## _cr10226

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### Executive Summary — Background and Context
- The 2008−09 recession in Singapore "turned out less deep than feared." A broad-based expansion is now on; output losses have been recouped and medium-term issues are again at the top of the policy agenda.
- At the time of the 2009 Article IV consultation staff and authorities were projecting a GDP contraction of "about 8 percent" for 2009; actual outcomes were much milder.
- The 2010 Article IV discussions focused on sustaining non-inflationary growth, mitigating risks (including capital flows and exuberant property markets), and post-crisis topics: Basel III, reserve accumulation, social protection design, and productivity-boosting reforms.

### Macroeconomic Developments — Key Findings
- Growth and output:
  - GDP contracted by "about 1¼ percent" in 2009.
  - At its low mark a year later, GDP was "9 percent" lower than pre-crisis — the biggest output decline in twenty years; the recovery has been swift.
  - Growth reached nearly "39 percent (q/q s.a.a.r.)" in Q1 2010; GDP was "some 16 percent" higher four quarters after the trough compared to "5−10 percent" in previous downturns.
- Inflation and labor market:
  - CPI turned negative in the second half of 2009; by early 2010 price pressures resurfaced. May readings showed "0.6 percent m/m and over 3 percent y/y" headline inflation. Core inflation (MAS definition) remains low.
  - Employment fell later and bounced back faster than in previous recessions; unemployment for residents is near pre-crisis levels.
- Fiscal and external:
  - FY 2009 Resilience Package: "S$20.5 billion (about 8 percent of GDP)".
  - Jobs Credit Scheme: granted "12 percent" of employee wages (up to a maximum); estimated to have lowered labor costs by "about 9 percent".
  - Non-oil domestic exports fell "close to 30 percent" peak-to-trough.
  - Official reserves stood at "about US$198 billion" at end-May 2010 after MAS absorbed inflows.

### Capital Flows — Box 1 Highlights
- Historical pattern:
  - Significant net capital outflow driven by official flows (sovereign wealth funds); private flows excluding FDI have been negative while net FDI flows have been consistently positive.
- Rebound since mid-2009:
  - Loans, trade financing, and other nonportfolio flows recovered strongly; banks were major recipients in late 2009 and early 2010.
  - Net FDI flows picked up and never contracted significantly during the crisis.
  - Private portfolio investment continued to flow out but at a declining rate.
- Period-average capital flow shares (percent of GDP):
  - Official: "1993–09: -11.9", "2001–09: -11.8", "2008–09: -12.4"
  - Private, excluding FDI: "1993–09: -4.8", "2001–09: -6.1", "2008–09: -7.4"
    - Banks: "1993–09: 0.0", "2001–09: -1.7", "2008–09: -6.2"
    - Nonbank private: "1993–09: -4.8", "2001–09: -4.4", "2008–09: -1.2"
  - FDI: "1993–09: 5.6", "2001–09: 5.4", "2008–09: 8.0"
  - Total private: "1993–09: 0.8", "2001–09: -0.7", "2008–09: 0.6"
  - Memorandum: Current account: "17.2", "19.3", "18.1"

### Financial Sector — Key Findings
- Resilience and segments:
  - Singapore’s financial system "withstood the world recession well." Banking and insurance led recovery; brokerage and wealth management recovered more slowly and showed lingering fragility.
- Money markets and rates:
  - Three-month interbank rate (SIBOR) stayed at "about 0.7 percent" since January 2009.
  - Swap Offered Rates (SOR) bottomed out with MAS’ policy change in April; recent sovereign credit concerns in Europe pushed them up somewhat.
- Bank credit and lending:
  - Singapore dollar loans to nonbank customers reached a low in April 2009 and are now above pre-Lehman levels.
  - Consumer loans (mostly mortgages) expanded briskly; credit to businesses remains below peak.
  - Offshore interbank activity is registering upticks but remains sentiment-sensitive.

### Capital Markets, FX, and Property Markets
- Capital markets:
  - Singapore equity market fell some 60 percent, reaching bottom in early 2009; losses have been clawed back though P/E ratios remain below long-term averages.
  - Corporate debt issuance has started to pick up but remains below pre-crisis levels, with little recovery in the foreign currency segment.
- Foreign exchange market:
  - Singapore is the fifth largest foreign exchange market in the world.
  - Daily turnover was 15 percent lower than a year earlier by end-2009; by March 2010 volumes had returned to pre-crisis levels.
  - Singapore dollar was 5 percent higher in nominal effective terms in May than at the time of the 2009 Article IV consultation.
- Property markets:
  - Private property market saw the most dramatic recovery of 2009; private house prices rebounded after a swift fall.
  - Macroprudential and supply-side measures were introduced; private home prices have stabilized recently and the number of transactions has declined.
  - Housing loan NPLs are currently about ½ of 1 percent of total loan.
  - Ratio of monthly mortgage payments to monthly income is less than 25 percent.
  - Private house prices: earlier major price correction in 2008−09 with no systemic ripple effects.

### Policy Developments and Assessments
- Macroeconomic management:
  - Transitioned out of crisis-relief late last year; policy normalization achieved.
- Monetary policy:
  - "The monetary settings are broadly appropriate." MAS tightened in mid-April by re-centering the NEER policy band and returning to a "modest and gradual" appreciation of the NEER.
  - Staff view: MAS’ two-step recalibration restored a neutral stance; monetary policy should "stay the course, absent a significant deterioration of the outlook for growth and inflation."
- Fiscal policy:
  - Withdrawal of fiscal support in the 2010 budget was "timely and well calibrated." Fiscal stance is "now close to neutral and in tune with internal balance."
  - FY2010 Budget focuses on supply-side measures to promote productivity growth; Jobs Credit Scheme ended in June; credit support to SMEs phased out by 2011.
- Financial sector policy and Basel III:
  - Domestic financial sector remained strong due to "sound supervision and risk management systems."
  - Plans (with Malaysia and Hong Kong SAR) to unwind the blanket deposit guarantee by year-end and move to higher deposit coverage are underway.
  - Authorities view Basel III impact as "not expected to be too onerous" for Singaporean banks; raising the quality of capital may be the greatest challenge but manageable.

### Outlook and Risks — Near-term and Medium-term
- Near-term projections:
  - Economy projected to expand nearly 10 percent in 2010.
  - CPI inflation is projected at around 2½ percent this year.
  - Authorities’ official projections: GDP growth in the range of 7−9 percent and CPI inflation in the range of 2½−3½ percent in 2010.
- Staff projections (informational annex):
  - Nominal GDP (2009): US$182.2 billion
  - Growth (percentage change) — Real GDP: 2009: -1.3; 2010 (Proj.): 9.9; 2011 (Proj.): 4.9
  - Total domestic demand growth: 2009: -4.9; 2010: 9.0; 2011: 5.7
  - CPI inflation (period average, percent): 2009: 0.6; 2010 (Proj.): 2.5; 2011 (Proj.): 2.1
  - Unemployment rate (2009): 3.0 percent
- Risks:
  - Downside: fiscal sustainability concerns in some euro area economies, trade shrinkage, credit drying up, large correction in China’s property market.
  - Upside: stronger-than-expected external environment could boost growth but escalate inflation risks.
- Medium-term baseline:
  - GDP growth converges to a potential rate of about 4 percent.
  - Current account surplus remains sizeable over a five-year horizon but not grossly out of line with Singapore’s characteristics.

### Financial Sector Policies, Resilience, and Structural Issues
- Banks and financial soundness:
  - Domestic banks: loan-to-deposit ratio below 90 percent.
  - Regulatory capital about 17 percent of risk-weighted assets; Tier 1 ratio 14 percent.
  - Liquid asset ratio about 18 percent.
  - NPLs at local banks about 2 percent of total loans.
  - Capital adequacy (Table 7): 2009: 16.5 (percent).
  - NPL ratio (local banks, latest obs. Sep 2009): 2.3 (percent).
- Insurance, asset management, and derivatives:
  - MAS strengthened insurer stress testing and is reviewing policy owner’s protection scheme.
  - Proposals: central counterparty clearing for certain OTC contracts; licensing regime for fund managers managing assets > S$250 million.
  - Assets under management in fund management industry dropped to about S$860 billion at end-2008 from over S$1 trillion a year earlier; recovery underway.
- Deposit insurance and governance:
  - MAS proposed raising deposit insurance coverage; ninety percent of depositors would be insured once ceiling is more than doubled.
  - MAS proposed enhancements to corporate governance guidelines for banks and certain finance and insurance companies.

### Exchange Rate Assessment
- Developments:
  - REER moved side-ways for most of 2009; strengthened somewhat after resumption in April of targeted trend appreciation of the NEER.
  - Current account about 18 percent of GDP in 2009.
- Staff assessment:
  - Staff estimates the REER is somewhat weaker than its equilibrium; assessment subject to considerable uncertainty.
  - Box 4 findings (exchange rate methodologies and results):
    - Macroeconomic balance approach: current account “norm” of about 11 percent of GDP and implied undervaluation of about 8 percent (after multilateral adjustment).
    - External sustainability approach: undervaluation depends on NFA benchmark:
      - Assuming NFA stabilized at its 2009 level (estimated at about 142 percent of GDP), implied undervaluation about 16 percent.
      - Computing NFA with cumulative current account balances gives an NFA estimate of around 200 percent of GDP—and an undervaluation of around 7 percent.
    - Equilibrium exchange rate approach: exchange rate about 1 percent below its equilibrium.
  - From a multilateral perspective, a policy mix shift to tighter monetary policy and more expansionary fiscal policy would reduce the current account surplus and could eliminate the REER undervaluation over the medium term.

### Staff Appraisal — Key Findings and Policy Recommendations
- Crisis impact and macro setting:
  - Strong fundamentals and policy frameworks limited the 2008 downturn’s domestic impact; decisive and timely countercyclical support credited.
  - Economy on broad-based recovery path; policy focus shifting from crisis relief to sustaining expansion.
- Monetary policy:
  - MAS’s recalibration unwound earlier monetary stimulus and restored broadly neutral monetary conditions; monetary policy should stay the course barring major outlook changes.
- Capital inflows and macroprudential stance:
  - Managing disruptive capital flows not an immediate challenge but heightened volatility expected; exchange rate policies and macroprudential tools need careful calibration.
- Fiscal policy:
  - Exit from crisis-related support largely completed; fiscal policy close to neutral.
  - Multilateral considerations suggest desirability of a secular shift toward a more expansionary fiscal stance; authorities’ intention to increase spending in physical and social infrastructure over the medium term is welcome.
- Financial sector:
  - Financial sector emerged largely unscathed due to strong supervision and risk management.
  - Plans to unwind the blanket deposit guarantee by year-end and move to a system with higher deposit coverage are commendable; consider risk-based deposit insurance premia.
- Property market and reserves:
  - Exuberance in some property segments not systemic; continue monitoring and build on contingent measures if necessary.
  - Reserve accumulation is central given Singapore’s characteristics; authorities encouraged to keep accumulation under review to avoid generationally inequitable outcomes or inefficient resource allocation.
- Social safety nets and productivity:
  - Singapore’s safety nets mitigate hardship while preserving work incentives; consideration could be given to raising returns to pensioners and facilitating monetization of housing wealth.
  - Faster productivity gains are key: ESC target of doubling labor productivity growth to about 2½ percent per year over the next ten years; budget measures to encourage capital deepening and skills upgrading are significant.

### Selected Exact Indicators (from Informational Annex and Tables)
- Nominal GDP (2009): US$182.2 billion
- Real GDP growth (percent change): 2009: -1.3; 2010 (Proj.): 9.9; 2011 (Proj.): 4.9
- Total domestic demand growth: 2009: -4.9; 2010: 9.0; 2011: 5.7
- CPI inflation (period average, percent): 2009: 0.6; 2010 (Proj.): 2.5; 2011 (Proj.): 2.1
- Unemployment rate (2009): 3.0 percent
- Three-month interbank rate (percent, end-year): 2009: 0.7
- Stock prices (percent change, y/y): 2009: 64.5
- Real estate prices — Residential (percent change, y/y): 2009: -14.1
- Current account balance (US$ billions): 2009: 32.4; 2010 (Proj.): 40.7; 2011 (Proj.): 40.8
- Current account (In percent of GDP): 2009: (17.8)
- Exports, f.o.b. (US$ billions): 2009: 272.4; 2010 (Proj.): 347.9; 2011 (Proj.): 385.6
- Imports, f.o.b. (US$ billions): 2009: -242.4; 2010 (Proj.): -306.2; 2011 (Proj.): -334.1
- Gross official reserves (US$ billion): 2009: 187.8; 2010 (Proj.): 198.9; 2011 (Proj.): 206.3
- Capital adequacy ratio of local banks (percent) — 2009: 16.5
- NPLs to nonbank loans — 2009: 2.3
- Broad money (M3, percent change, y/y): 2009: 10.6
- Private sector credit (percent change, y/y): 2009: 2.0
- Credit to the property sector (percent change, y/y): 2009: 8.3
- Share of property-sector credit in total nonbank credit (percent): 2009: 49.9

_ Source: _cr10226 — Executive Summary and selected sections from the IMF staff report and Informational Annex._

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

### Executive Summary

### Background and Context
- The 2008−09 recession in Singapore "turned out less deep than feared." A broad-based expansion is now on; output losses have been recouped and medium-term issues are again at the top of the policy agenda.
- A year earlier, staff and authorities were projecting a GDP contraction of "about 8 percent" for 2009 at the time of the 2009 Article IV consultation; actual outcomes were much milder.
- The 2010 Article IV discussions focused on sustaining non-inflationary growth, mitigating risks (including capital flows and exuberant property markets), and post-crisis topics: Basel III, reserve accumulation, social protection design, and productivity-boosting reforms.

### Macroeconomic Developments — Key Findings
- GDP contracted by "about 1¼ percent" in 2009, much milder than anticipated.
- At its low mark a year later, GDP was "9 percent" lower than pre-crisis — the biggest output decline in twenty years; the recovery has been swift.
- Growth reached nearly "39 percent (q/q s.a.a.r.)" in the first quarter of 2010; GDP was "some 16 percent" higher four quarters after the trough compared to "5−10 percent" in previous downturns.
- Inflation: CPI turned negative in the second half of 2009; by early 2010 price pressures resurfaced. May readings showed "0.6 percent m/m and over 3 percent y/y" headline inflation. Core inflation (MAS definition) remains low.
- Labor markets: Employment fell later and bounced back faster than in previous recessions; unemployment for residents is near pre-crisis levels. Job subsidies and greater downward wage flexibility contributed to resilience.
- Fiscal support: The FY 2009 Resilience Package amounted to "S$20.5 billion (about 8 percent of GDP)". The Jobs Credit Scheme granted "12 percent" of employee wages (up to a maximum) to firms to maintain/increase Singaporean workforce; estimated to have lowered labor costs by "about 9 percent".
- Balance of payments and reserves: Non-oil domestic exports fell "close to 30 percent" peak-to-trough. Official reserves stood at "about US$198 billion" at end-May 2010 after MAS absorbed inflows.

### Capital Flows — Box 1 Highlights
- Historically, significant net capital outflow driven by official flows (sovereign wealth funds); private flows excluding FDI have been negative while net FDI flows have been consistently positive.
- Since mid-2009 private capital flows rebounded:
  - Loans, trade financing, and other nonportfolio flows recovered strongly; banks were major recipients in late 2009 and early 2010.
  - Net FDI flows picked up and never contracted significantly during the crisis.
  - Private portfolio investment continued to flow out but at a declining rate.
- Period-average capital flow shares (percent of GDP):
  - Official: "1993–09: -11.9", "2001–09: -11.8", "2008–09: -12.4"
  - Private, excluding FDI: "1993–09: -4.8", "2001–09: -6.1", "2008–09: -7.4"
    - Banks: "1993–09: 0.0", "2001–09: -1.7", "2008–09: -6.2"
    - Nonbank private: "1993–09: -4.8", "2001–09: -4.4", "2008–09: -1.2"
  - FDI: "1993–09: 5.6", "2001–09: 5.4", "2008–09: 8.0"
  - Total private: "1993–09: 0.8", "2001–09: -0.7", "2008–09: 0.6"
  - Memorandum: Current account: "17.2", "19.3", "18.1"

### Financial Sector — Key Findings
- Singapore’s financial system "withstood the world recession well." Banking and insurance led recovery; brokerage and wealth management recovered more slowly and showed lingering fragility.
- Money markets: Three-month interbank rate (SIBOR) stayed at "about 0.7 percent" since January 2009. Swap Offered Rates (SOR) bottomed out with MAS’ policy change in April; recent sovereign credit concerns in Europe have pushed them up somewhat.
- Bank credit:
  - Singapore dollar loans to nonbank customers reached a low in April 2009 and are now above pre-Lehman levels.
  - Consumer loans (mostly mortgages) expanded briskly; credit to businesses remains below peak.
  - Loan approvals under the government credit guarantee scheme have tapered off; retained earnings deployed to reduce leverage have held back foreign currency nonbank lending in the Asian Dollar Market.
  - Offshore interbank activity is registering upticks but remains sentiment-sensitive.

### Policy Developments and Assessments
- Macroeconomic management: Transitioned out of crisis-relief late last year; policy normalization has been achieved.
- Monetary policy: "The monetary settings are broadly appropriate." Staff and authorities agreed monetary policy should "stay the course, absent a significant deterioration of the outlook for growth and inflation." Macroprudential tools have been preemptively deployed to curb speculative property-market excesses.
- Fiscal policy: Withdrawal of fiscal support in the 2010 budget was "timely and well calibrated." The fiscal stance is "now close to neutral and in tune with internal balance." The 2010 budget focuses on supply-side measures to promote productivity growth.
- Financial sector policy: Domestic financial sector remained strong due to "sound supervision and risk management systems." Plans (with Malaysia and Hong Kong SAR) to unwind the blanket deposit guarantee by year-end and move to higher deposit coverage are underway.
- Basel III: Authorities view the impact of Basel III as "not expected to be too onerous" for Singaporean banks, which are already well capitalized, have stable funding, and well provisioned risky assets.
- Exchange rate: The Singapore dollar in real effective terms is "somewhat weaker than its medium-term equilibrium." Singapore’s exchange rate regime continues to "serve the economy well" and the MAS’ exchange-rate centered framework has been an important source of stability.

### Comparative and Structural Observations
- The 2009 recovery exhibited a more vigorous upswing than recoveries following 2001 and 1997−98; price level recovery took fewer quarters compared with earlier episodes.
- Singapore’s extraordinary openness (trade about "three times GDP") and specialization in cyclically-sensitive goods and services contributed to a deeper contraction relative to peers, but employment and wage outcomes were stronger due to active labor-market policies, flexible wage-setting, and government guarantees.

*Source: _cr10226 - Executive Summary.*

### 12.      Capital markets. In the sell-off at the heart of global deleveraging, the Singapore

### _cr10226 - 12.      Capital markets. In the sell-off at the heart of global deleveraging, the Singapore

### Capital markets
- Singapore equity market fell some 60 percent, reaching bottom in early 2009.
- As international financial conditions stabilized and portfolio inflows resumed, losses have been clawed back—but not as fast as after the Asia crisis; price earnings ratios remain below long-term averages.
- Corporate debt market: issuance has started to pick up, yet it remains below its pre-crisis level, with little recovery in the foreign currency segment.
- Yield curve: shifted down and steepened, reflecting changes in the monetary stance and the outlook.

### Foreign exchange market
- Singapore is the fifth largest foreign exchange market in the world.
- Daily turnover shrunk post-Lehman as financial institutions hoarded cash and U.S. dollar liquidity evaporated; it was 15 percent lower than a year earlier by end 2009.
- With recovery of trade and sentiment, volumes rebounded; by March 2010, they had returned to pre-crisis levels.
- Singapore dollar: strengthened over the last year but with bouts of volatility; in nominal effective terms, it was 5 percent higher in May than at the time of the 2009 Article IV consultation.

### Property markets
- Private property market saw the most dramatic recovery of 2009.
- Private house prices: increased from 2006, crested mid 2008, fell swiftly with the downturn, then rebounded mirroring the downward correction.
- Concerns of a boom-bust cycle prompted macroprudential and supply-side measures; as a result, private home prices have stabilized recently and the number of transactions has declined.

### Cross–country perspective
- 2009 recovery brought improved equity valuations, expansion of credit to households, renewed corporate issuance, and resurgence of capital inflows.
- Singapore dollar moved closer to early 2008 level against the U.S. dollar and on a multilateral basis.
- Comparison with Hong Kong SAR:
  - Both saw pressures from the failure of Lehman Brothers abate in early 2009.
  - Both had similar trajectories for equity and house prices in the upswing; macroprudential responses were alike.
  - Key difference: Hong Kong SAR is more exposed to inward spillovers from abundant U.S. dollar liquidity or rapid expansion in Mainland China because of the exchange rate peg; Singapore’s MAS policy framework provides monetary independence, lowering the risk of a credit-asset price cycle.

### Behind the Recovery — Context
- Both external and internal developments limited the severity of Singapore’s downturn and set the stage for expansion.

### Behind the Recovery — External drivers
- Global environment improved faster than anticipated.
- Stronger external demand and more settled financial markets propelled export-oriented activities with knock-on effects on private domestic demand.
- Regional dimension: cross-border production networks centered on China and region’s end-demand played an important role.
- China became a high-growth market for Singapore’s tourism services and the insurance industry.

### Behind the Recovery — Internal factors
- Authorities’ response: large fiscal stimulus, decisive monetary easing, and measures to ensure financial stability and market functionality.
- Employment subsidies and training programs supported household confidence and businesses’ bottom line.
- Schemes facilitated SMEs’ access to credit.
- Strong economic fundamentals and labor market flexibility (widespread use of bonuses in wage setting) provided buffers.
- Global similar actions amplified domestic policy effectiveness in a small open economy.

### Policy developments — Context
- With countercyclical support delivered and recovery firmer, macroeconomic management transitioned out of crisis-relief mode; policy normalization has been achieved and medium-term frameworks regained prominence.

### Monetary policy
- In mid-April, MAS tightened the policy stance by re-centering upward the NEER policy band at the prevailing level and returning to a "modest and gradual" appreciation of the NEER.
- The policy shift marked the end of accommodative monetary conditions since October 2008 and implied a slight "revaluation" of the NEER.
- MAS targets a nominal effective exchange rate (NEER) band to safeguard price stability.

### Fiscal policy
- 2009 budget: unprecedented countercyclical support; outturn benefitted from higher-than-anticipated tax revenues (from incomes and property) and some undershooting of expenditure.
- The deficit as defined by the authorities turned out at about 1 percent of GDP, some 2½ percent of GDP lower than planned.
- 2010 budget envisages an unchanged deficit but some unwinding of fiscal countercyclical support: the 2009 job subsidy scheme ended in June; credit support to SMEs will be phased out by 2011.
- 2010 budget implements ESC recommendations to foster productivity growth and reduce dependence on foreign labor through higher levies.

### Financial policies
- MAS ended some extraordinary support measures, including the currency swap agreement with the Fed.
- MAS formed a working group with Bank Negara Malaysia and the Hong Kong Monetary Authority on exiting from blanket deposit guarantees by the end of 2010—and raising the coverage of deposit insurance.
- Enhancements to MAS liquidity facilities introduced during the crisis were intended to import best practices and have not been rolled back.

### Outlook and risks — Near-term outlook
- Economy projected to expand nearly 10 percent in 2010.
- Both external and domestic demand should support growth, though first-quarter momentum will wane.
- Private consumption to benefit from income gains; private investment to reflect post-crisis retooling and inventory accumulation.
- As temporary factors and policy support fade, 2011 GDP growth will be lower but still above potential.
- Output gap turns positive and inflation will trend up, in part because of one-off factors.
- CPI inflation is projected at around 2½ percent this year.
- Authorities’ latest official projections: GDP growth in the range of 7−9 percent and CPI inflation in the range of 2½−3½ percent in 2010.
- Authorities note capacity expansion in several industries and the opening of two large integrated resorts should boost growth.

### Outlook and risks — Risks
- Fiscal sustainability concerns in some euro area economies may undercut global recovery or trigger market turbulence.
- Singapore growth would suffer if trade shrinks or credit dries up.
- Adverse spillovers could arise from a large correction in China’s property market—a tail risk.
- Upside surprises possible if the external environment improves more than anticipated; inflation risks would escalate in that scenario.

### Outlook and risks — Medium-term outlook
- Medium-term prospects hinge on stamina of global recovery, structural shifts in advanced economies, and impact of productivity-enhancing reforms and lower reliance on foreign labor.
- Baseline: GDP growth converges to a potential rate of about 4 percent, somewhat lower than average growth over the last decade.

### Outlook and risks — Current account
- Current account surplus as a share of GDP will remain sizeable over a five-year horizon but not grossly out of line with ratios consistent with demographic structure, financial center status, and net foreign asset position.
- From a saving-investment perspective, private savings will feel first impact of population aging and lower corporate profits.
- Private investment is projected to increase relative to GDP with planned expansions in the biomedical and chemical sectors.
- Higher capital intensity is a likely outcome of recently launched reforms and incentives.
- Public investment will remain strong, with a pipeline of projects in transport, health, and education.
- Authorities flagged potential for reductions in public savings in the longer run following last year’s constitutional amendment enabling the government to use more of the returns on its reserves to fund the budget.

### Policy discussions — Macroeconomic policies on the recovery path
- Monetary, fiscal, and macroprudential policies aim at sustaining expansion and curbing goods and asset market risks.
- Flexibility in policymaking remains a priority.

### Policy discussions — Monetary policy (staff view)
- MAS’ two-step recalibration restored a neutral stance; appropriate given projected output and price dynamics.
- Agreement that, barring significant outlook changes, monetary policy should stay the course.
- The width of the NEER band provides a shock-absorber for modest headwinds.
- If tail risks materialize (e.g., contagion from Europe or disruptive capital flows), policy adjustment will need to be bolder.

### Policy discussions — Capital inflows
- MAS noted gross inflows remain well below the 2006−07 peak and Singapore has traditionally been a net exporter of capital.
- Surges in capital inflows (e.g., Q1 2010) are generally intermediated out of the country.
- Authorities see little evidence that capital inflows are a significant source of asset price bubbles.
- Coping with extraordinary inflows could pose challenges: faster appreciation of the exchange rate may attract speculative activity.
- MAS intervenes in foreign exchange market when necessary to dampen upward pressure on the Singapore dollar and sterilizes liquidity injections to limit domestic interest rate volatility.

### Policy discussions — Bubble risks
- Appreciation path for the NEER has brought a lower cost of credit for businesses and households, possibly affecting asset prices.
- Authorities see potential hot spots in private housing where prices moved faster than the broader economy since 2009 turnaround, but fundamentals may explain much action.
- Systemic risk mitigants noted:
  - (i) majority of mortgages have loan-to-value ratios below the regulatory ceiling;
  - (ii) bank exposure to property sector (excluding mortgages on owner-occupied houses) remains well within prudential norms;
  - (iii) mortgage providers have been tightening loan terms;
  - (iv) low unemployment suggests few household delinquencies in the pipeline;
  - (v) bulk of the housing market (publicly built apartments) shows little signs of froth.
- Housing loan NPLs are currently about ½ of 1 percent of total loan.
- Ratio of monthly mortgage payments to monthly income is less than 25 percent.
- Private properties underwent a major price correction in 2008−09 with no systemic ripple effects.

### Policy discussions — Fiscal policy (staff view)
- Withdrawal of fiscal support has been timely and well calibrated.
- Bulk of fiscal impulse removed, notably rolling back Jobs Credit Scheme and expiration of other 2009 extraordinary interventions.
- Fiscal stance is now about neutral and in tune with internal balance.
- 2010 budget focuses on measures to strengthen potential growth.

### Policies in the financial sector
- Singapore’s financial sector is strong:
  - Domestic banks funded primarily through retail deposits; loan-to-deposit ratio is below 90 percent.
  - Regulatory capital is about 17 percent of risk-weighted assets; Tier 1 ratio is 14 percent.
  - Liquid asset ratio is about 18 percent.
  - NPLs at local banks are about 2 percent of total loans (only marginally up).
- Foreign banks account for over half of banking assets and face strict licensing; MAS maintains dialog with head offices and home-country supervisors.
- Insurers: investment income and new business premiums recovered; strong capital and liquidity buffers and a conservative asset mix.
- Hedge funds, wealth management, private banking, corporate fund advisory, and REITs: assets under management dropped to about S$860 billion at end-2008 from over S$1 trillion a year earlier; recovery underway and fund management industry expected to keep expanding although not as fast as pre-crisis.

*IMF staff report content as provided.*

### 33.      Banks. The latest round of stress tests based on severe assumptions about

### _cr10226 - 33.      Banks. The latest round of stress tests based on severe assumptions about

### Financial sector: banks, insurance, derivatives, asset management, deposit insurance, governance
- Banks
  - Latest round of stress tests based on severe international and domestic shocks suggests that, even in worst-case scenarios:
    - NPL ratios at local banks would remain below historical highs.
    - Capital adequacy would not be impaired.
  - Direct exposures to banks in fiscally-stressed European countries are small.
    - Example: the MAS estimates that the exposure of Singapore-incorporated banks to the troubled European economies amounts to less than 1 percent of their assets.
    - Assuming the same rate of withdrawal as during the global financial crisis, any decline in Europe-sourced deposits is not expected to exceed 5 percent of total deposits as of Mar 2010.
- Insurance
  - The MAS has strengthened the insurers’ stress testing framework by introducing stress-to-failure scenarios.
  - MAS has been reviewing Singapore’s policy owner’s protection scheme with a view to broadening coverage and providing for pre-funding.
- OTC-traded derivatives
  - The Singapore Exchange has proposed to set up a facility to provide for central counterparty clearing of certain OTC financial derivative contracts (interest rate swaps and Asian foreign exchange forward contracts settled in U.S. dollars).
- Asset management
  - MAS has proposed a licensing regime for fund management companies (including hedge funds) that manage assets in excess of S$250 million.
  - Capital requirements and fit-and-proper tests for managers and staff would also apply.
  - MAS’s view: no clear signs yet that stricter regulations in Europe and the United States are creating incentives for hedge funds to relocate to Singapore or other jurisdictions in Asia.
- Deposit insurance
  - MAS proposed enhancements to the deposit insurance scheme including raising the deposit insurance coverage limit.
  - Ninety percent of depositors would be insured once the ceiling of deposit protection is more than doubled, as proposed by the MAS.
  - Staff noted that consideration could be given to the adoption of risk-based premia.
- Corporate governance
  - In March, MAS proposed enhancements to current guidelines on corporate governance (for example, composition of the Board and structures for risk management) applying to banks incorporated in Singapore and certain finance and insurance companies.

### Post-crisis structural and regulatory issues
- Context
  - Four issues particularly relevant for Singapore: Basel III; self-insurance through official reserves; design of social safety nets; strategies to increase productivity.
- Basel III
  - Broad agreement that tighter requirements on capital, liquidity, and leverage are not expected to be too onerous for Singaporean banks (already well capitalized, stable funding, risky assets well reserved).
  - Raising the quality of capital may be the greatest challenge, but should be manageable.
  - Situation less clear for foreign banks and nonbanks.
  - Impact of other reforms (levies, surcharges on systemically important financial institutions, counter-cyclical capital buffers) is more speculative pending design specifics.
  - Final assessment awaits calibrations and greater supervisory cooperation across jurisdictions.
  - MAS emphasized some discretion in implementation should be left to national authorities.
- Official reserve buffers
  - Authorities’ view: Singapore’s accumulation of foreign assets reflects transitional dynamics tied to factors specific to Singapore (very small size, lack of natural resources, financial center status, large presence of multinationals, and population aging) calling for high savings and a large desired stock of net foreign assets (NFAs).
  - Strong external and fiscal positions have helped shield Singapore’s financial sector.
  - Underlying stock adjustment is expected to end in the foreseeable future as the first baby boomers will begin to retire two years from now and public spending is likely to increase over the medium term and beyond, marking a shift in saving behavior and a move toward stabilizing the NFA ratio.
- Social safety nets
  - Previous Fund recommendations to strengthen social safety nets have not found much traction.
  - Authorities state Singapore has an extensive system of social programs that protects the least advantaged without undermining self-reliance, including “invisible but real” social safety nets and Community Development Councils.
  - Authorities argue Singapore’s social security system does not create a burden for future generations and OECD-type indicators may mask intergenerational inequities or the role of policies to promote alternative saving vehicles, in particular home ownership.
  - Staff note generational accounting calculations suggest very large transfers from the current to future generations and scope exists to further develop mechanisms to make housing wealth more liquid or increase the return on pension contributions.
- Productivity growth
  - Staff and authorities agree faster productivity gains are key; the ESC set a goal of doubling labor productivity growth to about 2½ percent per year over the next ten years.
  - Budget measures to encourage capital deepening, upgrade worker skills, and enhance innovation are significant steps toward expanding the technology frontier.
  - Authorities noted planned gradual increase in foreign worker levies would contribute to boost labor productivity by strengthening supply-side incentives to re-optimize the capital-labor mix.

### Exchange rate assessment
- Developments
  - For most of 2009, the Singapore dollar in real effective terms (REER) moved side-ways; it strengthened somewhat following the resumption in April of a targeted trend appreciation of the NEER.
  - The current account was about 18 percent of GDP in 2009.
  - Over the medium term, the current account is projected to decrease modestly at an (approximately) unchanged REER.
- Assessment
  - Authorities and staff agreed the Singapore dollar REER will strengthen over the medium term as the domestic economy expands and shifts in production and global demand play out.
  - Staff estimates the REER is somewhat weaker than its equilibrium (see Box 4); assessment subject to considerable uncertainty, notably the projected current account surplus five years from now.
  - From a multilateral perspective, a policy mix shift to a tighter monetary policy and a more expansionary fiscal policy would reduce the current account surplus while safeguarding internal balance and could eliminate the REER undervaluation over the medium term.
  - Authorities are skeptical of CGER-like methodologies and maintain MAS valuation models show the REER broadly in line with fair value.
- Box 4 findings (exchange rate methodologies and results)
  - Macroeconomic balance approach estimates a current account “norm” of about 11 percent of GDP and implies the Singapore dollar is undervalued by about 8 percent (after multilateral adjustment).
  - External sustainability approach: undervaluation depends on NFA benchmark.
    - Assuming NFA stabilized at its 2009 level (estimated at about 142 percent of GDP), implied undervaluation is about 16 percent.
    - Computing NFA with cumulative current account balances gives an NFA estimate of around 200 percent of GDP—and an undervaluation of around 7 percent.
  - Equilibrium exchange rate approach suggests the exchange rate is about 1 percent below its equilibrium.

### Staff appraisal: key findings and policy recommendations
- Crisis impact
  - Singapore’s strong fundamentals and policy frameworks limited the 2008 downturn’s domestic impact; authorities credited for decisive and timely countercyclical support.
- Macroeconomic setting
  - Economy on a broad-based recovery path; output losses recouped; policy focus shifting from crisis relief to sustaining expansion.
  - Flexibility in policymaking remains a priority given global fragilities.
- Monetary policy
  - MAS’s recalibration has unwound earlier monetary stimulus and restored broadly neutral monetary conditions; appropriate given projected output and price dynamics.
  - An appreciation bias for the Singapore dollar in effective terms is consistent with internal and external stability; monetary policy should stay the course barring major outlook changes.
- Capital inflows
  - Managing disruptive capital flows not an immediate challenge, but heightened volatility expected; exchange rate policies and macroprudential tools will need careful calibration.
- Fiscal policy
  - Exit from crisis-related support largely completed; fiscal policy regained traditional medium-term orientation and is close to neutral.
  - Multilateral considerations suggest desirability of a secular shift toward a more expansionary fiscal stance; authorities’ intention to increase spending in physical and social infrastructure over the medium term is welcome.
- Financial sector policies
  - Financial sector emerged largely unscathed due to strong supervision and risk management.
  - Plans to unwind the blanket deposit guarantee by year-end and move to a system with higher deposit coverage are commendable; consideration could be given to making deposit insurance premia risk-based.
- Property market
  - Exuberance in some property market segments does not seem to be of systemic importance.
  - Sales of public land and macroprudential measures are part of a contingent, preemptive, and graduated strategy; authorities should continue monitoring and build on measures if necessary.
- Basel III
  - Revamped regulations on capital, liquidity, and leverage should not be too onerous for local banks; focus on sound supervision remains important.
  - MAS has undertaken public consultations and proposed measures to strengthen investor protection and increase senior management responsibility where needed.
- Official reserve accumulation
  - Building reserve buffers is a central plank given Singapore’s characteristics; authorities encouraged to keep accumulation under review to avoid generationally inequitable outcomes or inefficient resource allocation.
- Social safety nets
  - Singapore’s “real but invisible” safety nets mitigate hardship while preserving work incentives.
  - As systems are adapted, consideration could be given to orthodox enhancements such as raising returns to pensioners and facilitating monetization of housing wealth.
- Exchange rate
  - REER is somewhat weaker than its medium-term equilibrium, suggesting likely currency strengthening over time.
  - Singapore’s exchange-rate-centered monetary framework continues to serve the economy well and has been an important source of stability.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

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

### Staff Report for the 2010 Article IV Consultation—Informational Annex

### 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 2009 Article IV consultation discussions were held during May 11−18, 2009; the Executive Board concluded the consultation on July 29, 2009.

### Real sector developments
- GDP growth recovered in the second half of 2009; net exports propelled the upswing, which has become more broad based.
- Manufacturing started to recover in the second half of 2009, especially electronics.
- Labor markets improved; inflation is picking up but remains low.
- Selected exact indicators:
  - Nominal GDP (2009): US$182.2 billion
  - Growth (percentage change) — Real GDP: 2009: -1.3; 2010 (Proj.): 9.9; 2011 (Proj.): 4.9
  - Total domestic demand growth: 2009: -4.9; 2010: 9.0; 2011: 5.7
  - CPI inflation (period average, percent): 2009: 0.6; 2010 (Proj.): 2.5; 2011 (Proj.): 2.1
  - Unemployment rate (2009): 3.0 percent

### Asset market developments
- Interbank interest rates have been stable at low levels.
- FX volatility has been moderate.
- Equity markets rallied in early 2009, in line with regional markets.
- Residential property markets rebounded and do not seem out of line with other countries in the region.
- Selected exact indicators:
  - Three-month interbank rate (percent, end-year): 2009: 0.7
  - Stock prices (percent change, y/y): 2009: 64.5
  - Real estate prices — Residential (percent change, y/y): 2009: -14.1

### External developments
- Exports and imports rebounded in 2009.
- The current account surplus remains significantly lower than pre-crisis levels.
- The real effective exchange rate (REER) started appreciating.
- The financial account turned positive and gross official reserves started to increase.
- Selected exact indicators:
  - Main exports (percent of total domestic exports): Electronic products (26%); chemical products (18%)
  - Current account balance (US$ billions): 2009: 32.4; 2010 (Proj.): 40.7; 2011 (Proj.): 40.8
  - Current account (In percent of GDP): 2009: (17.8)
  - Exports, f.o.b. (US$ billions): 2009: 272.4; 2010 (Proj.): 347.9; 2011 (Proj.): 385.6
  - Imports, f.o.b. (US$ billions): 2009: -242.4; 2010 (Proj.): -306.2; 2011 (Proj.): -334.1
  - Gross official reserves (US$ billion): 2009: 187.8; 2010 (Proj.): 198.9; 2011 (Proj.): 206.3

### Financial sector developments and vulnerabilities
- Capital adequacy is ample; regulatory capital to risk-weighted assets: 2009: 16.5 (Table 7).
- NPL ratios are edging down; NPLs to nonbank loans: 2009: 2.3.
- Banks’ profitability has remained stable and lending activity is expanding (nonbank lending growth positive).
- Corporate sector indicators show healthy balance-sheet metrics; household balance sheets remain strong.
- Selected exact indicators:
  - NPL ratio (local banks, percent) — latest observation as of September 2009: 2.3
  - Capital adequacy ratio of local banks (percent) — 2009: 16.5
  - Broad money (M3, percent change, y/y): 2009: 10.6
  - Private sector credit (percent change, y/y): 2009: 2.0
  - Credit to the property sector (percent change, y/y): 2009: 8.3
  - Share of property-sector credit in total nonbank credit (percent): 2009: 49.9

### Public finances and fiscal indicators
- Central government operations (fiscal year April 1–March 31) show sizable overall balances in recent years and a swing in 2009/10 reflecting the crisis response.
- Selected exact indicators (percent of GDP):
  - Total revenue (2010/11 Budget Prel.): 20.2
  - Total expenditure (2010/11 Budget Prel.): 12.4
  - Overall balance (2010/11 Budget Prel.): 7.8
  - Primary balance (2010/11 Budget Prel., defined): -1.1

### Medium-term projections and scenario highlights
- Medium-term projections (2005–15) included in the staff tables show:
  - Real GDP growth (percent change): 2010–15 projections include 2010: 4.9; 2011: 4.4; 2012–15: 4.3–4.0 (see Table 6 for annual breakdowns).
  - Current account balance (percent of GDP): 2010 (Proj.): 18.6; 2011 (Proj.): 17.4; gradual moderation through 2015.
  - Gross official reserves (US$ billions) projected to increase across the medium term (e.g., 2010: 198.9; 2011: 206.3; Table 6 and Table 2).

### Fund relations and institutional notes
- Membership status: Joined August 3, 1966; Article VIII.
- Quota (SDR Million): 862.50 (100.00 percent)
- Fund holdings of currency: 694.92 (80.57 percent)
- Singapore’s exchange rate classification: ―other managed.‖ MAS monitors the S$ against an undisclosed basket and intervenes using the U.S. dollar as the intervention currency.
- Singapore maintains certain restrictions on Singapore-dollar credit facilities to, and bond and equity issuance by, nonresident financial institutions (specific operational rules described in text).
- FSAP was undertaken in conjunction with the 2003 Article IV consultation; a fiscal ROSC remains a priority and timing likely to be considered in 2011.
- Resident Representative: Mr. Ravi Balakrishnan

*Source: Staff Report for the 2010 Article IV Consultation—Informational Annex (Prepared by the Asia and Pacific Department, July 1, 2010).*

### ANNEX II: SINGAPORE—STATISTICAL ISSUES

### ANNEX II: SINGAPORE—STATISTICAL ISSUES

### I. Assessment of Data Adequacy for Surveillance
- General: Data provision is broadly adequate for surveillance. The authorities have continued to improve data quality, but dissemination of more disaggregated data would enhance macroeconomic policy analysis, particularly in the external and fiscal areas.
- National accounts:
  - The Singapore Department of Statistics (DOS) has made improvements in data sources and methodology.
  - A reconciliation of various national accounts estimates was conducted in 2006, resulting in lower statistical discrepancies.
  - DOS has completed the rebasing of Singapore’s national accounts to reference year 2005.
- Price statistics:
  - DOS has completed the rebasing of the Consumer Price Index (CPI) to base year 2009.
  - The CPI is rebased once every five years to reflect the latest consumption pattern and composition of goods and services consumed by resident households.
- Government finance statistics:
  - Information on government assets held abroad is neither published nor provided to the Fund.
  - Interest and dividend on these assets and debt service payments on domestic debt made from the extra budgetary Government Securities Fund are published on an annual basis.
  - Data on the financial position of the consolidated public sector are not published.
- Monetary statistics:
  - The Monetary Authority of Singapore has not submitted the standardized report forms (SRFs) for monetary statistics introduced in October 2004.
  - The SRFs provide for accounting data to be broken down by instrument, sector, and currency.
- Balance of payments:
  - Data on the international investment position (IIP) are not provided on a disaggregated level as suggested by the Balance of Payments Manual (5th edition).
  - The IIP position does not include all the net foreign assets held by Singapore’s Government Investment Corporation, although the associated flows are included in the balance of payments data.
  - The authorities are improving over time the reporting of the international investment position to the IMF.

### II. Data Standards and Quality
- Singapore provides data on a timely basis and meets all the SDDS specifications. These include:
  - Coverage, periodicity, and timeliness of the data;
  - Dissemination of advance release calendars;
  - Quarterly certification of the metadata posted on the Fund’s Dissemination Standards Bulletin Board;
  - Provision of information to allow users to assess data quality.
- No data ROSC is available.

### Common Indicators Required for Surveillance (as of June 8, 2010)
- Exchange rates: Latest observation 06/08/10; Date received 06/08/10; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D.
- International reserve assets and reserve liabilities of the Monetary Authorities: Latest observation 05/2010; Date received 06/2010; Frequency M/M/M.
- Reserve/base money: Latest observation 05/2010; Date received 06/2010; Frequency M/M/M.
- Broad money: Latest observation 04/2010; Date received 06/2010; Frequency M/M/M.
- Central bank balance sheet: Latest observation 04/2010; Date received 06/2010; Frequency M/M/M.
- Consolidated balance sheet of the banking system: Latest observation 04/2010; Date received 06/2010; Frequency M/M/M.
- Interest rates: Latest observation 06/08/10; Date received 06/08/10; Frequency D/D/D.
- Consumer price index: Latest observation 04/2010; Date received 05/2010; Frequency M/M/M.
- Revenue, expenditure, balance and composition of financing — central government: Latest observation 04/2010; Date received 05/2010; Frequency M/M/M.
- External current account balance: Latest observation 2010:Q1; Date received 05/2010; Frequency Q/Q/Q.
- Exports and imports of goods and services: Latest observation 04/2010; Date received 05/2010; Frequency M/M/M.
- GDP/GNP: Latest observation 2010:Q1; Date received 05/2010; Frequency Q/Q/Q.
- Gross external debt: Latest observation 2009:Q4; Date received 03/2010; Frequency Q/Q/Q.
- Net international investment position: Latest observation 2008; Date received 2009; Frequency A/A/A.
- Notes from table footnotes:
  - 1 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
  - 2 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes, and bonds.
  - 3 Foreign, domestic bank, and domestic nonbank financing.
  - 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
  - 5 Including currency and maturity composition.
  - 6 Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).
  - 7 Official external debt is zero.
  - 8 The reported number does not include the net foreign asset position of the Government of Singapore’s Investment Corporation.

### IMF Staff Representative — Recent Data
- Economic activity (advance estimates released July 14):
  - GDP growth jumped to 26 percent and 19.3 percent, following (revised) growth of 45.9 percent (q/q s.a.a.r.) and 16.9 percent (y/y) in the previous three months.
  - The second-quarter pace of activity was the fastest on record.
  - Double digit growth was recorded in all main sectors.
  - Manufacturing benefitted from a spike in the production of pharmaceuticals and electronics; services were boosted by tourism and increased financial intermediation.
  - With one-off factors at play, growth is expected to revert to a more sustainable rate in the quarters ahead.
- Ministry of Trade and Industry projection:
  - On the basis of better-than-expected performance in the first half, the Ministry has marked up its projection for 2010 GDP growth to the range 13−15 percent, from 7−9 percent.

### IMF Staff Representative — Outlook
- The latest data release makes the staff’s projection somewhat conservative.
- The flash second-quarter outturn, if confirmed, and the revised first-quarter outturn mechanically lift the GDP numbers for 2010.
- Accordingly, GDP growth for the year is likely to be revised from about 10 percent to around 15 percent in the upcoming WEO round.
- 2011 GDP growth will probably be marked down somewhat, on base effects.
- The strong performance increases upside risks to inflation.

### Public Information Notice / Executive Board Assessment (July 23, 2010)
- Background and recent performance:
  - Singapore’s 2008−09 recession was less deep than feared; output losses have been recouped and a broad-based expansion is underway.
  - At its low mark a year earlier, GDP was 9 percent lower than pre-crisis.
  - Growth has been double-digit for three of the last four quarters, reaching nearly 39 percent (quarter-on-quarter, seasonally adjusted annualized rate) in the first quarter of 2010.
  - Headline inflation declined quickly and turned negative in the second half of 2009; CPI is back to its previous peak due to dissipating base effects, rising fuel and transport costs, and growth above potential.
  - Financial system withstood the world recession well; banking and insurance led recovery, brokerage and wealth management slower.
- Executive Directors’ views:
  - Commended authorities for strong fundamentals, policy frameworks, and forceful countercyclical policies.
  - Flexible and proactive policies remain important given exposure to risks from a slowdown of world trade or financial linkages.
  - Commended Monetary Authority of Singapore for unwinding monetary stimulus and restoring broadly neutral monetary conditions; noted return to modest and gradual appreciation of the Singapore dollar in nominal effective terms.
  - Staff assessment: the Singapore dollar appears to be somewhat weaker than its medium-term equilibrium level, though with considerable uncertainty.
  - Exchange-rate centered monetary framework remains appropriate.
  - Fiscal policy: last year’s extraordinary fiscal support appropriately withdrawn in the 2010 budget; fiscal settings close to neutral and in tune with internal balance.
  - Supported return of fiscal policy to traditional medium-term orientation and emphasis on innovation, capital deepening, and productivity growth; authorities’ intention to increase spending on physical and social infrastructure is welcome.
  - Financial stability: strong supervision and risk management systems credited; endorsed plans to unwind by year-end the blanket deposit guarantee and move to a system with higher deposit coverage.
  - Property market: welcomed measures to contain risks in exuberant segments and encouraged continued close monitoring.
  - Social policy: acknowledged rationale for promoting self-reliance over social welfare programs, but encouraged adapting approach over time to preserve social and intergenerational fairness.
  - Reserves: noted that building strong foreign exchange and fiscal reserve buffers has been central to strategy; over time, a slower pace of reserve accumulation could be expected given Singapore’s demographic profile.

### Selected Economic and Financial Indicators, 2005–11 (key figures)
- Real GDP growth (percentage change):
  - 2005: 7.4
  - 2006: 8.6
  - 2007: 8.5
  - 2008: 1.8
  - 2009: -1.3
  - 2010 (Proj.): 9.9
  - 2011 (Proj.): 4.9
- Total domestic demand growth:
  - 2005: 2.6
  - 2006: 7.1
  - 2007: 7.8
  - 2008: 14.7
  - 2009: -4.9
  - 2010 (Proj.): 9.0
  - 2011 (Proj.): 5.7
- CPI inflation (period average, percent):
  - 2005: 0.5
  - 2006: 1.0
  - 2007: 2.1
  - 2008: 6.6
  - 2009: 0.6
  - 2010 (Proj.): 2.5
  - 2011 (Proj.): 2.1
- Unemployment rate (period average, percent):
  - 2005: 3.1
  - 2006: 2.7
  - 2007: 2.1
  - 2008: 2.2
  - 2009: 3.0
  - 2010 (Proj.): 2.2
  - 2011 (Proj.): 2.3
- Central government budget (percent of GDP) (calendar year basis):
  - Revenue:
    - 2005: 20.0
    - 2006: 20.2
    - 2007: 23.1
    - 2008: 24.1
    - 2009: 20.1
    - 2010 (Proj.): 20.3
    - 2011 (Proj.): 21.0
  - Expenditure:
    - 2005: 12.8
    - 2006: 13.0
    - 2007: 12.6
    - 2008: 17.0
    - 2009: 20.2
    - 2010 (Proj.): 20.5
    - 2011 (Proj.): 20.8
  - Overall balance:
    - 2005: 7.3
    - 2006: 7.1
    - 2007: 10.5
    - 2008: 7.1
    - 2009: -0.1
    - 2010 (Proj.): -0.2
    - 2011 (Proj.): 0.2
  - Primary operating balance:
    - 2005: -1.3
    - 2006: -1.4
    - 2007: 0.3
    - 2008: -1.9
    - 2009: -4.9
    - 2010 (Proj.): -4.2
    - 2011 (Proj.): -4.3
- Money and credit:
  - Broad money (M3) (end of period, percentage change):
    - 2005: 6.4
    - 2006: 19.1
    - 2007: 14.1
    - 2008: 11.6
    - 2009: 10.6
    - 2010: ...
    - 2011: ...
  - Lending to nonbanking sector (end of period, percentage change):
    - 2005: 2.2
    - 2006: 6.3
    - 2007: 19.9
    - 2008: 16.6
    - 2009: 3.4
    - 2010: ...
    - 2011: ...
  - Three-month interbank rate (percent):
    - 2005: 3.3
    - 2006: 3.4
    - 2007: 2.4
    - 2008: 1.0
    - 2009: 0.7
    - 2010: ...
    - 2011: ...
- Balance of payments (US$ billions):
  - Current account balance:
    - 2005: 26.7
    - 2006: 35.1
    - 2007: 47.2
    - 2008: 35.8
    - 2009: 32.4
    - 2010 (Proj.): 40.7
    - 2011 (Proj.): 40.8
    - (In percent of GDP): (21.3) (24.2) (26.7) (18.5) (17.8) (18.6) (17.4)
  - Trade balance:
    - 2005: 36.4
    - 2006: 42.6
    - 2007: 46.1
    - 2008: 26.5
    - 2009: 30.0
    - 2010 (Proj.): 41.7
    - 2011 (Proj.): 51.5
  - Exports, f.o.b.:
    - 2005: 232.7
    - 2006: 274.7
    - 2007: 302.5
    - 2008: 341.7
    - 2009: 272.4
    - 2010 (Proj.): 347.9
    - 2011 (Proj.): 385.6
  - Imports, f.o.b.:
    - 2005: -196.3
    - 2006: -232.2
    - 2007: -256.4
    - 2008: -315.2
    - 2009: -242.4
    - 2010 (Proj.): -306.2
    - 2011 (Proj.): -334.1
  - Financial account balance:
    - 2005: -16.7
    - 2006: -14.8
    - 2007: -31.3
    - 2008: -24.0
    - 2009: -20.3
    - 2010 (Proj.): -29.2
    - 2011 (Proj.): -33.0
  - Overall balance:
    - 2005: 12.3
    - 2006: 17.0
    - 2007: 19.4
    - 2008: 13.1
    - 2009: 11.3
    - 2010 (Proj.): 11.1
    - 2011 (Proj.): 7.4
- Gross official reserves (US$ billions):
  - 2005: 116.2
  - 2006: 136.3
  - 2007: 163.0
  - 2008: 174.2
  - 2009: 187.8
  - 2010 (Proj.): 198.9
  - 2011 (Proj.): 206.3
  - (months of imports of following year's goods and services): (4.7) (4.9) (4.9) (6.4) (5.7) (5.6) (5.4)

### Statement by Adrian Chua, Alternate Executive Director for Singapore (key points)
- Acknowledgement: Authorities thanked IMF staff for the 2010 Article IV Consultation; discussions were engaging and constructive.
- Recent developments and outlook:
  - After an output loss of 9% over the recession, Singapore staged a rapid recovery.
  - Over four quarters to March 2010, GDP increased on average at a double-digit pace (q-o-q SAAR).
  - The sharp upturn resulted in GDP contracting by a milder-than-expected 1.3% in 2009.
  - GDP expanded by 38.6% q-o-q SAAR in Q1 2010, recouping all output lost during the downturn.
  - Recovery evolved from inventory restocking and financial stabilization to a broad-based pickup in final demand in key export markets; trade-related sectors, especially IT, led growth.
  - Surge in transport and wholesale trade; financial services and tourism picked up strongly.
  - Recent indicators in April and May suggest growth momentum likely sustained in Q2 2010.
  - For the rest of 2010, growth momentum expected to slow though domestic activity remains high.
  - Supportive factors: recovery in consumption and investment in major economies and Asia; launch of new capacity (petrochemicals plants, biologics facilities, integrated resorts).
  - Downside risks include uncertainties in the external environment, notably the sovereign debt crisis in the Eurozone.
  - Growth likely moderate to a more sustainable pace in 2011 against global developments.

*Source: ANNEX II: SINGAPORE—STATISTICAL ISSUES; Statement by the IMF Staff Representative; Public Information Notice No. 10/95; Selected tables and statements as of June 17, 2010–July 23, 2010.*

### 2.4 Domestic CPI inflation was negative in the second half of 2009, reflecting the

### _cr10226 - 2.4 Domestic CPI inflation was negative in the second half of 2009, reflecting the

### Domestic inflation developments
- Domestic CPI inflation was negative in the second half of 2009, reflecting the combined effects of lower global oil prices and domestic business costs as well as weaker domestic consumer demand.
- Inflation picked up to 0.9% y-o-y in Q1 2010 and rose further to 3.2% in April-May.
- Step-up in inflation rate was largely attributed to the rebound in crude oil prices and the cost of private transportation.
- Recently, costs of other items such as food and recreation services had also picked up.

### Inflation outlook and risks
- Headline CPI inflation is likely to remain elevated for the rest of the year, driven largely by higher private road transport costs and commodity prices.
- Other domestic sources of inflationary pressure could emerge more strongly as business costs rise with the expansion of the economy and tightening of factor markets.
- Labour market conditions have tightened significantly, with the seasonally adjusted resident unemployment rate nearly back to its pre-crisis level.
- Industries unable to step up productivity could face difficulty absorbing higher wage costs, potentially putting upward pressure on prices across a wide range of goods and services.
- CPI inflation for 2010 is projected to average between 2.5% and 3.5%, before moderating next year.

### Macro policy responses
- Monetary policy:
  - When Singapore entered the recession in 2008, monetary policy, followed by fiscal policy, shifted to provide support to the domestic economy.
  - As economic activity recovered in 2009, most countercyclical measures were withdrawn and policy settings were recalibrated toward sustainable growth and medium-term price stability.
  - In April 2010, the Monetary Authority of Singapore (MAS) tightened monetary policy by re-centring the S$NEER policy band upwards and restoring its modest and gradual appreciation path.
  - The exchange rate-centred monetary policy framework retains flexibility via its ―band‖ and ―crawl‖ features to accommodate sudden shifts in economic conditions.
  - Authorities remain alert to external developments and domestic prices, including those in the property market, and have a range of tools to preemptively curb excesses and promote stability in the property market.
- Fiscal policy:
  - Fiscal policy contributed significantly to adjustments in the macroeconomic stance.
  - The government announced exit strategies late last year for two components of the Resilience Package – the Jobs Credit Scheme and the Special Risk-Sharing Initiative (SRI).
  - Gradual phase-out of extraordinary measures provides lead-time for transition into the FY2010 Budget stance.
  - The FY2010 Budget shifted focus from crisis relief to restructuring the economy through investments in skills, building capabilities and encouraging innovation, following Economic Strategies Committee (ESC) recommendations aimed at productivity-driven growth.
  - Measures to achieve inclusive, broad-based growth include spurring workforce upgrading, higher levies for unskilled foreign labour, additional transfers for low-wage workers, and introduction of a progressive property tax system.
- Financial sector oversight:
  - Singapore’s financial system proved resilient during the global crisis; banking and insurance sectors remained profitable, liquid and well-capitalised.
  - Authorities remain vigilant about developments in Europe, uneven global recovery, and abundant liquidity conditions.
  - MAS focuses financial institutions on managing risks and safeguarding liquidity, earnings and capital, contributes to international regulatory reform discussions, and has proposed rules to strengthen corporate governance and improve safety net arrangements such as the deposit insurance fund and the policy-owners protection fund.

### Structural issues
- Accumulation of foreign assets:
  - Singapore’s accumulation of foreign assets reflects demographic transition and factors specific to Singapore: very small size, absence of natural resources, and status as an open financial centre.
  - Investments by Singapore-based enterprises often take place externally; limited financial integration within the natural hinterland requires domestic savings to finance investment abroad.
  - These factors, and the need for a buffer against volatility in an economy exposed to capital flows, have led to a significant stock of official reserves.
- Social safety nets:
  - Authorities are raising government spending to invest in capabilities while addressing higher social expenditure needs of an ageing society and growing income gaps.
  - The authorities aim to preserve fiscal responsibility and follow a new framework for equitable sharing of returns from the country’s reserves between current and future generations; the Constitution was amended in 2008 to allow drawing on more investment returns for public sector spending.
  - Spending increases target healthcare and social safety nets including the Workfare Income Supplement scheme and various social assistance or community support programmes, while continuing to incentivise personal and family responsibility.
  - Returns paid by the Central Provident Fund Board (CPFB) to members compare well with equivalent market-based instruments.
  - From 1 Jan 2008, CPF interest rates were restructured to provide a return equal to 10-year Singapore Government Securities (SGS) plus 1% for savings in the Special, Medisave, and Retirement Accounts, with an additional 1% return above this long-term bond rate for the first S$60,000 of a member’s combined balances.
  - Throughout the financial crisis, CPFB continued to pay a minimum of 2.5% p.a. for savings in the Ordinary Account, and a minimum of 4.0% for savings in the Special, Medisave, and Retirement Accounts.

### Final remarks
- Given its openness, the Singapore economy was hard hit during the severe global downturn and rebounded swiftly with the pick-up in the global economy, supported by policy measures during the downturn.
- Authorities have exited short-term accommodative policy settings and are focusing on policies to sustain medium-term growth while being mindful of global risks.
- Authorities will closely monitor external developments and respond as appropriate.
- The Singapore authorities informed the Board they are agreeable to the publication of the Staff Report associated with the 2010 Article IV Consultation and will be releasing the Buff Statement at the same time.

*Source: IMF staff report text provided in the content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10226.pdf_