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### A Long View of Real Exchange Rate and Inflation Trends
- Output dropped 9 percent during 2008-early 2009, then recovered strongly; in Q1:2012, GDP stood about 18 percent above the pre-crisis level.
- Growth averaged nearly 10 percent during 2010−11; resident unemployment is at an historic low of 3 percent.
- Headline consumer price inflation rose from less than 2 percent prior to the global financial crisis to around 5 percent since mid 2011.
- Private house prices rose by a cumulative 55 percent since the 2009 trough; they recently leveled off in response to authorities’ policy measures and weaker regional sentiment.
- Drivers of headline inflation: large contributions from imputed rent on owner‑occupied housing and steep increases in the cost of vehicle ownership permits (COEs).
- Core inflation (excludes accommodation and private transport costs) has also picked up; nontradable price increases accelerated, notably for education and healthcare services.
- Box 1 — Real exchange rate and inflation dynamics:
  - Despite a doubling of Singapore’s NEER since the early 1980s, the CPI‑based REER appreciated by only 20 percentage points cumulatively over the period.
  - The limited real appreciation reflects consistently‑lower inflation in Singapore than in all its trading partners and competitors, with the exception of Japan.
  - Following a 20 percent increase since 2005, the REER is approaching its previous historical peak.

### Macroeconomic Position and Balance Sheets
- Banking system: large at nearly seven times GDP by assets; financial sector contributes about 12 percent to annual GDP.
- Big 3 domestic banks: about one third of the sector by assets; strong financial soundness indicators, high capital adequacy and earnings ratios; all three banks carry high investment ratings.
- Households:
  - Aggregate household debt to assets: 15¼ percent.
  - Household debt to GDP: 70 percent.
  - Household debt below holdings of cash and deposits.
- Corporates:
  - Overall leverage ratio for publicly-listed firms around 30 percent.
  - Authorities’ simulations indicate earnings would exceed interest payments even if interest rates were to rise by 300 bps.
- Fiscal and external:
  - Persistent fiscal surpluses and a large stock of public sector external assets.
  - Government outstanding gross debt of about 100 percent of GDP is issued to develop local-currency capital markets and to provide an investment vehicle for the CPF; gross assets are larger than gross debt.

### Macroeconomic Implications of Reliance on Nonresident Foreign Workers (NRFWs)
- NRFWs account for about one-third of the labor force (including highly‑skilled permanent residents, the share rises to 40 percent).
- NRFWs’ effects identified:
  - Low productivity: total factor productivity contribution to GDP growth declined steadily during the previous two decades while labor’s contribution increased sharply.
  - Expanded wage distribution: higher wages at the top end; lower-end wages pulled toward source‑country levels due to deep pool of less‑skilled workers.
  - Subdued inflation and real appreciation: absorption of large numbers of less‑skilled foreign workers in the nontradable sector restrained real unit labor costs, dampening the CPI‑based REER path.

### Authorities’ Productivity Push: Policy Elements and Transition Implications
- Managing foreign workers (post‑2010 measures):
  - Levies on nonresident foreign workers raised since 2010.
  - 2012 Budget lowered firm-level dependency ratio ceilings; firms have until June 2014 to comply, but cannot bring in additional foreign workers beyond new ceilings from July 2012.
  - Tightening affects mostly low-skilled foreigners and small, labor-intensive firms.
  - Dependency ratio changes quantified:
    - Reduced from 65 percent to 60 percent for manufacturing firms.
    - Reduced from 50 percent to 45 percent for service-sector firms.
  - Foreign worker share: around the current one third.
- Complementary measures:
  - Rebates and tax relief for firms purchasing productivity-enhancing capital goods and for skill-upgrading programs.
  - Subsidies and/or stipends for workers in government-organized specialized training programs.
- Transition effects (short-to-medium term):
  - Real and nominal wages—especially for lower-skilled employees—will rise as labor supply growth is curtailed.
  - With productivity gains lagging, potential growth will be scaled down and unit labor costs will increase.
  - Output gap will be larger than otherwise and core inflation will remain elevated.
  - Current account surplus will narrow as higher wages and domestic prices raise demand for imports and weaken exports.
- Longer term:
  - Policies supporting training, automation, and efficiency expected to boost capital accumulation and total factor productivity.
  - Some recovery in potential growth expected (though likely below the level under the previous labor‑intensive growth model); unit labor costs should moderate.
  - Real exchange rate level will be permanently more appreciated, helping to narrow the current account surplus.
- Authorities’ expectations:
  - Closing the productivity gap over a decade could deliver productivity growth of 2−3 percent per year.
  - Slower labor force growth would dampen potential GDP growth to 3−5 percent.

### Near‑term Outlook and Risks (Staff Projections)
- Baseline: tepid global demand; domestic demand expected to be primary near‑term driver.
- Growth projections:
  - Staff projects annual growth to slip from about 5 percent in 2011 to just below 3 percent in 2012, and to pick up modestly to near 3½ percent in 2013.
  - Q1:2012 outturn was 10 percent, q/q s.a.a.r.; high-frequency indicators moderated sharply thereafter.
- External sector:
  - Current account surplus expected to narrow slightly, to about 21 percent of GDP.
- Inflation projections:
  - Staff projects inflation to average 4½ percent in 2012, and remain broadly unchanged in 2013.
  - Core inflation projected around 3−3½ percent in both 2012 and 2013.
  - Upward pressures: wage pressures from more limited inflows of foreign workers, modestly positive output gap, tight labor market, persistent increases in imputed rent, and limited COEs.
- Key numeric indicators (selected):
  - Real GDP: 2007 8.9; 2008 1.7; 2009 -1.0; 2010 14.8; 2011 4.9; 2012 2.9; 2013 3.4
  - CPI inflation (period average): 2007 2.1; 2008 6.6; 2009 0.6; 2010 2.8; 2011 5.2; 2012 4.5; 2013 4.5
  - Core CPI inflation: 2007 2.2; 2008 5.7; 2009 0.0; 2010 1.5; 2011 2.2; 2012 3.0; 2013 3.5
  - Current account as percent of GDP: 25.8; 13.9; 16.2; 24.4; 21.9; 21.5; 21.3
  - Nominal GDP (2011): US$260 billion
  - GDP per capita (2011): US$50,122
  - Population (June 2011): 5.2 million
  - Current account outflows related to foreign workers: 4.7 percent of GDP in 2011; forecast income and transfers moderate by 0.2 percentage points of GDP (to 4.5 percent of GDP) by 2015.

### Policy Guidance: Monetary, Fiscal, and Macroprudential
- Overall stance:
  - A restrictive policy stance is appropriate during the next few years under the baseline of a positive output gap.
  - Some temporary increase in core inflation should be allowed to accommodate relative price increases from the tighter foreign worker policy.
  - Other inflation sources (real estate and transport costs) should be forcefully tackled through macroprudential policy and more predictable supply of housing and car permits.
  - Near term, fiscal policy should contribute to the restrictive stance.
- Monetary policy:
  - April 2012 decision: tighten by modestly increasing the pace of NEER appreciation (to around 2.5−3 percent per annum) and narrowing the band, reversing the loosening of late 2011.
  - Calibrating monetary policy is challenging because further tightening could attract yield-seeking inflows that fuel asset prices; complement with macroprudential tools and consider more active use of liquidity-absorbing instruments.
- Fiscal policy:
  - FY 2012 Budget entails a slightly restrictive fiscal stance (a negative impulse of ⅓ percent of GDP).
  - Government intends to increase fiscal spending by 1−2 percentage points of GDP over the next five years (including doubling health expenditure and significant increases on education, housing and transport infrastructure).
  - Over the medium term, a permanently looser structural fiscal stance is warranted to help narrow the current account surplus and expand the social safety net.
- Monetary policy framework (Box 3):
  - Since 1981, monetary policy focuses on managing the NEER using a basket-band-crawl (BBC) approach with the primary objective of “maintaining price stability conducive to sustainable growth of the economy.”
  - Key parameters (not publicly disclosed): basket, band width, crawl/slope.
  - Policy adjustments typically bi-annual (April and October); implementation via FX sales/purchases and sterilization through cross-currency swaps.
  - Shortcoming: targeting an exchange rate path implies ceding control of interest rates; short-term S$ interest rates are largely determined by US$ interest rates and investor expectations.

### Property Market: Developments, Risks, and Policy Options
- Recent developments:
  - Real estate prices stabilized since late 2011 following several rounds of macroprudential measures and weakening local and regional sentiment.
  - Imposition of additional stamp duty for foreigners and corporates (December 2011) appears effective at dampening foreign demand; sharp drop in foreign buyers so far in 2012, particularly from China.
- Macroprudential timeline (selected measures):
  - September 2009: disallowed interest absorption scheme and interest-only loans; LtV ceilings lowered to 80 percent from 90 percent; SSD introduced.
  - February 2010: LtV ceilings reduced to 70 percent for buyers with existing mortgaged property; SSD extended to three years; minimum cash payment for some buyers increased.
  - August 2010: SSD extended to four years with higher rates; LtV ceilings lowered further for individuals with existing mortgaged property and for corporates.
  - December 2011: additional buyer's stamp duty imposed (10 percent for foreigners and corporate entities).
  - 2009–present: increased supply of public housing and land sold to private developers.
- Financial exposure and vulnerabilities:
  - Property-related loans account for about 40 percent of total loans of Singapore’s big 3 banks.
  - Half of household wealth consists of property.
  - LtV ratio of bank mortgages averages 42 percent (regulatory limits: 80 percent for first properties, 60 percent for subsequent properties).
  - Housing affordability supported by historically-low interest rates (currently 1⅓−2 percent).
  - Real estate exposure for entire banking system: 28 percent of loans to nonbanks; excluding owner-occupied mortgages (about 44 percent of total real estate exposure), exposure is about 15 percent of loans to nonbanks.
  - MAS estimates mortgage DSR would remain in line with international benchmarks at 35−40 percent even under a severe stress scenario with interest rates above 7 percent.
  - Local banks’ non-S$ LtD ratio increased to about 125 percent; banks’ excess liquidity buffers exceed 9 percent of qualifying liabilities (equivalent to S$50 billion).
  - Nonbank deposits account for 80 percent of total funding for local banks.
- Regional credit expansion:
  - Share of loans to nonresidents in banks’ total customer loans rose from 9 percent at end-2009 to 19 percent at end-2011.
  - Most external loans are trade-finance related, denominated in U.S.$, with maturity of 6 months or less.
- Policy recommendations if house prices reaccelerate:
  - Temporary increase in stamp duties on businesses’ and foreigners’ real estate purchases and sales for externally driven demand.
  - Household debt to income limits for locally driven demand.
  - Higher risk weights on mortgage loans, dynamic provisioning of real estate loans, or a countercyclical housing-sector capital buffer.

### Financial Sector Strengths and Vulnerabilities
- Strengths:
  - Dynamic financial sector; big 3 banks well capitalized and profitable.
  - Local banks required to meet Basel III minimum capital requirements by the start of 2013.
- Vulnerabilities and monitoring priorities:
  - Extensive cross-border linkages and large exposure to domestic real property.
  - Rapid cross-border lending increased exposure to nonresidents; banks urged to issue more U.S.$-denominated debt to reduce swap reliance and duration mismatch.
  - Rapid outward expansion by domestic banks into the region entails currency and duration risk; banks should continue to build up and lengthen on-balance sheet U.S. dollar funding.
  - Close monitoring of funding conditions at foreign bank branches is recommended.
- Supervisory buffers:
  - Banks’ excess liquidity buffers exceed 9 percent of qualifying liabilities (S$50 billion).
  - MAS has authority to impose additional prudential requirements on foreign banks in Singapore.

### Risks: Risk Assessment Matrix Highlights
- Strong intensification of the euro area crisis:
  - Likelihood: Medium.
  - Impact: High; a 1 percentage point decline in G‑3 final demand reduces Singapore’s growth by about 2.3 percentage points.
  - Vulnerabilities: exports over 210 percent of GDP; exposure for offshore banking about 15 percent of assets and 18 percent of liabilities.
- A marked slowdown in China:
  - Likelihood: Low.
  - Impact: Medium to high (trade), medium (tourism), low to medium (financial).
  - Note: total gross tourism revenue in 2011 was equivalent to 7 percent of GDP.
- Combination of shocks to global growth:
  - Likelihood: Low.
  - Impact: High; estimated elasticity of Singapore’s growth with respect to global growth is 1.8.

### Data and Statistical Issues
- Data provision broadly adequate for surveillance; more disaggregated data would enhance analysis.
- DOS completed rebasing of national accounts to reference year 2005; CPI rebased to base year 2009.
- Gaps:
  - Information on government assets held abroad is neither published nor provided to the Fund; partial information on interest and dividends is published.
  - Data on the financial position of the consolidated public sector not published.
  - MAS has not submitted SRFs for monetary statistics introduced in October 2004.
  - IIP data not provided on a disaggregated sectoral basis; IIP position does not include all net foreign assets held by the Government Investment Corporation.
  - Authorities reconfirmed commitment to fully report IIP data to the Fund by 2014.
- Timeliness / frequency (Table of Common Indicators Required for Surveillance, as of June 13, 2012):
  - Exchange rates: Latest Observation Date: 6/13/12; Date Received: 6/13/12; Frequency: D / D / D.
  - International reserve assets: Latest Observation Date: 5/2012; Date Received: 6/2012; Frequency: M / M / M.
  - Consumer price index: Latest Observation Date: 4/2012; Date Received: 5/2012; Frequency: M / M / M.
  - External current account balance: Latest Observation Date: 2012:Q1; Date Received: 5/2012; Frequency: Q / Q / Q.

*Source: 2012 Article IV Report — Singapore (extract provided).*

### 1.    A Long View of Real Exchange Rate and Inflation Trends ______________________________________8

### 1.    A Long View of Real Exchange Rate and Inflation Trends

### Background: Post‑Lehman recovery and macrofinancial position
- Output dropped 9 percent during 2008-early 2009, then recovered strongly; in Q1:2012, GDP stood about 18 percent above the pre-crisis level.
- Growth averaged nearly 10 percent during 2010−11; resident unemployment is at an historic low of 3 percent.
- The banking system is large at nearly seven times GDP by assets; the financial sector contributes about 12 percent to annual GDP.
- Financial soundness indicators for the big 3 domestic banks (about one third of the sector by assets) remain strong, with high capital adequacy and earnings ratios; all three banks carry high investment ratings.
- Household balance sheets: aggregate household debt to assets and to GDP remain low at 15¼ percent and 70 percent, respectively, and are below holdings of cash and deposits.
- Corporate balance sheets: overall leverage ratio for publicly-listed firms around 30 percent; authorities’ simulations indicate earnings would exceed interest payments even if interest rates were to rise by 300 bps.
- Fiscal and external posture: persistent fiscal surpluses and a large stock of public sector external assets; government outstanding gross debt of about 100 percent of GDP is issued to develop local-currency capital markets and to provide an investment vehicle for the CPF; gross assets are larger than gross debt.
- Policy framework credited for outcomes: exchange rate based monetary policy, low inflation track record, proactive financial oversight, political stability, and effective rule of law.

### Trends in prices, housing, and labor inputs
- Private house prices rose by a cumulative 55 percent since the 2009 trough; they recently leveled off in response to authorities’ policy measures and weaker regional sentiment.
- Headline consumer price inflation rose from less than 2 percent prior to the global financial crisis to around 5 percent since mid 2011.
- Drivers of headline inflation: large contributions from imputed rent on owner‑occupied housing and steep increases in the cost of vehicle ownership permits (COEs) on tight supply.
- Core inflation (excludes accommodation and private transport costs) has also picked up, reflecting broader-based price pressures likely due to rising unit labor costs and pass-through of higher business costs for transport and real estate.
- Nontradable price increases accelerated, notably for education and healthcare services.
- Negative real interest rates and safe‑haven demand buoyed housing demand by locals and foreigners.

### Box 1 — Real exchange rate and inflation dynamics
- Despite a doubling of Singapore’s NEER since the early 1980s, the CPI‑based real effective exchange rate (REER) appreciated by only 20 percentage points cumulatively over the period.
- This modest real appreciation contrasts with Balassa‑Samuelson predictions for countries with large tradable‑sector productivity gains.
- The limited real appreciation reflects consistently‑lower inflation in Singapore than in all its trading partners and competitors, with the exception of Japan.
- Following a 20 percent increase since 2005, the REER is approaching its previous historical peak, seen after the Asian financial crisis; this recent increase reflects faster NEER appreciation and higher inflation in Singapore than in most other countries.

### Box 2 — Macroeconomic implications of reliance on foreign workers (NRFWs)
- NRFWs account for about one-third of the labor force (including highly‑skilled permanent residents, the share rises to 40 percent).
- NRFWs share is among the highest in the world outside the Gulf countries; despite slow local working‑age population growth, total labor force was among the fastest‑growing in Asia during the past decade.
- NRFWs are regulated through levies and quotas (dependency ratio ceilings) differentiated by skill level and sector; less‑skilled workers face higher levies and stricter rules.
- Sectoral distribution: as a share of employment, NRFWs have a very large presence in manufacturing and construction; in absolute numbers, their presence is greatest in services (nearly half the total number).
- Macroeconomic implications identified:
  - Low productivity: total factor productivity contribution to GDP growth declined steadily during the previous two decades, while labor’s contribution to growth increased sharply; this may reflect that large numbers of less‑skilled workers obviated the need for efficiency‑enhancing technologies and practices.
  - Expanded wage distribution: international competition raised wages at the top end; access to a deep pool of less‑skilled workers may have pulled down the lower end of the wage distribution toward source‑country levels; supply of less‑skilled labor likely highly elastic, suggesting wages in these segments may not be very responsive to domestic conditions.
  - Subdued inflation and real appreciation: absorption of large numbers of less‑skilled foreign workers in the nontradable sector restrained real unit labor costs, despite sizable wage increases in tradable sectors with large productivity gains; this dampened the path of the CPI‑based real exchange rate.

### Distributional outcomes and social indicators
- Average per capita income exceeded US$50,000 in 2011, but income dispersion is wide.
- Boston Consulting Group: Singapore has the highest proportion of households (15½ percent in 2010) with US$1 million or more in liquid assets.
- Incomes of the lowest decile stagnated during the previous decade; the Gini coefficient rose rapidly in the early 2000s, moderated recently and is somewhat lower after net government benefits and employers’ CPF contributions, but remains among the highest in Asia.
- Skill‑biased technological change may have contributed to rising income inequality through a skill premium.
- Rising living costs and house prices were prominent issues in the May 2011 general election; the governing People’s Action Party secured 60 percent of the popular vote.

### Near‑term outlook and risks (staff projections)
- Baseline: tepid global demand; domestic demand expected to be primary near‑term driver of growth, underpinned by low unemployment and negative real interest rates.
- Growth projections:
  - Staff projects annual growth to slip from about 5 percent in 2011 to just below 3 percent in 2012, and to pick up modestly to near 3½ percent in 2013.
  - Q1:2012 outturn was 10 percent, q/q s.a.a.r., reflecting global restocking and recovery from regional supply disruptions; high‑frequency indicators moderated sharply thereafter.
- External sector:
  - Current account surplus expected to narrow slightly, to about 21 percent of GDP, as weaker net exports are largely offset by better terms of trade.
- Inflation projections:
  - Staff projects inflation to average 4½ percent in 2012, and remain broadly unchanged in 2013.
  - Core inflation projected around 3−3½ percent in both 2012 and 2013.
  - Upward pressures: wage pressures from more limited inflows of foreign workers (staff’s baseline incorporates effects of authorities’ policies), modestly positive output gap, tight labor market, persistent increases in imputed rent, and limited number of car permits available for auction.
- Risks:
  - Downside risks are elevated given high trade openness (trade in goods and services more than three times GDP) and sensitivity to world demand and global sentiment swings.
  - Severe global financial stress could trigger outflows from Singapore; a more contained event could induce safe‑haven inflows, cushioning growth but risking renewed credit growth and real‑estate pressures.
  - An extreme combination—significant escalation of the euro crisis, sharp slowdown in emerging markets including China, and the U.S. fiscal cliff—remains an extreme but plausible tail risk comparable in scale to the Lehman episode for its impact on Singapore.

### Authorities’ views
- Authorities broadly concurred with staff’s near‑term outlook.
- Given strong expansion in Q1:2012, they expected growth for the year to come in at 1−3 percent.
- Supply‑side expectations: robust expansion of services with a domestic or regional orientation (including tourism and finance), while manufacturing would be more sluggish.
- Inflation expectations for 2012:
  - Headline inflation projected within 3½−4½ percent.
  - Core inflation projected in the range of 2½−3 percent.
- Authorities noted tight resource constraints pushing up prices, particularly in labor‑intensive services; headline inflation also fueled by persistent increases in private transport and accommodation costs.

*Source: 2012 Article IV Report — Singapore (extract provided).*

### 12.      The authorities consider developments in Europe the main risk to the outlook.

### 12.      The authorities consider developments in Europe the main risk to the outlook.

### European and external risks
- Authorities view developments in the euro area as the main risk to the outlook.
- Because the euro area situation has unfolded gradually, market participants have had time to build buffers and reduce positions, making a global credit crunch unlikely to be as severe as in late 2008-early 2009.
- A protracted period of depressed growth in Europe is seen as most worrisome (low probability event).
- A sharp slowdown in China would be problematic through trade and tourism channels; the authorities view a soft landing as their base case.

### Macroeconomic implications of the authorities' productivity push (context)
- In 2010, the government initiated a program to reinvigorate labor productivity after much slower productivity growth during 2000−10 than in previous decades.

### Productivity strategy (elements)
- Managing the dependence on foreign workers:
  - Since 2010, levies on nonresident foreign workers were raised in a series of steps.
  - The 2012 Budget lowered the ceiling on the share of nonresident foreign workers permitted in each firm (“dependency ratio”).
  - Firms have until June 2014 to comply with new quotas for existing foreign workers, but are not allowed to bring in additional foreign workers beyond the new ceilings from July 2012.
  - The tightening will affect mostly low-skilled foreigners and small, labor-intensive firms.
  - The levies and quotas are intended to bring the growth rate of foreign workers into line with the much slower increase in the resident labor force, keeping the economy-wide foreign worker share around the current one third.
  - While higher levies appear not to have dampened demand for foreign workers, the authorities expect that lowering quotas will be more effective.
  - Authorities anticipate that the resulting tighter labor market will raise real wages and support productivity gains by encouraging investment in physical and human capital and other labor-saving techniques.
- Complementary policies:
  - Rebates and tax relief for firms purchasing productivity-enhancing capital goods and for skill-upgrading programs.
  - Subsidies and/or stipends for workers in government-organized specialized training programs targeting the employed and the unemployed.

### Transition effects and macroeconomic implications
- Short-to-medium term (transition):
  - Real and nominal wages—especially for lower-skilled employees—will rise as labor supply growth is curtailed.
  - With productivity gains occurring only with a lag, potential growth will be scaled down and unit labor costs will increase.
  - The output gap will be larger than otherwise and, despite weak aggregate demand, core inflation will remain elevated.11
  - The current account surplus will narrow as higher wages and domestic prices raise demand for imports and weaken demand for exports.
- Longer term:
  - Higher real wages and policies supporting training, automation, and efficiency can be expected to boost capital accumulation and total factor productivity.
  - Some recovery in potential growth is expected (though likely below the level under the previous labor-intensive growth model) and unit labor costs should moderate.
  - The output gap will narrow and core inflation will subside.
  - Compared with the counterfactual of rapid labor force growth, the level of the real exchange rate will be permanently more appreciated, helping to narrow the current account surplus.12

### Quantified labor and current account related figures
- Dependency ratio changes:
  - Reduced from 65 percent to 60 percent for manufacturing firms.
  - Reduced from 50 percent to 45 percent for service-sector firms.
- Foreign worker share: around the current one third.
- Related current account outflows were 4.7 percent of GDP in 2011.
- Forecast: the sum of income and transfers is forecast to moderate by only 0.2 percentage points of GDP (to 4.5 percent of GDP) by 2015, and to stabilize at that level thereafter.

### Policies to contain transition costs (recommendations and considerations)
- Expect modest number of firms and workers to be directly impacted by tighter quotas, but broader wage increases will cause:
  - Increased frictional unemployment as some firms shed workers and others hire.
  - Size and duration of frictional unemployment depend on the magnitude of wage increases, job search efficiency, and speed of productivity gains.
- Complementary measures:
  - Well-targeted measures promoting upgrading of skills and technology will facilitate adjustment.
  - Consideration could be given to introducing a modest, means-tested and publicly-funded unemployment protection scheme, with benefits ideally linked to job search and/or training.
  - Introducing a publicly-funded pension system for the elderly poor would help cushion the social impact on older workers laid off in restructuring.

### Authorities’ views on the productivity push and social protection
- Authorities concur with staff’s assessment of economic effects and transition costs.
- Slowing intake of foreign workers seen as necessary to alleviate overcrowding and align growth with productivity-driven objectives, supporting sustainable wage growth for lower-income Singaporeans.
- Authorities estimate closing the productivity gap over a decade could deliver productivity growth of 2−3 percent per year.
- They expect slower labor force growth would dampen potential GDP growth to 3−5 percent, with productivity improvements contributing a larger proportion of GDP growth and supporting wage growth.
- Authorities have put in place measures to help adjustment and mitigate transition costs and are prepared to consider more measures if necessary.
- Authorities are not in favor of institutionalizing publicly-funded unemployment and old-age pension benefits as staff recommended; they emphasize:
  - Education, skills upgrading, and job creation to keep unemployment low.
  - Workfare Income Supplement to bolster pension savings.
  - Policies to promote home ownership and encourage elderly to move into smaller homes to monetize housing assets.
  - Existing schemes provide additional financial assistance to unemployed workers and the elderly but are not granted automatically.

### Safeguarding macroeconomic and financial stability amid abundant regional liquidity — Macro policies
- Context and stance:
  - A restrictive policy stance is appropriate during the next few years under the baseline scenario of a positive output gap.
  - Some temporary increase in core inflation should be allowed to accommodate relative price increases from the tighter foreign worker policy to signal resource scarcity and stimulate behavioral shifts.13
  - Given risks of second round effects through higher inflation expectations, other sources of inflation (real estate and transport costs) should be forcefully tackled through macroprudential policy and more predictable supply of housing and car permits.
  - In the near term, fiscal policy should contribute to the restrictive stance to ease the burden on monetary policy amid ample global liquidity.
- Monetary policy:
  - April 2012 decision: tighten by modestly increasing the pace of NEER appreciation (to around 2.5−3 percent per annum) and narrowing the band, reversing the loosening of late 2011.14
  - This stance is sufficient to keep the output gap contained while limiting second round inflation effects, despite upside inflation risks from loose global monetary conditions and domestic supply constraints.
  - Calibrating monetary policy is more challenging because further tightening (faster appreciation) could attract yield-seeking inflows that fuel asset prices and spill into generalized inflation.15
  - Complementing monetary policy with macroprudential tools is appropriate; consideration should be given to more active use of liquidity-absorbing instruments.
- Fiscal policy:
  - FY 2012 Budget entails a slightly restrictive fiscal stance (a negative impulse of ⅓ percent of GDP).
  - Budget includes new spending initiatives supporting productivity push and strengthening social safety nets (new permanent income support payments and expanded subsidies for healthcare and education).
  - Over the medium term, a permanently looser structural fiscal stance is warranted to help narrow the current account surplus and accommodate further expansion of the social safety net to reduce inequality.
  - Government intends to increase fiscal spending by 1−2 percentage points of GDP over the next five years (including doubling health expenditure and significant increases on education, housing and transport infrastructure).
  - Government expects sufficient revenues to fund expenditure growth for the next five years, but new revenue sources may be needed beyond that.16

### Monetary policy framework (Box 3 — key features)
- Since 1981, monetary policy focuses on managing the nominal effective exchange rate (NEER) using a basket-band-crawl (BBC) approach with the primary objective of “maintaining price stability conducive to sustainable growth of the economy.”
- Key parameters (not publicly disclosed): basket, band width, crawl/slope.
- Policy adjustments typically bi-annual (April and October) but off-cycle decisions possible; changes effected by altering slope, width, and/or center of the band.
- Implementation via sales and purchases of US$ in spot and forward FX markets; some FX intervention sterilized through cross-currency swaps.
- MAS manages S$ liquidity using standing facilities and money market operations.
- Benefits: exchange rate has significant influence on inflation and growth in a small open economy.
- Possible shortcomings:
  - Targeting an exchange rate path implies ceding control of interest rates (consistent with the monetary policy trilemma).
  - S$ interest rates are largely determined by US$ interest rates and investor expectations.
  - With US$ LIBOR close to the zero bound, short-term S$ interest rates are at historical lows; SOR even turned negative on occasion in 2011 when MAS increased the pace of appreciation.
  - Tightening by steepening the slope may reduce domestic interest rates and could stimulate interest-sensitive demand, including for assets; macroprudential measures are used to moderate demand for real estate and credit.

### Authorities’ views on macroeconomic policies
- Authorities broadly agree with staff on macro policies.
- They intend to temper—but not fully offset—the inflationary impact of the tighter foreign worker policy.
- They consider monetary policy decisions focused on growth and inflation objectives, with capital flow considerations managed using macroprudential tools.
- Short-term MAS bills introduced in 2010 were partly motivated by the need to sterilize capital inflows.
- The Budget’s focus is on longer-term structural goals: enhancing productivity growth, reducing transition costs, and strengthening social safety nets.

### Financial sector
- Despite important strengths in the financial sector, vigilance is warranted to deal with remaining domestic and cross-border risks.
- An FSAP Update is scheduled for 2013.

*Source: _cr12248 - 12.      The authorities consider developments in Europe the main risk to the outlook.*

### 22.      Property market. Real estate prices have stabilized since late 2011 following several rounds

### 22.      Property market. Real estate prices have stabilized since late 2011 following several rounds

### Overview and recent developments
- Real estate prices have stabilized since late 2011 following several rounds of macroprudential measures and weakening local and regional sentiment.
- The large and variable share of foreign and corporate purchasers of housing indicates the importance of external factors and capital inflows in demand for, and prices of, Singapore real estate.
- The imposition of additional stamp duty for foreigners and corporates on the full price of residential property, and at both buying and selling legs, appears to have been effective at dampening foreign demand and stabilizing prices, as evidenced by the sharp drop in foreign buyers so far in 2012, particularly from China. A similar trend was also apparent in Hong Kong SAR, suggesting external factors were also at play.

### Macroprudential measures (Text Table 1 timeline of selected measures)
- September 2009
  - The interest absorption scheme (allowing some deferment of principal payments) and interest-only housing loans for private residential projects were disallowed.
  - Loan-to-value (LtV) ceilings were lowered to 80 percent from 90 percent for all housing loans provided by banks (including for HDB flats).
  - A seller's stamp duty (SSD) was introduced on private residential properties sold within one year of purchase at the rate of 1 percent for the first S$180,000, 2 percent for the next S$180,000, and 3 percent for the remaining balance.
- February 2010
  - LtV ceilings were reduced from 80 percent to 70 percent for buyers with at least one existing mortgaged property.
  - The SSD was extended to sales within three years of purchase, with rates depending on the holding period (3 percent if sold within one year of purchase, 2 percent within the 2nd year after purchase, and 1 percent within the 3rd year after purchase).
  - For buyers with at least one existing mortgaged property, the minimum cash payment not sourced from CPF savings was increased from 5 percent to 10 percent of the purchase price.
- August 2010
  - The SSD was extended to sales within four years of purchase, with the rates raised to 16 percent, 12 percent, 8 percent, and 4 percent correspondingly.
  - LtV ceilings were lowered to 60 percent for individuals with at least one existing mortgaged property and to 50 percent for corporates.
- December 2011
  - An additional buyer's stamp duty on residential property purchases was imposed (in addition to the existing duty of up to 3 percent). The rate is 10 percent for foreigners and corporate entities buying any residential property, 3 percent for permanent residents buying their second or subsequent property or for Singapore citizens buying their third or subsequent property.
- 2009–present
  - Supply of public housing and land sold to private developers has been increased.

### Financial-sector exposure and vulnerabilities
- Property-related loans account for about 40 percent of total loans of Singapore’s big 3 banks.
- Half of household wealth consists of property.
- The loan-to-value (LtV) ratio of bank mortgages averages 42 percent (well below the regulatory limit of 80 percent for first properties and 60 percent for subsequent properties); this average reflects in large part the automatic adjustment of LtVs on the mortgage stock to increases in the house price index.
- Housing affordability—as given by the debt servicing ratio (DSR) on bank-provided mortgages—has been supported by historically-low interest rates (currently 1⅓−2 percent).
- The recent surge in “shoe box” apartments may be seen as a way to further increase affordability.
- Recent stress tests by banks and the MAS suggest banks are buffered against a spike in interest rates and unemployment, but staff expects mortgage quality is likely to be more vulnerable to a prolonged rise in unemployment and fall in real wages.
- Real estate exposure for the entire banking system (domestically oriented and offshore banks) remains stable and low, at 28 percent of loans to nonbanks.
  - Excluding residential mortgage loans extended for owner-occupied property (representing about 44 percent of total real estate exposure), real estate exposure of the banking system is about 15 percent of loans to nonbanks.
- The MAS estimates that the mortgage DSR would remain in line with international benchmarks at 35−40 percent even under a severe stress scenario in which interest rates rise above 7 percent.
- Local banks’ non-Singapore dollar loan-to-deposit (LtD) ratio has increased to about 125 percent as banks fund U.S.$-denominated regional loans by swapping ample Singapore dollar deposits into U.S.$.
- Banks’ excess liquidity buffers exceed 9 percent of qualifying liabilities (equivalent to S$50 billion).
- Nonbank deposits account for 80 percent of total funding for local banks.

### Regional credit expansion and related risks
- Lending to residents by the big 3 Singapore banks has slowed, while foreign-currency loans to borrowers elsewhere in the region, especially China, grew rapidly (though eased in recent months).
- Most external loans are trade-finance related, denominated in U.S.$, and with a maturity of 6 months or less; many are collateralized trade-finance exposures to top-tier and state-owned enterprises.
- Rapid cross-border lending increased the share of loans to nonresidents in banks’ total customer loans from 9 percent at end-2009 to 19 percent at end-2011.
- Drivers include a mature domestic credit market, trade interconnectedness, banks’ excess liquidity, European bank deleveraging from regional trade finance, and monetary policy tightening in China that shifted credit demand abroad.
- While trade finance is typically collateralized, lending to new markets may entail additional counterparty and settlement risk.
- To reduce overreliance on the foreign-currency swap market and limit duration mismatch, banks—at the urging of the MAS—have issued short- and longer-term U.S.$-denominated debt in capital markets.

### Policy recommendations and possible measures
- If house prices reaccelerate, introduce additional macroprudential measures that target demand at its source:
  - For externally driven demand (foreign financed), consider a further temporary increase in stamp duties on businesses’ and foreigners’ real estate purchases and sales to subdue demand.
  - For locally driven demand (typically bank credit–dependent), consider household debt to income limits.
  - Consider higher risk weights on mortgage loans, dynamic provisioning of real estate loans, or a countercyclical housing-sector capital buffer to strengthen banks’ resilience to house price volatility.

### Authorities’ views and policy stance
- Authorities consider financial sector risks to be contained, emphasizing:
  - Stability reinforced by a stable funding base with nonbank deposits accounting for 80 percent of total funding.
  - Local banks are well capitalized and are required to meet Basel III minimum capital requirements by the start of 2013 (two years ahead of the Basel Committee’s timeline).
  - Real estate exposure for the banking system is stable and low at 28 percent of loans to nonbanks, and about 15 percent excluding owner-occupied mortgages.
  - The MAS is engaging closely with banks on management of U.S.$ liquidity risk and continues to monitor euro area banks’ funding and local branches.
  - The MAS has authority to impose additional prudential requirements on foreign banks in Singapore (e.g., require branches to maintain assets against liabilities by an appropriate margin).
- Authorities reiterated they have ample policy space and instruments to address negative shocks and would tailor responses to specific circumstances.

*Source: IMF staff report — Singapore 2012 Article IV Consultation (Property market section).*

### 31.      The authorities concurred with the staff’s assessment of the external sector and the

### _cr12248 - 31.      The authorities concurred with the staff’s assessment of the external sector and the

### Authorities’ assessment of the external sector
- Agreed with staff on the broad direction of needed policy changes.
- Agreed that the current account surplus will likely narrow over the medium term.
- Expectation: the real exchange rate to continue to appreciate in line with fundamentals and policy changes, including the shift to the new growth model.
- Questioned staff’s estimates of the valuation of the real effective exchange rate (REER).
  - Noted: the wide range of the estimated REER gap indicates a high degree of imprecision.
  - Observed: estimates differed significantly from year to year despite underlying medium-term factors not changing fundamentally.

### Staff appraisal — macroeconomic outlook and projections
- Growth outlook:
  - Singapore’s GDP growth is expected to weaken in 2012, even as inflation remains elevated.
  - Under the benign global baseline scenario, growth is forecast to soften this year to just below 3 percent, with a moderate increase in 2013.
- Inflation and labor market:
  - Inflation expected to remain under pressure from the tight labor market and lagged effects of higher prices for vehicle permits and real estate on consumer prices.
  - Low unemployment rate and negative real interest rates expected to sustain domestic demand.
- External risks:
  - External downside risks loom large owing to pronounced trade and financial openness.
  - Major shocks cited: further euro area turmoil, abrupt fiscal tightening in the U.S., and/or a severe slowdown in China.
  - A more contained event could induce safe-haven inflows, cushioning growth but possibly reigniting domestic credit growth and real estate prices.
- Policy space:
  - Singapore has ample policy space and large buffers to mitigate effects of a steeper global slowdown or financial turmoil.
  - Recommended focus: preserve private sector economic and financial infrastructure to facilitate rapid recovery, while providing an adequate social safety net.

### Structural policies, labor, and social safety nets
- Government policies to increase labor productivity:
  - Slower foreign worker inflows will boost real wages and—if complemented with well-targeted incentives for technology and skills upgrading—should support productivity growth over time.
  - Authorities view these policies as essential to alleviate overcrowding.
  - Near-term effects expected: reduce potential growth, increase frictional unemployment, push up inflation, contribute to a permanently more appreciated real exchange rate and narrower current account surplus.
  - If prices and unemployment rise more sharply than expected, consider lengthening the phase˗in of the tighter limits on foreign worker inflows.
- Social protection recommendation:
  - A means-tested, publicly-funded system of unemployment and old˗age pension benefits could enhance job-search efficiency and reduce social costs of the transition.

### Monetary and macroprudential policy guidance
- Monetary stance:
  - The tightening of monetary policy in April 2012 and the FY 2012 Budget’s moderately-restrictive stance are appropriate under the baseline to keep the output gap contained as potential growth moderates.
  - Inflation should be permitted to rise temporarily to accommodate increases in relative prices of labor-intensive products from tighter labor market conditions.
- Other inflation sources:
  - To prevent inflation expectations from rising, other sources of inflation—transport costs, credit growth and asset prices—should be forcefully tackled.
  - Continued recourse to macroprudential tools recommended.
  - Consideration could be given to further absorbing liquidity.

### Financial sector strengths and vulnerabilities
- Strengths:
  - Dynamic financial sector with important strengths.
- Vulnerabilities and recommended monitoring/actions:
  - Extensive cross˗border linkages and large exposure to domestic real property pose risks.
  - Sizable deleveraging by European banks from Singapore since mid˗2011 has not created visible strains, but close monitoring of funding conditions at foreign bank branches should continue.
  - Rapid outward expansion by domestic banks into the region entails currency and duration risk; banks should continue to build up and lengthen on˗balance sheet U.S. dollar funding.
  - Real estate concentration risk: an escalating series of macroprudential measures combined with deteriorating regional sentiment halted house price rises in late 2011; additional targeted macroprudential measures are called for if property prices reaccelerate.
  - A prolonged period of high unemployment or fall in real wages could impair credit quality.

### External position and rebalancing
- Assessment:
  - From a multilateral perspective, Singapore’s external position is stronger than warranted by fundamentals.
- Policy implications for rebalancing:
  - Achieving a more balanced external position calls for raising private and public spending and a more even distribution of consumption across generations.
  - Factors that will help support rebalancing: rapid population aging, tighter restrictions on foreign workers, and government plans to increase social and infrastructure spending over the medium term.

### Institutional recommendation
- Proposed that the next Article IV consultation with Singapore be held on the standard 12˗month cycle.

### Key numeric indicators (selected from tables and text; values preserved exactly)
- Growth forecasts and historical:
  - Real GDP: 2007 8.9; 2008 1.7; 2009 -1.0; 2010 14.8; 2011 4.9; 2012 2.9; 2013 3.4
  - Total domestic demand: 2007 9.1; 2008 11.6; 2009 -7.0; 2010 6.9; 2011 5.4; 2012 3.4; 2013 4.3
- Savings and investment (percent of GDP):
  - Gross national saving: 2007 48.1; 2008 43.3; 2009 41.8; 2010 46.5; 2011 44.4; 2012 44.3; 2013 44.3
  - Gross domestic investment: 2007 22.3; 2008 29.4; 2009 25.5; 2010 22.1; 2011 22.4; 2012 22.8; 2013 23.0
- Inflation and unemployment (period average, percent):
  - CPI inflation: 2007 2.1; 2008 6.6; 2009 0.6; 2010 2.8; 2011 5.2; 2012 4.5; 2013 4.5
  - Core CPI inflation: 2007 2.2; 2008 5.7; 2009 0.0; 2010 1.5; 2011 2.2; 2012 3.0; 2013 3.5
  - Unemployment rate: 2007 2.1; 2008 2.2; 2009 3.0; 2010 2.2; 2011 2.0; 2012 2.1; 2013 2.1
- Central government budget (percent of GDP):
  - Revenue: 23.1; Expenditure: 12.4; Overall balance: 10.7 (for 2007); sample later values: Revenue 23.1; Expenditure 17.8; Overall balance 5.2 (for 2013 projection)
- Balance of payments (US$ billions and percent of GDP):
  - Current account balance (US$ billions): 2007 45.8; 2008 26.3; 2009 30.1; 2010 55.5; 2011 57.0; 2012 58.9; 2013 61.8
  - Current account as percent of GDP: 25.8; 13.9; 16.2; 24.4; 21.9; 21.5; 21.3
  - Trade balance (US$ billions): 2007 57.1; 2008 41.7; 2009 47.3; 2010 63.1; 2011 67.4; 2012 69.7; 2013 72.9
  - Exports, f.o.b. (US$ billions): 2007 312.7; 2008 354.9; 2009 288.4; 2010 371.1; 2011 429.3; 2012 439.4; 2013 449.1
  - Imports, f.o.b. (US$ billions): 2007 -255.7; 2008 -313.2; 2009 -241.1; 2010 -308.0; 2011 -361.9; 2012 -369.6; 2013 -376.2
- Gross official reserves (US$ billions): 2007 163.0; 2008 174.2; 2009 187.8; 2010 225.8; 2011 237.7; 2012 243.6
- Nominal GDP (2011): US$260 billion
- Population (June 2011): 5.2 million
- Unemployment rate (headline): 2.0 percent
- GDP per capita (2011): US$50,122
- Main exports (percent of total domestic exports): Electronic products (20%); chemical products (17.2%)

*International Monetary Fund — 2012 Article IV Report: Singapore (excerpt).*

### Appendix I: Singapore—Risk Assessment Matrix 1/

### Appendix I: Singapore—Risk Assessment Matrix 1/

### Strong intensification of the euro area crisis
- Likelihood: Medium
- Transmission channels:
  - Trade channel: lower global growth, particularly in advanced economies.
  - Financial channel: Deleveraging by European banks; heightened risk aversion with capital outflows and increased volatility.
- Vulnerability:
  - Direct and indirect exports to advanced economies are about one fourth of total.
  - Exports are over 210 percent of GDP, and trade related sectors account for over 50 percent of GDP.
  - Financial sector generates 12 percent of GDP.
  - Exposure to Europe is limited for onshore banks; but significant for offshore banking (about 15 percent of assets and 18 percent of liabilities).
  - Singapore hosts large currency and interest rate OTC derivative markets, in which European banks are important counterparties.
- Impact:
  - High. A 1 percentage point decline in G˗3 final demand reduces Singapore’s growth by about 2.3 percentage points.
  - Medium to high. Impact depends on the extent of escalation. If less severe, Singapore could even see safe-haven inflows.
  - Financial institutions’ own liquidity buffers provide a significant first line of defense.
  - In an extreme event, the strong official reserve position provides and additional cushion.

### A marked slowdown in China
- Likelihood: Low
- Transmission channels:
  - Direct and intraregional trade linkages.
  - Tourism.
  - Financial channel.
- Vulnerability:
  - China is a key link in the regional supply chain. Singapore’s exports are driven by Chinese exports (with an elasticity of 1.8) rather than Chinese domestic demand (April 2012 REO).
  - Tourism: China is Singapore’s second largest source of tourists. Total gross tourism revenue in 2011 was equivalent to 7 percent of GDP. Tourism revenue and tourist from China have risen in recent years.
  - Financial channel: Domestic banks have actively expanded lending to Chinese corporates, but total amounts are still relatively modest. Some of Singapore’s major offshore banks are likely to have significant exposure to China.
- Impact:
  - Medium to high (depending on the extent to which Chinese export-oriented sectors are affected).
  - Medium (tourism).
  - Low to medium (financial channel).

### Combination of shocks to global growth (escalation of crisis in euro area; hard landing in China; renewed slowdown in the US, possibly from abrupt fiscal consolidation)
- Likelihood: Low
- Transmission channels:
  - Protracted stagnation of global growth.
- Vulnerability:
  - Very high degree of trade openness (see above on the trade channel from an intensification of the euro area crisis).
- Impact:
  - High. The elasticity of Singapore’s growth with respect to global growth is estimated at 1.8.
  - A prolonged global slump would lead to a sharp decline in exports and domestic demand, and an increase in unemployment.
  - Firms may reduce capacity, leading to a fall in potential output.

- Note: 1/ The RAM shows events that could materially alter the baseline path—the scenario most likely to materialize in the view of the staff.

*Source: Appendix I: Singapore—Risk Assessment Matrix, IMF Staff Report excerpt.*

### 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.
  - Authorities have continued to expand the range of publicly available data.
  - 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.
  - The government publishes annually partial information on the interest and dividends on these assets.
  - 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 is 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
  - In February 2012, the DOS concluded the migration of the balance of payments accounts to the 6th edition of the Balance of Payments Manual.
  - Main changes relative to the 5th edition include:
    - reclassification of repairs on goods and goods for processing to services (from goods);
    - reclassification of merchanting to goods (from services);
    - treating banks’ Asian Currency Unit (ACU) as residents (previously regarded as nonresidents, and hence their transactions were excluded from the balance of payments).
  - Data on Singapore’s international investment position (IIP) is not provided on a disaggregated sectoral basis as suggested by the Balance of Payments Manual.
  - The IIP position does not include all net foreign assets held by Singapore’s Government Investment Corporation, although all associated flows are included in the balance of payments data.
  - The authorities reconfirmed their commitment to fully report the IIP data to the Fund by 2014.

### II. Data Standards and Quality
- Singapore provides data on a timely basis and meets all the SDDS specifications. These include:
  - the 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.

### Table of Common Indicators Required for Surveillance (As of June 13, 2012) — key entries
- Exchange rates
  - Latest Observation Date: 6/13/12
  - Date Received: 6/13/12
  - Frequency of Data/Reporting/Publication: D / D / D
- International reserve assets and reserve liabilities of the Monetary Authorities
  - Latest Observation Date: 5/2012
  - Date Received: 6/2012
  - Frequency: M / M / M
- Reserve/base money
  - Latest Observation Date: 4/2012
  - Date Received: 5/2012
  - Frequency: M / M / M
- Broad money
  - Latest Observation Date: 4/2012
  - Date Received: 5/2012
  - Frequency: M / M / M
- Central bank balance sheet
  - Latest Observation Date: 4/2012
  - Date Received: 6/2012
  - Frequency: M / M / M
- Consolidated balance sheet of the banking system
  - Latest Observation Date: 4/2012
  - Date Received: 6/2012
  - Frequency: M / M / M
- Interest rates
  - Latest Observation Date: 6/13/12
  - Date Received: 6/13/12
  - Frequency: D / D / D
- Consumer price index
  - Latest Observation Date: 4/2012
  - Date Received: 5/2012
  - Frequency: M / M / M
- Revenue, expenditure, balance and composition of financing — central government
  - Latest Observation Date: 4/2012
  - Date Received: 5/2012
  - Frequency: M / M / M
- External current account balance
  - Latest Observation Date: 2012:Q1
  - Date Received: 5/2012
  - Frequency: Q / Q / Q
- Exports and imports of goods and services
  - Latest Observation Date: 5/2012
  - Date Received: 6/2012
  - Frequency: M / M / M
- GDP/GNP
  - Latest Observation Date: 2012:Q1
  - Date Received: 5/2012
  - Frequency: Q / Q / Q
- Gross external debt
  - Latest Observation Date: 2011:Q4
  - Date Received: 3/2012
  - Frequency: Q / Q / Q
- Net international investment position
  - Latest Observation Date: 2010 (position), 2011 (date received)
  - Frequency: A / A / A

Notes included in the table:
- 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.

### Executive Board Assessment — key findings and policy implications (from Public Information Notice No. 12/101, August 27, 2012)
- Recent macroeconomic developments
  - Growth performance was driven by global and regional events: poor second half of 2011 followed by a strong bounce back in 2012:Q1; more recently the economy is softening due to weaker global demand and heightened international financial strains.
  - Domestic demand remained resilient, supported by a strong labor market and low interest rates; the output gap remains positive.
  - Headline inflation fluctuated around an elevated path since early 2011, propped up mainly by accommodation and private road transport costs.
  - Core inflation picked up earlier in 2012 reflecting wage cost pressures amid a tight labor market, but eased recently mainly due to lower oil prices.
  - Global financial turbulence caused volatility in domestic equity and currency markets.
  - Significant deleveraging by European banks operating in Singapore has occurred, though impact on funding was offset by local and other foreign banks.
  - Local banking sector remains profitable and well capitalized; credit growth has eased, but rapid expansion in foreign-currency lending abroad raised U.S. dollar and overall loan-to-deposit ratios.
  - Housing prices and transaction volumes moderated, particularly in the private housing market; local banks’ exposure to real estate is high.
  - Singapore’s external position remains strong, with the current account surplus broadly unchanged at about 21½ percent of GDP, and a large positive IIP reflecting large official foreign assets.
- Growth and inflation outlook
  - Under the benign global baseline scenario, growth is forecast to soften in 2012 to just below 3 percent, with a moderate increase in 2013.
  - Inflation is expected to remain under pressure from the tight labor market and lagged effects of higher prices for vehicle permits and real estate on consumer prices.
- External risks and scenarios
  - External downside risks are large given Singapore’s trade and financial openness: further euro area turmoil, abrupt U.S. fiscal tightening, and/or a severe slowdown in China would be substantial negative shocks.
  - A contained external event could induce safe-haven inflows, cushioning growth but possibly reigniting domestic credit growth and real estate prices.
- Labor, productivity, and migration policies
  - Policies to increase labor productivity (including slower foreign worker inflows) will boost real wages and, if complemented with well-targeted incentives for technology and skills upgrading, should support productivity growth over time.
  - Near-term effects: reduced potential growth, increased frictional unemployment, higher inflation, a more appreciated real exchange rate, and narrower current account surplus.
  - If prices and unemployment rise more sharply than expected, consideration could be given to lengthening the phase-in of tighter limits on foreign worker inflows.
  - Enhanced and targeted social safety nets could improve job search efficiency and reduce social costs of the transition.
- Monetary and fiscal policy guidance
  - The tightening of monetary policy in April 2012 and the FY 2012 Budget’s moderately-restrictive stance are appropriate under the baseline to keep the output gap contained as potential growth moderates.
  - Inflation should be permitted to rise temporarily to accommodate relative price increases of labor-intensive products due to tighter labor market conditions.
  - To prevent inflation expectations from rising, other sources of inflation — including transport costs, credit growth and asset prices — should be forcefully tackled, including continued recourse to macroprudential tools.
  - Consideration could be given to further absorbing liquidity.
- Crisis readiness and buffers
  - Singapore has ample policy space and large buffers to mitigate effects of a steeper global slowdown or financial turmoil.
  - As in 2008–09, policy responses should focus on preserving private sector economic and financial infrastructure to facilitate rapid recovery and providing an adequate social safety net.
- Financial sector risks
  - Dynamic financial sector has strengths but faces risks from extensive cross-border linkages and large exposure to domestic real property.
  - Sizable deleveraging by European banks since mid-2011 has not created visible strains, but monitoring of funding conditions at foreign bank branches should continue.
  - Rapid outward expansion by domestic banks into the region entails currency and duration risk; banks should continue to build up and lengthen on-balance sheet U.S. dollar funding.
  - Real estate poses a concentration risk; additional targeted macroprudential measures are called for if property prices reaccelerate.
- Multilateral perspective on external position
  - Singapore’s external position is stronger than warranted by fundamentals.
  - Achieving a more balanced external position in Singapore calls for raising private and public spending and a more even distribution of consumption across generations.
  - Rapid population aging, tighter restrictions on foreign worker inflows, and the government’s plan to increase social and infrastructure spending over the medium term will help support rebalancing.

### Selected Economic and Financial Indicators, 2007–13 (key figures)
- Growth (percentage change)
  - Real GDP: 2007: 8.9; 2008: 1.7; 2009: -1.0; 2010: 14.8; 2011: 4.9; 2012 (Proj.): 2.9; 2013 (Proj.): 3.4
  - Total domestic demand: 2007: 9.1; 2008: 11.6; 2009: -7.0; 2010: 6.9; 2011: 5.4; 2012 (Proj.): 3.4; 2013 (Proj.): 4.3
  - Consumption: 2007: 5.9; 2008: 3.9; 2009: 0.9; 2010: 7.4; 2011: 3.4; 2012 (Proj.): 3.0; 2013 (Proj.): 4.0
    - Private consumption: 2007: 6.8; 2008: 3.3; 2009: 0.1; 2010: 6.5; 2011: 4.1; 2012 (Proj.): 3.8; 2013 (Proj.): 4.5
  - Gross capital formation: 2007: 16.4; 2008: 27.4; 2009: -20.1; 2010: 5.8; 2011: 9.7; 2012 (Proj.): 4.3; 2013 (Proj.): 5.1
- Saving and investment (percent of GDP)
  - Gross national saving: 2007: 48.1; 2008: 43.3; 2009: 41.8; 2010: 46.5; 2011: 44.4; 2012 (Proj.): 44.3; 2013 (Proj.): 44.3
  - Gross domestic investment: 2007: 22.3; 2008: 29.4; 2009: 25.5; 2010: 22.1; 2011: 22.4; 2012 (Proj.): 22.8; 2013 (Proj.): 23.0
- Inflation and unemployment (period average, percent)
  - CPI inflation: 2007: 2.1; 2008: 6.6; 2009: 0.6; 2010: 2.8; 2011: 5.2; 2012 (Proj.): 4.5; 2013 (Proj.): 4.5
  - Core CPI inflation: 2007: 2.2; 2008: 5.7; 2009: 0.0; 2010: 1.5; 2011: 2.2; 2012 (Proj.): 3.0; 2013 (Proj.): 3.5
  - Unemployment rate: 2007: 2.1; 2008: 2.2; 2009: 3.0; 2010: 2.2; 2011: 2.0; 2012 (Proj.): 2.1; 2013 (Proj.): 2.1
- Central government budget (percent of GDP) 1/
  - Revenue: 2007: 23.1; 2008: 24.3; 2009: 19.6; 2010: 21.0; 2011: 24.1; 2012 (Proj.): 23.3; 2013 (Proj.): 23.0
  - Expenditure: 2007: 12.4; 2008: 16.4; 2009: 18.3; 2010: 15.5; 2011: 16.8; 2012 (Proj.): 17.6; 2013 (Proj.): 17.8
  - Overall balance: 2007: 10.7; 2008: 7.9; 2009: 1.3; 2010: 5.5; 2011: 7.3; 2012 (Proj.): 5.8; 2013 (Proj.): 5.2
  - Primary balance 2/: 2007: 0.3; 2008: -1.7; 2009: -3.6; 2010: -1.9; 2011: -1.1; 2012 (Proj.): -0.7; 2013 (Proj.): -0.7
- Money and credit (end of period, percentage change)
  - Broad money (M3): 2007: 14.1; 2008: 11.6; 2009: 10.6; 2010: 8.3; 2011: 10.1; 2012: ...; 2013: ...
  - Lending to nonbanking sector: 2007: 19.9; 2008: 16.6; 2009: 3.4; 2010: 14.7; 2011: 30.3; 2012: ...; 2013: ...
  - Three-month interbank rate (percent): 2007: 2.4; 2008: 1.0; 2009: 0.7; 2010: 0.4; 2011: 0.4; 2012: ...; 2013: ...
- Balance of payments (US$ billions)
  - Current account balance: 2007: 45.8; 2008: 26.3; 2009: 30.1; 2010: 55.5; 2011: 57.0; 2012 (Proj.): 58.9; 2013 (Proj.): 61.8
    - (In percent of GDP): (25.8) (13.9) (16.2) (24.4) (21.9) (21.5) (21.3)
  - Trade balance: 2007: 57.1; 2008: 41.7; 2009: 47.3; 2010: 63.1; 2011: 67.4; 2012 (Proj.): 69.7; 2013 (Proj.): 72.9
    - Exports, f.o.b.: 2007: 312.7; 2008: 354.9; 2009: 288.4; 2010: 371.1; 2011: 429.3; 2012 (Proj.): 439.4; 2013 (Proj.): 449.1
    - Imports, f.o.b.: 2007: -255.7; 2008: -313.2; 2009: -241.1; 2010: -308.0; 2011: -361.9; 2012 (Proj.): -369.6; 2013 (Proj.): -376.2
  - Financial account balance: 2007: -26.2; 2008: -15.5; 2009: -22.7; 2010: -12.9; 2011: -40.0; 2012 (Proj.): -46.9; 2013 (Proj.): -48.1
  - Overall balance: 2007: 19.4; 2008: 13.1; 2009: 11.3; 2010: 42.2; 2011: 17.1; 2012 (Proj.): 12.0; 2013 (Proj.): 13.7
- Gross official reserves (US$ billions)
  - 2007: 163.0; 2008: 174.2; 2009: 187.8; 2010: 225.8; 2011: 237.7; 2012 (Proj.): 249.7; 2013 (Proj.): 263.4
  - (Months of imports) 4/: (4.8) (6.4) (5.5) (5.7) (5.9) (6.0) (6.1)
- Exchange rate (period average)
  - 2007: 1.51; 2008: 1.41; 2009: 1.45; 2010: 1.36; 2011: 1.26; 2012: ...; 2013: ...

Sources: Data provided by the Singapore authorities; and IMF staff estimates and projections.
- Footnotes:
  - 1/ On a calendar year basis.
  - 2/ Overall balance excluding investment income, capital revenue, interest payments, and net lending.
  - 3/ The authorities recently migrated to the Balance of Payments Manual 6 (BPM6), which resulted in some balance of payments data revisions.
  - 4/ In months of following year's imports of goods and services.

*Source: _cr12248 - ANNEX II: SINGAPORE—STATISTICAL ISSUES (IMF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12248.pdf_