## 1.    Policies to Address Rising Housing Prices

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### Near-term economic context and outlook
- Global and regional environment: weak balance sheets and policy uncertainty in the euro area and the United States have led to slower growth and banking sector stress; growth in Asia is slowing but more resilient due to robust consumption.
- Domestic rebound and slowdown: the economy posted growth of 14.5 percent in 2010 but activity is slowing markedly due to supply‑chain disruptions (Japan March 2011) and weaker global demand; trade‑related sectors, particularly electronics, are especially affected.
- Labor market: unemployment fell to 2 percent in September 2011, supporting consumption despite weaker investment.
- Baseline growth projections:
  - Growth is projected to slow to 2.7percent in 2012, recovering to 3.8 percent in 2013.

### Inflation and prices
- Recent inflation history:
  - Headline inflation rose steadily from mid˗2009 to reach 5.7 percent year˗on˗year in August 2011 and has since fluctuated close to that level; driven by accommodation and transport costs (in particular, costlier certificates of entitlement).
- Core inflation:
  - Has remained relatively stable from mid˗2010; the wedge between headline and core inflation reached a historical high in August 2011.
- Outlook for inflation:
  - Headline inflation is projected to slow to an average of 3 percent in 2012 from 5.2 percent in 2011, with core inflation falling below 2 percent.
  - Authorities expected headline inflation to be between 2.5−3.5 percent in 2012 and core inflation to slow to 1.5−2 percent.
- MAS Core Inflation (excludes accommodation and private road transport):
  - 2.3% in H2 2011, up from 2.0% in H1 2011.
  - Comparisons for 2011: CPI inflation: 5.2% in 2011; MAS Core Inflation: 2.2% in 2011.
  - Forecasts for 2012: CPI inflation: 2.5-3.5%; MAS Core Inflation: 1.5-2.0%.

### Monetary and fiscal policy stance
- MAS actions:
  - Tightened policy in 2010 by re‑centering the NEER policy band upward, increasing its slope and widening it; in October 2011 MAS reduced the slope of the policy band as the global and domestic outlook deteriorated.
  - Kept the S$NEER policy band on a modest and gradual appreciation path and reduced the slope of the band in October 2011.
- Recommended stance:
  - Further easing of monetary policy would be warranted in 2012 if the outlook deteriorates more than expected.
- Fiscal position and space:
  - FY 2010 outperformed targets; FY 2011 revenue outperformed estimates and fiscal surplus increased with a negative fiscal impulse of about −1 percent of GDP.
  - Staff view: there is sufficient fiscal space to introduce a discretionary stimulus package (as in 2008) to support employment, help low‑income families, and enhance SME access to credit; in case of a significant downturn, tapping into Past Reserves may be necessary and would be desirable.
- Authorities’ view: agreed there is scope for monetary easing and that any fiscal response should be carefully calibrated and targeted, considering moral hazard and productivity objectives.

### Financial market volatility and transmission channels
- Market developments:
  - Sharp declines in equity and currency markets in August–September 2011 with elevated volatility thereafter; outflows from the nonfinancial private sector were matched by strong inflows to banks in Q3:2011.
- Trade exposure:
  - Exports are over 210 percent of GDP and trade‑related sectors account for over 50 percent of GDP.
  - Direct exposure to Europe and the United States is about 10 percent and 6 percent of exports, respectively.
  - Staff estimate: a one percentage point fall in global growth would lead to a decline in Singapore’s growth by about 1.7−1.9 percentage points.
- Financial channel risks:
  - Offshore banking (ADM): Singapore‑based banks have few assets in the euro zone (less than 6 percent), and less than 10 percent of Singapore banking system funding comes from the euro area; however, the ADM is vulnerable because it relies mostly on wholesale funding and concentrates euro area bank activity.
  - Domestic credit: euro area banks have a small direct presence in the onshore market; over 60 percent of DBU funding and over three fourths of local bank funding comes from local deposits. Deleveraging by euro area banks is likely to have a limited direct impact on domestic credit, though U.K. bank stress could be more important; local and regional banks could partially offset any slowdown.
  - Capital and currency markets: global stress could lead to sharp reversals of portfolio equity and debt flows, stress in over‑the‑counter derivatives (euro zone banks make up 14 percent of the volume), and a decline in foreign exchange market turnover.

### Domestic credit and banking sector vulnerabilities
- Domestic credit trends:
  - Domestic credit has been growing rapidly; expansion broad‑based but notably brisk for construction and other business loans, including a sharp increase in DBU lending to nonresidents.
  - Housing credit growth has moderated but remains elevated.
  - Growth in offshore market (ACU) loans to the private sector (mostly in other regional countries) has accelerated.
  - The ratio of private credit in DBUs to GDP rose by 20 percentage points in the three quarters to September 2011.
  - Foreign currency lending to nonresidents has driven the U.S. dollar loan-to-deposit ratio above one for local banks.
- Drivers of credit growth:
  - Booming economy: vigorous recovery through early 2011 likely stimulated credit demand, but credit has far outpaced income.
  - Low rates: MAS’ renewed shift to currency appreciation since 2010 and unusually low interest rates in advanced countries led to a sharp decline in SIBOR.
  - Regional demand: rapid increase in DBU credit to nonresidents largely reflects U.S. dollar lending by domestic banks—mostly trade financing—to firms in mainland China and India.
- Prudential policy responses:
  - MAS adopted lower loan‑to‑value (LTV) ratios to reduce housing credit risks.
  - In June 2011, MAS introduced capital requirements for Singapore incorporated banks that are higher than Basel III standards:
    - Basel III minimum capital adequacy requirements from January 2013 (two years ahead of the Basel timeline).
    - A minimum common equity tier 1 capital adequacy ratio (CAR) of 6.5 percent, tier 1 CAR of 8 percent and total CAR of 10 percent by January 2015.
- Staff view on banks:
  - Near-term: domestic credit growth likely to abate against a slowing economy and increased uncertainty.
  - Domestic banks have strong capital and liquidity positions.
  - Rapid credit growth warrants continued close monitoring as it may lead to deteriorating credit quality, particularly in a significant economic downturn.
  - Foreign currency liquidity risk: U.S. dollar lending to nonresidents has pushed local banks’ U.S. dollar loan-to-deposit ratio above one, potentially increasing foreign currency liquidity risks.

### Housing market: developments, measures, and assessment
- Are rising property prices a concern?
  - Private residential property prices rebounded strongly after a steep decline in 2008−09 and are now above the previous peak; public housing resale prices are also growing rapidly.
  - House prices have outpaced median household incomes, reducing affordability and becoming a prominent social issue.
- Drivers of property price increases:
  - Resurgent economy buoying incomes.
  - Low interest rates: real mortgage rates very low or negative for the past two years, leading to high housing credit growth rates.
  - Supply constraints: housing supply has not kept pace with population growth driven by strong immigration.
  - Demand by nonresidents: prospects of currency appreciation and Singapore’s investment climate have lured foreign interest.
- Policy response on housing (summary through December 2011):
  - Authorities adopted multiple demand‑containment measures between September 2009 and January 2011, and introduced an additional buyer’s stamp duty in December 2011.
  - Measures included tightening seller stamp duties and lowering LTV caps on private property loans.
  - December 2011 measure: an additional buyer’s stamp duty aimed at curbing investment demand, particularly from foreigners and corporate entities.
- Box 1 — Specific policy measures to address rising housing prices:
  - September 2009:
    - Interest absorption scheme and interest-only housing loans disallowed.
  - February 2010:
    - LTV ceilings lowered from 90 percent to 80 percent for all private property loans.
    - Seller’s stamp duty (SSD) introduced on private properties sold within one year at rates of 1 percent for the first S$180,000, 2 percent for the next S$180,000, and 3 percent for the remaining balance.
  - August 2010:
    - SSD extended to sales within three years, with one-third, two-thirds, or full SSD rates depending on holding period.
    - LTV ceilings lowered from 80 percent to 70 percent for buyers with one or more outstanding housing loans.
  - January 2011:
    - SSD extended to sales within four years and rates raised to 16 percent for sales within a year, decreasing gradually to a minimum of 4 percent in the fourth year.
    - LTVs lowered to 60 percent for individuals with one or more outstanding loans and to 50 percent for nonindividuals.
  - December 2011:
    - Additional buyer’s stamp duty (BSD) imposed over and above existing BSD:
      - 10 percent on foreigners and corporate entities buying any residential property.
      - 3 percent on permanent residents buying their second or subsequent residential property and on Singapore citizens buying their third or subsequent residential property.
  - Supply measures:
    - Efforts increased to expand housing supply, in particular through the Government Land Sales program.
  - Effectiveness:
    - Staff analysis using a vector auto‑regression framework suggests measures through mid‑2011 had a dampening impact on property prices and transaction volumes.
- Assessment, outlook, and risks for the housing market:
  - Staff: housing prices and transaction volumes are moderating; market likely to cool further given slower domestic growth, uncertain outlook, and a significant supply pipeline of public and private housing projects (despite residential construction activity slowing).
  - Latest measures in December 2011 surprised markets and shifted balance of risks downward, but residency‑based measures risk pushing foreign demand to commercial and industrial property markets or to other countries.
  - Macro‑financial risks relatively contained:
    - Aggregate household balance sheets remain strong, though distributional vulnerabilities exist.
    - Average LTV of outstanding housing loans was 44.1 percent in Q3:2011 (with less than 5 percent of loans having LTVs above 80 percent).
    - Average debt service ratio on mortgages estimated to be less than 25 percent as of Q4:2010.
    - Staff view: shocks to housing prices likely to have a small impact on bank capital unless accompanied by a large, sustained rise in unemployment; impact on consumption likely small given limited housing wealth effects.
  - Authorities’ stress tests: even a 300 bps rise in interest rates or a large decline in private house prices would not endanger financial stability given relatively low debt service ratios and LTVs.
  - Section 35 of the Banking Act caps property exposures of banks; authorities monitor the market and will take additional measures as necessary.

### Policy tools and financial stability measures (staff recommendations)
- Use fiscal space for targeted stimulus if needed; consider tapping Past Reserves in a significant downturn.
- Allow monetary policy to become more accommodative if warranted.
- Adopt financial stability measures similar to 2008, including domestic liquidity provision through open market operations and standing facilities, and ensuring adequate foreign currency liquidity in spot and swap markets.
- Maintain and build on deposit protection: staff welcomed the increase in the coverage limit of the deposit insurance scheme to S$50,000 for all nonbank depositors (introduced April 2011).
- Maintain close supervision of banks’ liquidity, contacts with home nation supervisors of foreign bank branches, and powers under the Banking Act to impose asset maintenance, liquid asset ratio, and capital fund requirements on banks and branches.

### Risks to the outlook and contingency planning
- Main risks:
  - A sharp and protracted downturn in large advanced economies.
  - Extreme financial stress spreading from the euro area.
  - A hard landing in China (low probability but severe impact).
- Impact channels:
  - Large adverse effects via trade and financial channels given high openness; potential for substantial spillovers given Singapore’s role as a major financial center and the financial services sector’s share of about 12 percent of GDP.
- Contingency recommendations:
  - Prepare targeted fiscal measures focused on employment support and SMEs.
  - Maintain flexibility to ease monetary policy.
  - Be ready to deploy liquidity and other financial stability measures if global stress intensifies.

### Social inclusion, pensions, and labor market measures
- Making growth more inclusive — staff recommendations:
  - Pension benefits: boost real rates of return on CPF savings; complement with a “first pillar” of noncontributory pensions for the elderly poor and a “third pillar” of private defined contribution plans.
    - Current CPF rates of return are largely based on 12-month deposit rates and 10-year Singapore government bonds, with a nominal return floor of 2.5 percent or 4 percent depending on the account and an additional 1 percent for the first S$60,000 of a CPF member’s savings.
  - Unemployment insurance savings accounts: can support household consumption without the moral hazard of standard unemployment insurance and could be integrated into CPF.
  - A minimum wage: could strengthen existing safety nets; evidence on employment effects is mixed and requires careful design.
  - Strengthen means tested cash transfers to households to complement existing schemes and enhance access to education and healthcare for the very poor.
  - Assess whether a minimum wage policy would be sensible for Singapore.
- Box 2 — CPF-Related Benefits and Workfare Schemes (key points):
  - CPF covers around 90 percent of the resident population; around 60 percent of contributions directed to Ordinary Account for housing; Special Account receives around 20 percent for retirement.
  - OECD estimates net replacement rates between 10−20 percent; authorities estimate net replacement rates around 60% taking full CPF savings into account.
  - Workfare: income supplement and training subsidy for workers who earn less than S$1,700 per month.
  - Authorities prioritize work, productivity, continuing education and targeted subsidies; expressed reservations about a minimum wage at the current time.

### Key macroeconomic and financial statistics (selected exact figures)
- Nominal GDP (2010): US$222.7 billion
- Main exports (percent of total domestic exports): Electronic products (26%); chemical products (17.5%)
- Population (June 2011): 5.1 million
- Unemployment rate (September 2011): 2.0 percent
- GDP per capita (2010): US$43,867
- Real GDP growth (percentage change): 2006: 8.7; 2007: 8.8; 2008: 1.5; 2009: -0.8; 2010: 14.5; 2011 Est.: 4.8; 2012 Proj.: 2.7
- CPI inflation (period average, percent): 2006: 1.0; 2007: 2.1; 2008: 6.6; 2009: 0.6; 2010: 2.8; 2011 Est.: 5.2; 2012 Proj.: 3.0
- Current account balance (US$ billions): 2006: 36.1; 2007: 48.5; 2008: 27.6; 2009: 34.9; 2010: 49.5; 2011 Est.: 50.2; 2012 Proj.: 49.2
  - (In percent of GDP): (24.8); (27.3); (14.6); (19.0); (22.2); (19.4); (18.3)
- Gross official reserves (US$ billions): 2006: 136.3; 2007: 163.0; 2008: 174.2; 2009: 187.8; 2010: 225.8; 2011 Est.: 237.7; 2012 Proj.: 253.5
  - (Months of imports): (4.9); (4.9); (6.5); (5.5); (5.7); (5.8); (5.9)
- Money and credit (end of period, percentage change) for 2011 (figures as of end-November):
  - Broad money (M3): 10.2...
  - Lending to nonbanking sector: 30.5...
  - Three-month interbank rate (percent): 0.4...
- Financial account balance (US$ billions): -17.1 (2006); -31.9 (2007); -13.6 (2008); -26.5 (2009); -6.6 (2010); -29.8 (2011 Est.); -32.9 (2012 Proj.)
- Net international investment position (US$ billions): 2006: 332.3; 2007: 358.2; 2008: 297.7; 2009: 411.0; 2010: 530.5
  - (In percent of GDP): 228.6; 202.0; 157.2; 224.2; 238.2
- Financial soundness indicators:
  - Regulatory capital to risk-weighted assets (percent): 2006: 15.4; 2007: 13.5; 2008: 14.4; 2009: 17.3; 2010: 18.6; 2011: 16.2
  - NPL ratio (local banks, percent): 2006: 2.8; 2007: 1.5; 2008: 1.7; 2009: 2.4; 2010: 1.6; 2011: 1.2
  - After tax return on equity: 2006: 13.7; 2007: 12.9; 2008: 10.7; 2009: 10.8; 2010: 12.2; 2011: 11.8

### Medium-term external position and rebalancing
- Current account: surplus bounced back in 2010, estimated to have narrowed to 19.4 percent of GDP in 2011.
- Reserves: official monetary reserves accumulated through Q1:2011 but declined slightly thereafter.
- REER:
  - Had been appreciating steadily since late 2009 before a recent decline triggered by global financial turbulence; MAS policy of gradual NEER appreciation should contribute to continued real appreciation.
  - Assessment of REER valuation:
    - CGER approaches suggest REER may be undervalued by about 12 percent.
    - Equilibrium exchange rate approach suggests a minor overvaluation of about 5 percent.
    - Given mixed evidence and wide confidence bounds, staff cannot conclude the REER is significantly out of line with fundamentals.
- Fiscal policy:
  - With structural fiscal surpluses and a large stock of fiscal reserves, room exists for a looser medium-term fiscal stance.
  - Authorities project an increase in public spending of about 1−2 percentage points of GDP over the next five years, targeting transport and housing infrastructure, education, and healthcare.
- Medium-term projections:
  - Current account surplus projected to decline moderately, driven primarily by narrowing of the public savings-investment gap.
  - Private savings likely to fall slightly as a share of GDP as increased social spending reduces motives for precautionary saving.
  - Baseline growth expected to recover gradually and converge to its potential rate of about 4 percent.
  - Real GDP growth projections (percent change) for 2013–16: 4.1 (2013), 4.0 (2014), 4.0 (2015), 4.0 (2016).
  - Gross official reserves (US$ billions) projected: 2012 Proj.: 253.5; 2013 Proj.: 261.5; 2014 Proj.: 269.4; 2015 Proj.: 277.4; 2016 Proj.: 285.4.
  - Current account as percent of GDP projected through 2016: 2012: 18.3; 2013: 18.1; 2014: 17.7; 2015: 17.7; 2016: 17.2.

### Policy-relevant implications and areas for attention
- Maintain vigilance to external shocks given high openness and exposure to regional and global downturns.
- Monitor ACU/offshore banking sector funding reliance on non‑Singapore banks to mitigate risks from foreign bank deleveraging.
- Continue macroprudential and housing market monitoring as housing prices and household exposure to housing wealth have increased; supply pipeline may moderate prices.
- Address rising inequality and relatively low health spending through distributional and social policy considerations.
- Contingency planning: prepare targeted fiscal measures focused on employment and SMEs, maintain flexibility to ease monetary policy, and be ready to deploy liquidity and other financial stability measures if global stress intensifies.

*Source: SINGAPORE 2011 ARTICLE IV REPORT (excerpt).*

### 1.    Policies to Address Rising Housing Prices ____________________________________________________  14

### 1.    Policies to Address Rising Housing Prices

### Near-term economic context and outlook
- Global and regional environment: weak balance sheets and policy uncertainty in the euro area and the United States have led to slower growth and banking sector stress; growth in Asia is slowing but more resilient due to robust consumption.
- Domestic rebound and slowdown: the economy posted growth of 14.5 percent in 2010 but activity is slowing markedly due to supply‑chain disruptions (Japan March 2011) and weaker global demand; trade‑related sectors, particularly electronics, are especially affected.
- Labor market: unemployment fell to 2 percent in September 2011, supporting consumption despite weaker investment.
- Baseline growth projections: growth is projected to slow to 2.7percent in 2012, recovering to 3.8 percent in 2013.

### Inflation and prices
- Recent inflation history: headline inflation rose steadily from mid˗2009 to reach 5.7 percent year˗on˗year in August 2011 and has since fluctuated close to that level; driven by accommodation and transport costs (in particular, costlier certificates of entitlement).
- Core inflation: has remained relatively stable from mid˗2010; the wedge between headline and core inflation reached a historical high in August 2011.
- Outlook for inflation: headline inflation is projected to slow to an average of 3 percent in 2012 from 5.2 percent in 2011, with core inflation falling below 2 percent. Authorities expected headline inflation to be between 2.5−3.5 percent in 2012 and core inflation to slow to 1.5−2 percent.

### Monetary and fiscal policy stance
- MAS actions: following surging growth and rising inflation, MAS tightened policy in 2010 by re‑centering the NEER policy band upward, increasing its slope and widening it; in October 2011 MAS reduced the slope of the policy band as the global and domestic outlook deteriorated.
- Recommended stance: further easing of monetary policy would be warranted in 2012 if the outlook deteriorates more than expected.
- Fiscal position and space: FY 2010 outperformed targets; FY 2011 revenue outperformed estimates and fiscal surplus increased with a negative fiscal impulse of about −1 percent of GDP. Staff view: there is sufficient fiscal space to introduce a discretionary stimulus package (as in 2008) to support employment, help low‑income families, and enhance SME access to credit; in case of a significant downturn, tapping into Past Reserves may be necessary and would be desirable.
- Authorities’ view: agreed that there is scope for monetary easing and that any fiscal response should be carefully calibrated and targeted, considering moral hazard and productivity objectives.

### Financial market volatility and transmission channels
- Market developments: sharp declines in equity and currency markets in August–September 2011 with elevated volatility thereafter; outflows from the nonfinancial private sector were matched by strong inflows to banks in Q3:2011.
- Trade exposure: exports are over 210 percent of GDP and trade‑related sectors account for over 50 percent of GDP. Direct exposure to Europe and the United States is about 10 percent and 6 percent of exports, respectively. Staff estimates: a one percentage point fall in global growth would lead to a decline in Singapore’s growth by about 1.7−1.9 percentage points.
- Financial channel risks:
  - Offshore banking (ADM): Singapore‑based banks have few assets in the euro zone (less than 6 percent), and less than 10 percent of Singapore banking system funding comes from the euro area; however, the ADM is vulnerable because it relies mostly on wholesale funding and concentrates euro area bank activity.
  - Domestic credit: euro area banks have a small direct presence in the onshore market; over 60 percent of DBU funding and over three fourths of local bank funding comes from local deposits. Deleveraging by euro area banks is likely to have a limited direct impact on domestic credit, though U.K. bank stress could be more important; local and regional banks could partially offset any slowdown.
  - Capital and currency markets: global stress could lead to sharp reversals of portfolio equity and debt flows, stress in over‑the‑counter derivatives (euro zone banks make up 14 percent of the volume), and a decline in foreign exchange market turnover.

### Policy tools and financial stability measures
- Staff recommendations for managing spillovers and stress:
  - Use fiscal space for targeted stimulus if needed; consider tapping Past Reserves in a significant downturn.
  - Allow monetary policy to become more accommodative if warranted.
  - Adopt financial stability measures similar to 2008, including domestic liquidity provision through open market operations and standing facilities, and ensuring adequate foreign currency liquidity in spot and swap markets.
  - Maintain and build on deposit protection: staff welcomed the increase in the coverage limit of the deposit insurance scheme to S$50,000 for all nonbank depositors (introduced April 2011).
- Authorities’ arrangements: MAS has regulatory and supervisory measures, close supervision of banks’ liquidity, contacts with home nation supervisors of foreign bank branches, and powers under the Banking Act to impose asset maintenance, liquid asset ratio, and capital fund requirements on banks and branches.

### Risks to the outlook and recommended contingency planning
- Main risks: a sharp and protracted downturn in large advanced economies; extreme financial stress spreading from the euro area; a hard landing in China (low probability but severe impact).
- Impact channels: large adverse effects via trade and financial channels given high openness; potential for substantial spillovers given Singapore’s role as a major financial center and the financial services sector’s share of about 12 percent of GDP.
- Contingency recommendations: prepare targeted fiscal measures focused on employment support and SMEs, maintain flexibility to ease monetary policy, and be ready to deploy liquidity and other financial stability measures if global stress intensifies.

*Source: SINGAPORE 2011 ARTICLE IV REPORT (excerpt)._

### 21.      Background. Domestic credit has been

### _cr1242 - 21.      Background. Domestic credit has been

### Domestic credit: background and trends
- Domestic credit has been growing rapidly.
- Expansion broad-based but notably brisk for construction and other business loans, including a sharp increase in DBU lending to nonresidents.
- Housing credit growth has moderated but remains elevated.
- Growth in offshore market (ACU) loans to the private sector (mostly in other regional countries) has accelerated.
- The ratio of private credit in DBUs to GDP rose by 20 percentage points in the three quarters to September 2011.
- Foreign currency lending to nonresidents has driven the U.S. dollar loan-to-deposit ratio above one for local banks.

### Drivers of credit growth
- A booming economy: the vigorous recovery through early 2011 likely stimulated credit demand, but credit has far outpaced income.
- Low rates: the MAS’ renewed shift to currency appreciation since 2010 and unusually low interest rates in advanced countries led to a sharp decline in Singapore dollar interbank rates (SIBOR).
- Demand from the region: rapid increase in DBU credit to nonresidents largely reflects U.S. dollar lending by domestic banks—mostly trade financing—to firms in mainland China and India; demand from East Asia has also fueled ACU loans.

### Policy developments (prudential)
- MAS adopted lower loan˗to˗value (LTV) ratios to reduce housing credit risks.
- In June 2011, MAS introduced capital requirements for Singapore incorporated banks that are higher than Basel III standards:
  - Basel III minimum capital adequacy requirements from January 2013 (two years ahead of the Basel timeline).
  - A minimum common equity tier 1 capital adequacy ratio (CAR) of 6.5 percent, tier 1 CAR of 8 percent and total CAR of 10 percent by January 2015.

### Staff views on credit risks and banks
- Near-term: domestic credit growth likely to abate against a slowing economy and increased uncertainty.
- Balance sheets: domestic banks have strong capital and liquidity positions.
- Risks: rapid credit growth warrants continued close monitoring as it may lead to deteriorating credit quality, particularly in a significant economic downturn.
- Sector vulnerabilities: while aggregate corporate and household balance sheets remain strong, firms in some sectors have low interest coverage ratios and specific segments may be overleveraged — vulnerable to a turn in the cycle, a sudden spike in borrowing costs, or reduced credit availability.
- Foreign currency liquidity risk: U.S. dollar lending to nonresidents has pushed local banks’ U.S. dollar loan-to-deposit ratio above one, potentially increasing foreign currency liquidity risks.

### Authorities’ views on credit and liquidity
- Authorities acknowledged strong recent credit growth but were not overly concerned, viewing it as largely reflecting strong domestic and regional demand expected to moderate significantly over the next year.
- Business lending tends to lag the economic recovery; the credit-to-GDP ratio had risen substantially but from a low base at the end of the global financial crisis.
- Authorities are closely monitoring rapid U.S. dollar loan-to-deposit ratios, liquidity risk management and dollar funding plans; noted ratios remain well below pre-Asia crisis peaks of about 2.5.
- Most dollar funding was via swaps from Singapore dollars; local banks have ample Singapore dollar supply as evidenced by overall loan-to-deposit ratios below one.
- Local banks have embarked on notes issuance programs to raise longer-term U.S. dollar funds.
- Banks hold liquid assets well in excess of regulatory minima, mostly in Singapore dollars.

### Are rising property prices a concern?
- Private residential property prices rebounded strongly after a steep decline in 2008−09 and are now above the previous peak; public housing resale prices are also growing rapidly.
- House prices have outpaced median household incomes, reducing affordability and becoming a prominent social issue.

### Drivers of property price increases
- Resurgent economy buoying incomes.
- Low interest rates: real mortgage rates very low or negative for the past two years, leading to high housing credit growth rates.
- Supply constraints: housing supply has not kept pace with population growth driven by strong immigration.
- Demand by nonresidents: prospects of currency appreciation and Singapore’s investment climate have lured foreign interest.

### Policy response on housing (summary of measures through December 2011)
- Authorities adopted multiple demand-containment measures between September 2009 and January 2011, and introduced an additional buyer’s stamp duty in December 2011.
- Measures included tightening seller stamp duties and lowering LTV caps on private property loans.
- December 2011 measure: an additional buyer’s stamp duty aimed at curbing investment demand, particularly from foreigners and corporate entities.

### Box 1 — Specific policy measures to address rising housing prices
- September 2009:
  - Interest absorption scheme and interest-only housing loans disallowed.
- February 2010:
  - LTV ceilings lowered from 90 percent to 80 percent for all private property loans.
  - Seller’s stamp duty (SSD) introduced on private properties sold within one year at rates of 1 percent for the first S$180,000, 2 percent for the next S$180,000, and 3 percent for the remaining balance.
- August 2010:
  - SSD extended to sales within three years, with one-third, two-thirds, or full SSD rates depending on holding period.
  - LTV ceilings lowered from 80 percent to 70 percent for buyers with one or more outstanding housing loans.
- January 2011:
  - SSD extended to sales within four years and rates raised to 16 percent for sales within a year, decreasing gradually to a minimum of 4 percent in the fourth year.
  - LTVs lowered to 60 percent for individuals with one or more outstanding loans and to 50 percent for nonindividuals.
- December 2011:
  - Additional buyer’s stamp duty (BSD) imposed over and above existing BSD:
    - 10 percent on foreigners and corporate entities buying any residential property.
    - 3 percent on permanent residents buying their second or subsequent residential property and on Singapore citizens buying their third or subsequent residential property.
- Supply measures:
  - Efforts increased to expand housing supply, in particular through the Government Land Sales program.
- Effectiveness:
  - Staff analysis using a vector auto˗regression framework suggests measures through mid˗2011 had a dampening impact on property prices and transaction volumes.

### Assessment, outlook, and risks for the housing market
- Staff: housing prices and transaction volumes are moderating; market likely to cool further given slower domestic growth, uncertain outlook, and a significant supply pipeline of public and private housing projects (despite residential construction activity slowing).
- Latest measures in December 2011 surprised markets and shifted balance of risks downward, but residency˗based measures risk pushing foreign demand to commercial and industrial property markets or to other countries.
- Macro-financial risks relatively contained:
  - Aggregate household balance sheets remain strong, though distributional vulnerabilities exist.
  - Average LTV of outstanding housing loans was 44.1 percent in Q3:2011 (with less than 5 percent of loans having LTVs above 80 percent).
  - Average debt service ratio on mortgages estimated to be less than 25 percent as of Q4:2010.
  - Staff view: shocks to housing prices likely to have a small impact on bank capital unless accompanied by a large, sustained rise in unemployment; impact on consumption likely small given limited housing wealth effects.
- Authorities’ stress tests: even a 300 bps rise in interest rates or a large decline in private house prices would not endanger financial stability given relatively low debt service ratios and LTVs.
- Section 35 of the Banking Act caps property exposures of banks; authorities monitor the market and will take additional measures as necessary.

### The external position and medium-term rebalancing
- Current account: surplus bounced back in 2010, estimated to have narrowed to 19.4 percent of GDP in 2011.
- Reserves: official monetary reserves accumulated through Q1:2011 but declined slightly thereafter; Singapore’s high degree of openness and large financial system call for greater reserve buffers than for other countries.
- REER: had been appreciating steadily since late 2009 before a recent decline triggered by global financial turbulence; MAS policy of gradual NEER appreciation should contribute to continued real appreciation.
- Fiscal policy: with structural fiscal surpluses and a large stock of fiscal reserves, room exists for a looser medium-term fiscal stance; authorities project an increase in public spending of about 1−2 percentage points of GDP over the next five years, targeting transport and housing infrastructure, education, and healthcare.
- Medium-term outlook:
  - Current account surplus projected to decline moderately, driven primarily by narrowing of the public savings-investment gap.
  - Private savings likely to fall slightly as a share of GDP as increased social spending reduces motives for precautionary saving.
  - Baseline growth expected to recover gradually and converge to its potential rate of about 4 percent.
- Assessment of REER valuation:
  - CGER macroeconomic balance and external sustainability approaches suggest REER may be undervalued by about 12 percent.
  - Equilibrium exchange rate approach suggests a minor overvaluation of about 5 percent.
  - Given mixed evidence and wide confidence bounds, staff cannot conclude the REER is significantly out of line with fundamentals.

### Making growth more inclusive — background and staff recommendations
- Background: marked increase in inequality over the last two decades; authorities rely on social safety nets (including CPF-based benefits and workfare) and foreign workers levies to keep unemployment low and wages strong.
- Staff view: current social safety nets provide a good base but may be insufficient against population ageing and rising inequality; potential additional measures include:
  - Pension benefits: replacement ratios are low despite a high contribution rate. Boosting real rates of return on CPF savings could help pensioner incomes; complement with a “first pillar” of noncontributory pensions for the elderly poor and a “third pillar” of private defined contribution plans.
    - Current CPF rates of return are largely based on 12-month deposit rates and 10-year Singapore government bonds, with a nominal return floor of 2.5 percent or 4 percent depending on the account and an additional 1 percent for the first S$60,000 of a CPF member’s savings.
  - Unemployment insurance savings accounts: can support household consumption without the moral hazard of standard unemployment insurance and could be integrated into CPF.
  - A minimum wage: could strengthen existing safety nets; evidence on employment effects is mixed and requires careful design.

*Source: 2011 Article IV Report — Singapore (selected sections).*

### Box 2. Singapore: CPF-Related Benefits and Workfare Schemes

### Box 2. Singapore: CPF-Related Benefits and Workfare Schemes

### Overview
- Singapore’s social security framework is based on the principles of self reliance, a strong work ethic and family support.
- In addition to tax funded subsidies for healthcare and housing, the framework consists of two main components: Central Provident Fund (CPF)-Related Benefits and Workfare.

### Central Provident Fund (CPF)-Related Benefits
- The CPF is a defined contribution plan with mandatory contributions from both employees and employers, and covers around 90 percent of the resident population.
- The CPF has various accounts and associated benefits:
  - Housing
    - Around 60 percent of employer and employee contributions to the CPF are directed to the Ordinary Account.
    - Members have used these savings mainly to buy subsidized homes from the Housing Development Board.
    - Home ownership rate of about 90 percent amongst residents.
  - Pensions
    - Retirement income comes from the Special Account, which receives around 20 percent of CPF contributions, and the remaining balance in the Ordinary Account.
    - According to OECD estimates, net replacement rates (that is, retirement incomes relative to incomes during working life) are between 10−20 percent, which are lower than virtually all countries in the Asia Pacific region and well below the average for OECD countries (around 70 percent).
  - Health
    - The remaining share of CPF contributions go to the Medisave Account, under which savings can be used to pay for medical expenses and medical insurance.
    - There are also subsidies of up to 80 percent for medical care at public hospitals, which all Singaporeans can access.

### Workfare
- The Workfare system comprises an income supplement and a training subsidy for workers who earn less than S$1,700 per month.
- Job placement and training services are available for the unemployed.
- Community Development Councils have access to other government funds to help address financial and medical needs of Singaporeans.

### Authorities’ Views (as reported)
- Making growth more inclusive is a top medium-term policy priority; the approach centers on work as the best form of financial security through maintaining growth and keeping the unemployment rate low.
- Policy supports include a national drive toward higher productivity, expansion of continuing education and training, and Workfare schemes (the Workfare Income Supplement is a transfer conditional on work).
- The authorities argued that OECD calculations on pension replacement ratios did not factor in that most Singaporeans had significant retirement savings invested in housing equity, which can be monetized to supplement retirement income.
- The government program to buy back the unconsumed lease of public housing owned by low-income elderly households provides an additional avenue to supplement retirement income.
- The authorities expressed reservations about a minimum wage at the current time, arguing it would act as an implicit tax on employing labor and may increase the unemployment rate.
- Contextual note from the text: minimum wage levels in most countries cluster around 40 percent of the average wage, with a range of 27 percent to 52 percent in OECD countries.

### Staff Appraisal: Key Findings, Projections, and Recommendations
- Economic outlook and projections
  - In the baseline scenario, GDP growth is projected at 2.7 percent in 2012, before recovering to 3.8 percent in 2013.
  - Inflation is projected to ease as growth softens and imported price pressures wane; headline inflation had accelerated in 2011 while core inflation remained low and stable.
- Policy stance and risks
  - The current monetary policy stance is well tuned to the near-term outlook; further monetary accommodation would be necessary if the outlook deteriorates.
  - Fiscal policy was moderately contractionary in 2011; fiscal policy should be loosened in 2012 against the backdrop of weaker growth.
  - Main risks are external and tilted significantly to the downside: a protracted downturn in large advanced economies or severe financial stress in global markets.
  - Singapore has sufficient policy firepower: authorities could deploy fiscal expansion to support employment and protect low-income families, adopt calibrated measures to maintain financial stability, and ease monetary policy if necessary.
- Financial sector and housing
  - The rapid growth in credit over the past two years warrants continued close monitoring.
  - Staff welcomes authorities’ forward-looking supervision, stress testing, and early adoption of higher capital requirements for Singapore incorporated banks, above and ahead of Basel III requirements.
  - The balance of forces for housing prices has tilted downward due to policy measures, slower GDP growth, the uncertain outlook, planned increases in housing supply, and additional residency-based buyer stamp duties introduced in December 2011.
  - Macro-financial risks from the housing market are relatively contained absent a sharp increase in unemployment.
- Policy recommendations to enhance inclusiveness
  - Consider unemployment insurance based on savings accounts.
  - Expand pension benefits, particularly for the elderly poor.
  - Strengthen means tested cash transfers to households to complement existing schemes and enhance access to education and healthcare for the very poor.
  - Assess whether a minimum wage policy would be sensible for Singapore.
  - Staff welcomes the government’s plan to increase public spending by 1−2 percentage points of GDP over the next five years and to direct spending increases to housing and transport infrastructure to help reduce the large current account surplus over the medium term.

*Source: Box 2. Singapore: CPF-Related Benefits and Workfare Schemes (2011 Article IV Report).*

### 51.      It is recommended that the next

### _cr1242 - 51.      It is recommended that the next

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12˗month cycle.

### Economic activity: slowing and drivers
- Growth is slowing.
- Slowdown is driven by weak exports.
- Manufacturing has taken the brunt of the external slowdown.
- Domestic demand has remained relatively resilient, supported by a strong labor market.
- Although industrial production rose recently, retail sales and leading indicators point to further weakness ahead.

### External trade and financial spillovers (vulnerabilities)
- Weaker global or regional growth leads to an export slowdown, which has a significant impact on investment and GDP, while consumption tends to be more resilient.
- Singapore is a net capital exporter, but during the 2008−09 crisis it experienced extraordinarily large outflows from banks.
- Previous global or regional crises have led to:
  - a fall in the stock market index,
  - an increase in borrowing costs,
  - exchange rate depreciation and increased currency volatility,
  - a slowdown in credit, particularly in the offshore banking sector,
  - a decline in financial market activity, and
  - lower value added of the financial sector.
- Note: Column markers indicate previous global or regional recessions: first column = Asian financial crisis; second = 2001 tech recession; third = 2008−09 global financial crisis.

### Banking system exposures and funding
- Given Singapore’s status as a financial center, exposures to European banks are larger than for most other regional countries.
- About two thirds of foreign bank claims are on the private sector, but only one third of the claims are truly cross-border.
- Only about 1/3 of the European bank claims are from euro-area banks, and those claims represent a very small fraction of Singapore’s total bank assets.
- The ACU (offshore) banking sector, which is larger than the onshore sector, is vulnerable to foreign bank deleveraging, as it depends mostly on funding from banks outside Singapore.
- Funding structure of the banking system (In percent of the sum of deposits and funding from banks; Oct-11):
  - Components shown: Deposits; Due to banks in Singapore; Due to banks outside Singapore.
  - Sectors shown: DBU; ACU.

### Credit and monetary conditions
- Credit has been growing rapidly, fueled by record low interest rates.
- Credit growth has been faster than in most other regional economies.
- DBU credit has been broad-based:
  - Housing credit moderating but still high.
  - Business loans accelerating sharply over the past year.
  - DBU loans to non-resident firms have risen particularly briskly.
- ACU credit has also expanded at an elevated pace, as surging demand from East Asia has offset declines in loans to Europe and the US.

### Financial and private sector balance sheets
- Domestic banks continue to show strong capital and high profitability, with NPLs low and declining.
- Listed firms have stable and reasonably low leverage, particularly in the case of smaller firms, although their interest coverage is low—especially for firms in transport and communications, wholesale and retail trade, and construction.
- Aggregate household leverage remains low, but households are now more exposed to housing wealth.

### Housing market
- Increases in the stock of public and private housing have failed to keep pace with population growth, contributing to a strong increase in housing prices and rentals and a decline in affordability.
- Prices and transaction volumes are now moderating and may be further dampened by an increasing supply pipeline.
- Indices and measures referenced:
  - Private housing and Public housing (resale) price indices (2000=100).
  - Housing Affordability (Median annual household income index to housing price index, 2000=100).
  - Residential Property Prices and Transaction Volume (Year-on-year percent change).

### Inequality and distributional outcomes
- Median household income has increased significantly in Singapore over the last decade (and stagnated in the United States).
- Inequality has risen more in Singapore than in the United States. Even adjusting for benefits and transfers, there has been a large increase in the Gini coefficient.
- Singapore’s Gini is one of the highest in the region.
- Income gains have gone mostly to the top deciles, while the wages of low skilled workers have declined.
- Health spending in Singapore is relatively low (measured in percent of GDP).

### Key macroeconomic and financial statistics (selected exact figures)
- Nominal GDP (2010): US$222.7 billion
- Main exports (percent of total domestic exports): Electronic products (26%); chemical products (17.5%)
- Population (June 2011): 5.1 million
- Unemployment rate (September 2011): 2.0 percent
- GDP per capita (2010): US$43,867

Selected table highlights (2006–12 series; preserve values as presented)
- Real GDP growth (percentage change): 2006: 8.7; 2007: 8.8; 2008: 1.5; 2009: -0.8; 2010: 14.5; 2011 Est.: 4.8; 2012 Proj.: 2.7
- CPI inflation (period average, percent): 2006: 1.0; 2007: 2.1; 2008: 6.6; 2009: 0.6; 2010: 2.8; 2011 Est.: 5.2; 2012 Proj.: 3.0
- Current account balance (US$ billions): 2006: 36.1; 2007: 48.5; 2008: 27.6; 2009: 34.9; 2010: 49.5; 2011 Est.: 50.2; 2012 Proj.: 49.2
  - (In percent of GDP): (24.8); (27.3); (14.6); (19.0); (22.2); (19.4); (18.3)
- Exports, f.o.b. (US$ billions): 2006: 274.3; 2007: 303.1; 2008: 342.8; 2009: 273.0; 2010: 357.9; 2011 Est.: 418.1; 2012 Proj.: 427.6
- Imports, f.o.b. (US$ billions): 2006: -232.2; 2007: -256.3; 2008: -315.0; 2009: -243.8; 2010: -311.2; 2011 Est.: -367.8; 2012 Proj.: -376.3
- Gross official reserves (US$ billions): 2006: 136.3; 2007: 163.0; 2008: 174.2; 2009: 187.8; 2010: 225.8; 2011 Est.: 237.7; 2012 Proj.: 253.5
  - (Months of imports): (4.9); (4.9); (6.5); (5.5); (5.7); (5.8); (5.9)
- Money and credit (end of period, percentage change) for 2011 (figures as of end-November):
  - Broad money (M3): 10.2...
  - Lending to nonbanking sector: 30.5...
  - Three-month interbank rate (percent): 0.4...
- Balance of payments (2006–12, US$ billions):
  - Financial account balance: -17.1 (2006); -31.9 (2007); -13.6 (2008); -26.5 (2009); -6.6 (2010); -29.8 (2011 Est.); -32.9 (2012 Proj.)
  - Overall balance: 17.0; 19.4; 13.1; 11.3; 42.2; 20.0; 15.8
- Net international investment position (In billions of U.S. dollars): 2006: 332.3; 2007: 358.2; 2008: 297.7; 2009: 411.0; 2010: 530.5
  - (In percent of GDP): 228.6; 202.0; 157.2; 224.2; 238.2

### Financial soundness and banking sector indicators (selected exact figures)
- Regulatory capital to risk-weighted assets (percent): 2006: 15.4; 2007: 13.5; 2008: 14.4; 2009: 17.3; 2010: 18.6; 2011: 16.2
- NPL ratio (local banks, percent): 2006: 2.8; 2007: 1.5; 2008: 1.7; 2009: 2.4; 2010: 1.6; 2011: 1.2
- Capital adequacy ratio of local banks (percent): 2006: 15.4; 2007: 13.5; 2008: 14.7; 2009: 17.3; 2010: 18.6; 2011: 16.2
- After tax return on assets: around 1.1–1.4 range across years.
- After tax return on equity: e.g., 2006: 13.7; 2007: 12.9; 2008: 10.7; 2009: 10.8; 2010: 12.2; 2011: 11.8; 2011 value repeated 11.2 in table context.

### Fiscal and public sector (selected exact figures)
- Central government overall balance (percent of GDP, calendar year basis): 2006: 7.0; 2007: 10.5; 2008: 7.2; 2009: 1.0; 2010: 3.2; 2011 Est.: 4.1; 2012 Proj.: 3.5
- Primary balance 2/ (percent of GDP): 2006: -1.7; 2007: 0.0; 2008: -2.5; 2009: -3.9; 2010: -2.5; 2011 Est.: -1.4; 2012 Proj.: -1.6
- Table 5 (central government operations, fiscal years) provides revenue and expenditure series in S$ millions for 2007/08–2011/12 (selected entries preserved in underlying tables).

### Medium-term projections (2006–16 excerpts)
- Real GDP growth projections (percent change) for 2013–16: 4.1 (2013), 4.0 (2014), 4.0 (2015), 4.0 (2016)
- Gross national savings (percent of GDP) projected: 2012: 43.0; 2013: 42.6; 2014: 42.3; 2015: 42.4; 2016: 42.2
- Current account as percent of GDP projected through 2016: 2012: 18.3; 2013: 18.1; 2014: 17.7; 2015: 17.7; 2016: 17.2
- Gross official reserves (US$ billions) projected: 2012 Proj.: 253.5; 2013 Proj.: 261.5; 2014 Proj.: 269.4; 2015 Proj.: 277.4; 2016 Proj.: 285.4
- Output gap values reported for 2006–16 (examples): 2006: 2.3; 2007: 5.0; 2008: 1.5; 2009: -3.5; 2010: 2.2; 2011: 1.7; 2012–16: 0.4, 0.1, 0.1, 0.0, 0.0

### Policy-relevant implications and areas for attention
- Maintain vigilance to external shocks given high openness and exposure to regional and global downturns.
- Monitor ACU/offshore banking sector funding reliance on non-Singapore banks to mitigate risks from foreign bank deleveraging.
- Continue macroprudential and housing market monitoring as housing prices and household exposure to housing wealth have increased; supply pipeline may moderate prices.
- Address rising inequality and relatively low health spending through distributional and social policy considerations.

*Source: SINGAPORE 2011 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND (document content provided).*

### ANNEX I: SINGAPORE—FUND RELATIONS

### ANNEX I: SINGAPORE—FUND RELATIONS

### I. Membership Status
- Joined August 3, 1966
- Article VIII

### II. General Resources Account
- Quota: 1,408.00 SDR Millions (100.00 percent of Quota)
- Fund holdings of currency: 953.33 SDR Millions (67.71 percent of Quota)
- Reserve position in Fund: 454.73 SDR Millions (32.30 percent of Quota)
- Lending to the Fund:
  - New Arrangement to Borrow: 87.80 SDR Millions

### III. SDR Department
- Net cumulative allocation: 744.21 SDR Millions (100.00 percent of Allocation)
- Holdings: 867.78 SDR Millions (116.60 percent of Allocation)

### IV. Outstanding Purchases and Loans
- None

### V. Financial Arrangements
- None

### VI. Projected Payments to the Fund
- None

### VII. Exchange Arrangement
- Classification: “other managed.”
- Exchange rate policy:
  - MAS monitors value against an undisclosed basket of currencies and intervenes to maintain value within an undisclosed target band.
  - The U.S. dollar is the intervention currency.
- Article VIII obligations accepted: Sections 2, 3, and 4.
- Restrictions maintained:
  - Restrictions on Singapore-dollar credit facilities to, and bond and equity issuance by, nonresident financial institutions.
  - Singapore-dollar proceeds obtained by nonresident financial entities from loans exceeding S$5 million, or any amount for equity listings or bond issuance to finance activities outside Singapore, must be swapped or converted into foreign currency upon draw-down.
  - Financial institutions are prohibited from extending Singapore-dollar credit facilities in excess of S$5 million to nonresident financial entities if there is reason to believe that the Singapore-dollar proceeds may be used for Singapore-dollar currency speculation.

### VIII. Article IV Consultation
- Consultation cycle: 12-month.
- 2010 Article IV consultation discussions: May 11−17, 2010.
- Executive Board discussion and conclusion of the consultation: July 16, 2010.
- (Note: this Annex is "As of December 31, 2011")

### IX. FSAP Participation
- FSAP undertaken in conjunction with the 2003 Article IV consultation.
- FSSA published as IMF Country Report No. 04/104.
- FSAP update scheduled for 2013.

### X. Technical Assistance
- None

### XI. Resident Representative
- Mr. Ravi Balakrishnan

*Source: ANNEX I: SINGAPORE—FUND RELATIONS (As of December 31, 2011).*

### 2011. MAS Core Inflation, which excludes the costs of accommodation and private road

### _cr1242 - 2011. MAS Core Inflation, which excludes the costs of accommodation and private road transport, and is the more important measure for monetary policy, was much lower at 2.3% in H2

### Inflation outlook and short-term drivers
- MAS Core Inflation (excludes costs of accommodation and private road transport) was 2.3% in H2 2011, up from 2.0% in H1 2011, driven by continued pass-through of earlier increases in global commodity prices and business costs.
- Over the next few months, CPI inflation and MAS Core Inflation expected to remain elevated before moderating in the second half of the year due to:
  - easing external price pressures given subdued global growth prospects, and
  - reduced tightness in the labour market from sluggish domestic economic activity alleviating cost pressures.
- Forecasts for 2012:
  - CPI inflation: 2.5-3.5%
  - MAS Core Inflation: 1.5-2.0%
- Comparisons for 2011:
  - CPI inflation: 5.2% in 2011
  - MAS Core Inflation: 2.2% in 2011

### Monetary and fiscal policy stance
- Overall macroeconomic policy calibrated to support transition to slower economic growth while the output gap remains slightly positive through 2012.
- In October 2011, MAS actions:
  - Kept the S$NEER policy band on a modest and gradual appreciation path.
  - Reduced the slope of the band in line with expectations of easing core inflationary pressures and sub-trend growth in 2012.
  - Next policy review scheduled for April (to weigh need for further adjustments).
- Fiscal policy:
  - FY2011 Budget (announced in February 2011) focused on measures to raise skills and productivity, and strengthen the society.
  - FY2012 Budget will look at stepping up efforts to generate sustainable and inclusive growth.

### Financial system and credit conditions
- Financial system remained resilient and markets functioning normally thus far.
- Authorities monitoring US$ funding of banks and overall liquidity risk management.
- Domestic credit growth moderated:
  - Grew 8.3% q-o-q in Q3 2011.
  - Moderated to 3.7% q-o-q in Q4 2011.
- Non-performing loans (NPL) ratio: 1.3% as at end Q4 2011.

### Medium-term social and structural issues
- Government focus: promoting inclusive growth and enhancing progressivity of the fiscal system over the last five years through measures including Workfare and enhanced grants to help lower-income workers own homes.
- Emphasis on strengthening opportunities via skills and capabilities to secure quality jobs:
  - Social mobility supported by education system with multiple pathways and relatively strong educational outcomes.
  - Continuous education and training of adult workers is a major priority.
  - Effort to upgrade productivity across the economy, especially in service industries, as basis for improved wages.
- Retirement and housing:
  - Returns on savings in the Central Provident Fund (CPF) have been enhanced in recent years.
  - Authorities estimate net replacement rates to be around 60%, taking members’ full CPF savings into account.
  - This estimate excludes value of equity in citizens’ homes, which are funded in significant part from CPF accounts and can be monetised in retirement.
- Social outcomes and fiscal targeting:
  - Unemployment rates remain amongst the world’s lowest.
  - Real median incomes have grown faster over the last decade than in most economies at a similar level of advancement.
  - Home ownership is close to 90%, even for those in the lowest quintile of incomes.
  - Social spending will increase as the population ages; the Government intends to continue targeting subsidies at the poor through means-tested programmes and avoid a build-up of broad-based entitlements to preserve fiscal sustainability.
- Authorities’ estimate of output gap: will narrow from 3.5% in 2011 to 1.4% in 2012.

### Final remarks and policy readiness
- External environment remains challenging with myriad risks.
- Authorities will continue close monitoring and stand ready to ensure macroeconomic and financial stability.
- Prepared to introduce additional cyclical supports should external conditions deteriorate and significantly worsen domestic prospects.
- Authorities positioned to focus on medium-term policies to raise productivity and workers’ real incomes.
- Authorities agreeable to publication of the Staff Report associated with the 2011 Article IV consultation and will release the Buff Statement at the same time.

*Source: IMF staff report text provided in content unit _cr1242*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr1242.pdf_