
  - Staff note: Q2 outturn might have been partly driven by one-off factors.
- Prices and inflation:
  - CPI declined y/y by 0.5 percent in June 2009 (compared to 0.3 percent in May 2009).
  - Staff projection: inflation about ¼ percent for the year as a whole.
- Policy actions and implementation (recent):
  - On July 22, HKMA, Bank Negara Malaysia, and MAS announced a working group to coordinate exit from full deposit guarantees.
  - Of 18,000 new public-sector and government-supported jobs envisaged under 2009 budget, 13,000 created so far.
- Outlook (staff view):
  - Latest data support slow and uneven growth ahead.
  - Q2 outturn and upward revision in Q1 mechanically lift 2009 GDP numbers.
  - Staff expect 2009 GDP growth likely to be revised from −7¾ percent to around −4⅓ percent in upcoming WEO round; revised staff estimate would be on the strong side of official forecast range of −6 percent to −4 percent.
- Executive Board assessment:
  - Monetary policy settings broadly appropriate; recommend maintaining course barring significant deterioration and tightening later via trend appreciation of nominal effective exchange rate.
  - Floating exchange rate and exchange-rate-centered framework provided stability.
  - Fiscal response, including Resilience Package, welcomed; should mitigate recession effects and foster long-term growth potential.
  - Medium-term recommendations: fiscal support for shifts in global demand via public investment and flexible markets; consider strengthening automatic stabilizers.
  - Financial-sector priorities: rigorous stress-testing, contingency planning, and supervisory cooperation; improve IIP reporting over time.

*Source: IMF staff report (Executive Summary) and Staff Report for the 2009 Article IV Consultation—Informational Annex, Asia and Pacific Department, July 16, 2009.*

### Executive Summary ......................................................................................................

### Executive Summary

### Background and outlook
- Singapore was among the first countries in Asia to enter a recession and is now set for its worst economic contraction since independence in 1965.
- The economy is projected to shrink by about 8 percent in 2009, primarily as a result of a slump in external demand and private investment.
- Singapore’s economic fundamentals remain strong and provide an important buffer against the external shocks.
- The impact of the downturn is being felt primarily through the trade channel; financial markets have experienced substantial turbulence but have, on the whole, continued to operate in an orderly fashion.

### Major macroeconomic developments
- Growth:
  - The decline in GDP started in the second quarter of 2008 and accelerated in the second half of the year.
  - Activity dropped by nearly 13 percent (q/q, saar) in the first quarter of 2009 as external demand collapsed.
  - Export-oriented sectors (electronics, engineering, transport and storage) have been hit hardest; services, including financial services, have also suffered. Construction has held up due to large projects underway.
- Inflation:
  - Headline inflation receded from a peak of 7½ percent (y/y) in mid-2008 to 1½ percent in March 2009.
  - The fall in inflation was initially driven by lower food and commodity prices and has become more broad-based, reflecting falling import prices and slack in demand.
- Labor market:
  - Unemployment rate of the resident workforce (seasonally adjusted) rose from 2.8 percent in Q1 2008 to 4.8 percent in Q1 2009.
  - The overall unemployment rate rose from 2 percent to 3¼ percent over the same period.
  - Monthly earnings growth has decelerated sharply; employment of residents has fallen less than in previous downturns. Anecdotal evidence suggests foreign workers are bearing a larger share of adjustment.
- External sector and reserves:
  - The current account surplus fell from an average of 16.3 percent of GDP in the first three quarters of 2008 to 10.4 percent of GDP in Q4 2008.
  - FDI and portfolio inflows have fallen; this was more than offset by lower capital outflows owing to weaker corporate profits and concerns about asset quality in advanced economies.
  - Official reserves declined from a peak of US$177 billion at end-March 2008 and reached about US$172 billion as of end-May 2009.

### Financial developments and market functioning
- Context:
  - Singapore is a major funding center for South-East Asia and domestic market conditions were highly influenced by global developments.
  - Global financial volatility that erupted in late September 2008 spilled into domestic asset prices; markets have been severely tested but largely remained orderly.
- Contribution to GDP:
  - The contraction in financial activity contributed 1 percentage point to the y/y fall of quarterly real GDP in Q4 2008 and Q1 2009 (of 4.2 percent and 10.1 percent, respectively).
- Outward spillovers:
  - Domestic banks, net lenders in U.S. dollars in late 2008, became more cautious. Some foreign banks faced much higher costs for U.S. dollar liquidity.
  - Rates for some transactions in the Asian dollar market exceeded the U.S. dollar SIBOR rate at times; strains were largely over by end-2008.
- Asset markets:
  - Equity market: fell almost 24 percent in October 2008 following Lehman Brothers’ collapse; equity prices rose by 54 percent from the trough in March 2009.
  - Money markets: experienced liquidity pressures in fall 2008; interbank rates spiked but markets never seized up. Liquidity pressures eased by January 2009 after coordinated central bank actions, with reduced volatility in interbank rates and lower TED and OIS spreads.
  - Foreign exchange market: turnover fell by about 40 percent between September and December 2008; the Singapore dollar weakened by 3¼ percent against the U.S. dollar during this period. Turnover and the Singapore dollar strengthened since March 2009 as U.S. dollar liquidity improved.
- Credit and corporate financing:
  - Credit growth declined from about 20 percent (y/y) in mid-2008 to 8¾ percent in March 2009.
  - Singapore dollar loans to nonbank customers fell by 2 percent between October 2008 and March 2009; foreign currency loans to nonbank customers outside Singapore dropped by 12 percent during that period.
  - Tiering in credit access: banks maintained lines for prime customers while many SMEs experienced difficulties accessing bank credit.
  - Issuance of corporate debt securities, especially U.S. dollar-denominated, fell sharply.
- Property market:
  - Private home prices slipped by almost 14 percent (q/q) in Q1 2009 and are down 21 percent from their peak in 2008, but remain about 20 percent higher than in 2005.
  - Slowdown is beginning to affect the public housing (HDB) resale market; private transaction volumes picked up in Q1 2009.

### Financial sector resilience and risks
- Short-term earnings of most financial institutions will be negatively affected by the global turmoil.
- Singapore’s financial system is assessed as sound and expected to withstand a deeper and more prolonged downturn due to:
  - Robust supervision and regulation;
  - Local financial institutions’ internal risk management and business models.
- Authorities have been proactive in steps to support confidence and market functionality.
- Consensus that credit quality will deteriorate in the near term as the recession continues, but pressures appear manageable at present.
- Priority: rigorous stress tests covering multi-year scenarios, tail events, and correlated shocks.

### Policy response and assessments
- Overarching strategy:
  - Government deployed a broad range of instruments to lessen the impact of external shocks and position Singapore to rebound when the global economy recovers.
- Monetary policy:
  - With inflation concerns receding, monetary settings are appropriate.
  - MAS loosened monetary conditions in two steps: removed the appreciating trend from the undisclosed NEER policy band in October 2008; in April 2009 re-centered the band around the prevailing exchange rate level that had drifted down. The width of the band and the zero appreciation trend were kept unchanged.
  - The April 2009 move validated a weaker currency and implied a slight “devaluation” of the trend NEER.
  - Staff and authorities agreed that, barring a significant deterioration of the outlook for growth or inflation, monetary policy should stay the course until a recovery is well established.
  - A return to a trend appreciation for the NEER would safeguard price stability further along the recovery path.
- Fiscal policy:
  - A large stimulus package introduced in January 2009 is estimated to provide a fiscal impulse of about 3 percent of GDP in 2009−10.
  - Implementation began in FY 2008 (ending in March) and pushed the budget deficit (as defined by the authorities) to ¾ percent of GDP.
  - The fiscal package is described as timely, appropriately large, and diversified and would support growth beyond the near term through accelerated infrastructure spending.
  - Authorities intend to undertake additional measures if the economy’s trajectory proves more fragile than expected.
  - Staff and authorities shared the view that a premature fiscal withdrawal could undermine positive confidence effects of actions taken.
- Exchange rate assessment:
  - Staff estimates the real effective value of the Singapore dollar to be somewhat weaker than its equilibrium, providing countercyclical support.
  - The authorities’ valuation models suggest the real effective Singapore dollar is broadly in line with its fair value.
  - Staff and authorities agreed that unusual uncertainty clouds these assessments.

### Key policy priorities going forward
- Maintain monetary settings until recovery is well established, using fiscal policy for additional countercyclical fine-tuning if needed.
- Preserve the flexibility in the NEER policy band with a view to returning to trend appreciation as recovery firms to safeguard price stability.
- Continue timely and diversified fiscal support, including infrastructure spending, and avoid premature fiscal withdrawal that could undercut confidence.
- Strengthen financial sector vigilance:
  - Conduct rigorous stress tests incorporating multi-year, tail-event, and correlated-shock scenarios.
  - Monitor credit quality deterioration and SME access to finance.
  - Maintain measures to support market liquidity and functionality where necessary.

*Source: IMF staff report (Executive Summary).*

### Box 2. Resilience Package

### Box 2. Resilience Package

### Overview
- The FY 2009 budget introduced the Resilience Package to blunt the effects of the downturn and strengthen Singapore’s longer-term prospects.
- The package amounts to S$20.5 billion (about 8 percent of GDP).
- Some measures took effect in the last quarter of FY 2008, but the bulk of the package will be implemented during FY 2009.
- A key element is the Jobs Credit Scheme, estimated to lower labor costs by 7−9 percent.
- Another key element is the Special Risk-Sharing Initiative in which the government assumes 80 percent of loan loss risk to encourage bank lending.

### Key components and amounts (In billions of Singapore dollars)
- Preserve jobs: 5.1
  - Jobs Credit Scheme: 4.5
- Stimulate bank lending: 5.8
  - Special Risk-Sharing Initiative: 5.8
- Enhance business cashflow and competitiveness: 2.6
  - Property tax rebate for commercial and industrial property: 0.8
  - Rental rebate for selected industrial and commercial tenants: 0.3
- Support families: 2.6
  - Personal income tax rebates: 0.5
  - Doubling GST credits and Senior Citizen Bonuses: 0.5
- Build for the future: 4.4
  - Expanded and accelerated infrastructure spending: 1.1
  - Spending on security, health, education, transport: 1.7
- Total package: 20.5

### Implementation timing and fiscal context
- Bulk of measures to be implemented during FY 2009; some measures effective in last quarter of FY 2008.
- The FY 2009 deficit is projected to increase to 3½ percent of GDP, the largest on record.
- Given ample fiscal reserves, no public borrowing will be required to finance the package.

### Policy intent and expected effects
- Primary focus: saving jobs and helping viable companies stay afloat while enhancing competitiveness.
- Jobs Credit Scheme: grants of 12 percent of the wages of employees who contribute to the mandatory pension scheme, up to a specified maximum; provides an incentive for companies to maintain or increase their workforce.
- Special Risk-Sharing Initiative: government assumes 80 percent of loan loss risk to encourage bank lending.
- Package expected to mitigate the decline in aggregate demand, shore up private consumption by limiting rise in unemployment and softening impact on firms’ cash flow and households’ disposable income.
- Accelerated infrastructure spending intended to support growth over longer horizons.

### Related financial sector and macro-policy measures (concise findings)
- MAS adopted a blanket guarantee on Singapore dollar and foreign currency nonbank deposits in domestic and foreign banks through 2010, entered a precautionary US$30 billion currency swap agreement with the Fed, and intensified surveillance of the financial sector.
- MAS announced it would inject additional liquidity through its standing facilities if needed.
- Measures to help SMEs maintain access to bank credit were introduced in November and subsequently adjusted and expanded.
- Staff assessment: fiscal package was timely, appropriately large, and diversified; supports growth and includes contingency to undertake additional measures outside the normal budget cycle if the economy proves more fragile than expected.
- Staff recommended considering strengthening automatic stabilizers by assessing taxes on the basis of current rather than previous year’s income, with attention to administrative and compliance costs.

*Source: Budget 2009; MAS, Macroeconomic Review (April 2009).*

### 34.      Response to the global crisis. The authorities have responded forcefully with a large

### Response to the global crisis.

### Monetary policy
- The authorities have loosened monetary conditions to fend off deflation risks while avoiding undermining exchange rate stability or increasing the cost of credit to businesses and households.
- The MAS’ two-step decision to first eliminate the appreciation bias and then re-center the NEER target band has achieved these goals.
- With inflation concerns out of the picture, the monetary settings are appropriate.
- Recommendation: Barring a significant deterioration of the outlook for growth or inflation, monetary policy should stay the course until a recovery is well established.
- Further recommendation: Further along the recovery path, monetary policy will need to shift to a tightening stance, including with a return to a targeted trend appreciation for the NEER, to safeguard price stability as slack in the economy is taken up.

### Exchange rate
- Assessment: The REER is somewhat weaker than its medium-term equilibrium (this assessment is subject to considerable uncertainty).
- Policy implication: This does not imply the need for policy adjustments at present but points to the likely evolution of the real exchange rate once a global recovery takes root.
- The floating exchange rate continues to serve Singapore well and the exchange-rate-centered monetary framework has been an important source of stability in times of economic turbulence.

### Fiscal policy
- The authorities have implemented a large fiscal stimulus package for the current fiscal year to mitigate the impact of the output contraction on households and businesses.
- Design intent: The package is designed to minimize tensions between limiting the downturn and fostering microeconomic incentives that will support rapid adjustment to changes in the global economy.
- Recommendation: Further measures should be considered if the economy’s trajectory proves more fragile than currently expected.
- Recommendation: The next budget should be crafted in line with the evolving economic situation and avoid a premature fiscal withdrawal that could undermine positive confidence effects of actions taken.
- Medium-term role: Fiscal policy will need to help ready the economy for shifts in the pattern of global demand as balance sheets are rebuilt in advanced economies and internal sources of growth gain prominence in emerging markets.
- Structural complement: Along with flexible labor and product markets, stepped-up public investment in physical and social infrastructure would create an enabling environment in which Singapore could seize new opportunities.

### Financial sector policies
- Starting position: Singapore’s financial system entered the global crisis from a position of strength and has coped well with the turbulence in international financial markets so far.
- Risk outlook: Asset quality will deteriorate as the recession drags on.
- Recommendation: Rigorous stress tests encompassing multi-year scenarios, tail events, and correlated shocks should remain a high priority for the MAS in the period ahead.
- Recommendation: Continued efforts to upgrade contingency planning and coordinate with supervisors in other jurisdictions, particularly regarding the unwinding of deposit guarantees, should also be a priority.
- Forward-looking recommendation: The MAS should continue to adapt its supervisory and regulatory framework as lessons from the crisis are learned.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09269.pdf*

### 39.      It is recommended that the next Article IV consultation discussions take place on the

### _cr09269 - 39.      It is recommended that the next Article IV consultation discussions take place on the

### Article IV consultation timing
- It is recommended that the next Article IV consultation discussions take place on the standard 12-month cycle.
- Singapore is on the 12-month consultation cycle. The 2008 Article IV consultation discussions were held during May 5−12, 2008; the Executive Board discussed the staff report (IMF Country Report No. 08/280) and concluded the consultation on July 16, 2008.

### Real sector developments
- GDP growth: Real GDP (growth, percentage change)
  - 2003–2010 series as presented: 3.8 9.3 7.3 8.4 7.8 1.1 -7.7 2.5
- Components and dynamics:
  - Total domestic demand (growth, percentage change): -8.3 14.3 3.3 6.8 6.9 15.9 -4.5 2.4
  - Net exports contribution (percentage points): 10.8 -0.5 5.6 3.1 3.6 -10.6 -4.9 0.5
  - Gross capital formation (growth, percentage change): -30.6 49.8 0.6 12.4 12.3 42.8 -11.1 -1.8
- Labor and inflation:
  - Unemployment rate (period average, percent): 4.0 3.4 3.1 2.7 2.1 2.2 3.9 3.6 (2003–2010 series)
  - CPI inflation (period average, percent): 0.5 1.7 0.5 1.0 2.1 6.5 0.3 1.3 (2003–2010 series)
- Nominal GDP (2008): US$181.9 billion
- GDP per capita (2008): US$37,597

### Asset-market and external developments
- Asset markets:
  - Stock prices (percent change, y/y, selected): 32.8 15.6 14.0 28.0 18.7 -49.2 (2003–2008 series)
  - P/E ratio (selected years): 24.9 16.6 15.4 19.4 18.0 6.2 (2003–2008 series)
  - Real estate price changes (residential, percent change, y/y): -1.8 -0.4 2.9 7.1 23.6 12.3 (2003–2008 series)
- External sector:
  - Current account balance (US$ billion, 2003–10 series): 22.1 19.9 27.5 35.4 39.2 27.0 20.8 22.1
  - Current account as percent of GDP (memorandum): 23.7 18.1 22.7 25.4 23.5 14.8 13.3 13.2
  - Trade balance (US$ billion, 2003–10 series): 29.3 30.7 36.4 42.8 47.2 30.7 24.9 27.5
  - Exports, f.o.b. (US$ billion, 2003–10 series): 161.7 199.3 232.7 274.7 303.7 343.3 258.6 287.9
  - Imports, f.o.b. (US$ billion, 2003–10 series): -132.3 -168.6 -196.3 -232.0 -256.5 -312.6 -233.7 -260.4
  - Gross official reserves (US$ billion, selected): 96.2 112.6 116.2 136.3 163.0 174.2 184.0 194.1
    - In months of imports (memorandum): (5.3) (5.4) (4.7) (4.9) (5.0) (6.9) (6.8) (7.0)
- Financial-account dynamics (2003–09 quarterly indicators summarized):
  - Financial account balance components show sizable portfolio outflows and unwinding of forward positions; gross reserves have stabilized.

### Financial sector developments and soundness
- Banking-sector indicators (2004–08, selected)
  - Regulatory capital to risk-weighted assets (percent): 16.2 15.8 15.4 13.5 14.1 13.9 14.3
  - Regulatory tier-1 capital to risk-weighted assets (percent): 11.5 11.4 11.2 9.8 10.5 10.6 11.3
  - NPLs to nonbank loans (percent): 5.0 3.8 2.8 1.5 1.5 1.4 1.4
  - Total provisions to NPLs (percent): 73.6 78.7 89.5 115.6 118.9 117.2 119.9
  - After-tax return on equity (percent): 11.6 11.2 13.7 12.9 12.9 12.2 12.5 11.9 (selected series)
- Sector performance and risks:
  - Capital positions remain sound.
  - NPLs began to rise in late 2008 after reaching record lows.
  - Banks’ profitability has remained relatively strong, while lending activity has moderated.
  - Financial indicators for corporates and households generally in good shape; household liability-to-asset and liability-to-GDP ratios presented in series (2003Q4–2009Q1).

### Fiscal and government finances
- Public debt (2008): 99 percent of GDP
- Central government budget (percent of GDP, fiscal years presented)
  - Revenue: 20.3 20.1 21.0 21.1 25.4 24.5 23.5 23.7 (2003–10 series)
  - Expenditure: 14.1 14.2 12.9 13.9 13.0 20.3 22.0 21.9 (2003–10 series)
  - Overall balance: 6.2 5.9 8.1 7.3 12.4 4.2 1.5 1.8 (2003–10 series)
  - Primary operating balance: -2.9 -1.9 -1.2 -1.5 0.9 -3.6 -6.4 -6.2 (2003–10 series)
- Government operations (fiscal year basis, selected percent of GDP)
  - Total revenue (2005/06–2009/10 sequence): 21.0 21.1 25.4 23.6 24.5 22.0 (preliminary and budget rows)
  - Total expenditure (2005/06–2009/10): 12.9 13.9 13.0 18.9 20.3 24.3
  - Overall balance (percent of GDP, table): 8.1 7.3 12.4 4.6 4.2 -2.3 (selected series)
  - Structural primary balance (memorandum): -1.4 -2.4 -0.4 -2.7 -3.9 -2.7 (selected series)
- Key fiscal memorandum:
  - Fiscal year runs from April 1 through March 31.
  - Debt-servicing and certain investment-income items are presented in the government operations tables.

### Monetary and liquidity indicators
- Broad money (M3, percent change, y/y): 5.9 6.1 6.4 19.1 14.1 11.6 (2003–08 series)
- Lending to nonbank sector (percent change, y/y): 6.3 4.5 2.2 6.3 19.9 16.6 (2003–08 series)
- Three-month interbank rate (percent, end-year): 0.8 1.4 3.3 3.4 2.4 1.0 (2003–08 series)
- Monetary survey (selected levels, end-period, in billions of S$) for 2006–09 shows net foreign assets, domestic credit, M3, and claims on private sector with quarterly detail.

### Statistical, institutional, and Fund relations
- Membership: Joined August 3, 1966; Article VIII.
- Quota (SDR million): 862.50 (100.00 percent)
  - Fund holdings of currency: 720.79 (83.57)
  - Reserve position in Fund: 141.89 (16.45)
- SDR Department (SDR million, percent): Net cumulative allocation 16.48 (100.00); Holdings 241.43 1,465.39
- Outstanding Purchases and Loans: None. Financial Arrangements: None.
- Projected Payments to Fund: None.
- Exchange arrangement:
  - Singapore’s exchange rate regime is floating. The Monetary Authority of Singapore (MAS) monitors its value against an undisclosed basket of currencies and intervenes in the market to maintain this value within an undisclosed target band. The U.S. dollar is the intervention currency.
  - Singapore has accepted the obligations of Article VIII, Sections 2, 3, and 4 and maintains an exchange rate system that is free of restrictions on current international transactions.
  - Restrictions: Singapore maintains restrictions on Singapore-dollar credit facilities to, and bond and equity issuance by, nonresident financial institutions. Singapore-dollar proceeds obtained by nonresident financial entities from loans exceeding S$5 million, or any amount for equity listings or bond issuance to finance activities outside Singapore 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 that the Singapore-dollar proceeds may be used for Singapore-dollar currency speculation.
- FSAP and ROSCs:
  - The FSAP was undertaken in conjunction with the 2003 Article IV consultation; the FSSA was published as IMF Country Report No. 04/104.
  - A fiscal ROSC remains a priority for the authorities, and the exact timing is likely to be considered in 2010. A data ROSC could also be considered at that time.
- Statistical issues and coverage:
  - Singapore provides data on a timely basis and meets all the SDDS specifications.
  - Rebased national accounts from 1995 to 2000 in early 2006; ongoing improvements in data sources and methodology.
  - Full merchandise trade statistics including trade with Indonesia released since January 2006.
  - Information on government assets held abroad is neither published nor provided to the Fund; data on the financial position of the consolidated public sector are not published.
  - IIP data are not provided with the disaggregation suggested by BPM5 and do not include the net foreign assets held by Singapore’s Government Investment Corporation, although associated flows are included in the balance of payments data; authorities committed to improve IIP reporting over time.
  - MAS has not submitted the standardized report forms (SRFs) for monetary statistics introduced in October 2004.

*Source: Staff Report for the 2009 Article IV Consultation—Informational Annex, Asia and Pacific Department, July 16, 2009 (IMF).  All figures, tables, and text excerpts above reflect content presented in the source document.*

### 1.      Recent Data

### 1.      Recent Data

### Activity and output
- GDP growth (q/q saar) jumped to 20.4 percent in Q2 2009 after 4 quarters of output contraction.
- On a year-on-year basis, GDP fell 3.7 percent in Q2 2009 (compared to 9.6 percent in Q1 2009 and 4.2 percent in Q4 2008).
- June industrial production was down 9.3 percent (reflecting a sharp slowdown in biomedical manufacturing).
- Electronics exports were still falling at about 20 percent y/y in recent export data.
- Staff note: the Q2 outturn might have been partly driven by one-off factors.

### Prices and inflation
- Singapore’s CPI declined y/y by 0.5 percent in June 2009 (compared to 0.3 percent in May 2009).
- Staff projection: inflation at about ¼ percent for the year as a whole (mild temporary deflation in the first half of the year is consistent with this).

### Policy actions and implementation (recent)
- On July 22, the Hong Kong Monetary Authority, Bank Negara Malaysia, and the Monetary Authority of Singapore announced the establishment of a working group to coordinate the exit from full deposit guarantees.
- Public sector employment: Of the 18,000 new jobs in the public sector and government-supported areas envisaged under the 2009 budget, 13,000 have been created so far.

### Outlook (staff view)
- Latest data support the view that the Singaporean economy is likely to experience slow and uneven growth in the period ahead.
- Q2 outturn and an upward revision in Q1 growth mechanically lift 2009 GDP numbers.
- Staff expect GDP growth for 2009 likely to be revised from −7¾ percent to around −4⅓ percent in the upcoming WEO round.
- The revised staff estimate would be on the strong side of the latest official growth forecast range of −6 percent to −4 percent.

### Executive Board and background highlights
- Singapore entered a severe downturn; GDP fell by almost 13 percent (quarter-on-quarter, seasonally adjusted annualized rate) in Q1 2009.
- The collapse in external demand hit export-oriented sectors hardest; services including financial suffered.
- Current account surplus has shrunk markedly; FDI and portfolio inflows have fallen.
- Decline in capital outflows more than offset partly by lower corporate profits and safe-haven status.
- Equity market fell by almost 24 percent in October 2008; liquidity pressures occurred but later eased.

### Executive Board assessment (key points)
- Monetary policy settings broadly appropriate; maintain course barring significant deterioration; tighten later by targeting trend appreciation of the nominal effective exchange rate.
- Floating exchange rate regime and exchange-rate centered monetary policy framework provided stability.
- Fiscal response (including the Resilience Package) welcomed; should mitigate recession effects and foster long-term growth potential.
- Over the medium term, fiscal policy should support shifts in global demand pattern via higher public investment and more flexible labor and product markets; consider strengthening automatic stabilizers.
- Financial sector shown resilience; priority on rigorous stress-testing, contingency planning, and supervisory cooperation abroad.
- Welcomed coordination to unwind deposit guarantees; encouraged MAS to adapt supervisory and regulatory framework.
- Encouraged improvements over time in reporting of international investment position.

### Selected economic and financial indicators (highlights from table; 2005–10)
- Real GDP: 2005: 7.3; 2006: 8.4; 2007: 7.8; 2008: 1.1; 2009: −7.7; 2010: 2.5 (Proj.)
- Total domestic demand: 2005: 3.3; 2006: 6.8; 2007: 6.9; 2008: 15.9; 2009: −4.5; 2010: 2.4
- Private consumption: 2005: 3.8; 2006: 4.0; 2007: 5.2; 2008: 2.4; 2009: −1.3; 2010: 4.5
- Gross national savings (percent of GDP): 2005: 43.0; 2006: 45.5; 2007: 44.2; 2008: 45.7; 2009: 40.4; 2010: 37.9 (Proj.)
- CPI inflation (period average, percent): 2005: 0.5; 2006: 1.0; 2007: 2.1; 2008: 6.5; 2009: 0.3; 2010: 1.3 (Proj.)
- Unemployment rate (period average, percent): 2005: 3.1; 2006: 2.7; 2007: 2.1; 2008: 2.2; 2009: 3.9; 2010: 3.6 (Proj.)
- Central government overall balance (percent of GDP): 2005: 8.1; 2006: 7.3; 2007: 12.4; 2008: 4.2; 2009: 1.5; 2010: 1.8 (Proj.)
- Gross official reserves (US$ billion): 2005: 116.2; 2006: 136.3; 2007: 163.0; 2008: 174.2; 2009: 184.0; 2010: 194.1 (Proj.)
- S$/US$ (end of period): 2005: 1.66; 2006: 1.53; 2007: 1.44; 2008: 1.44; 2009: 1.45

*Source: IMF staff report and Public Information Notice (PIN) No. 09/110, IMF Executive Board Conclusions on the 2009 Article IV Consultation with Singapore.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09269.pdf_