IMF Executive Board Concludes 2019 Article IV Consultation with Singapore

July 15, 2019

On July 10, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Singapore.

Singapore’s macroeconomic performance has been impressive. GDP per capita more than doubled in the last twenty years and income inequality has been declining since the GFC.

Singapore’s economic activity moderated in 2018. After a surge in domestic demand in 2017, growth tapered to 3.1 percent in 2018. While consumption remained resilient, investment declined sharply, and the main drivers of growth shifted back to external demand. Growth decelerated further to 1.2 percent in 2019Q1 compared to the previous year, as manufacturing decelerated. Nonetheless, labor market conditions continued to improve in 2018: unemployment declined, employment expanded, and real wages grew. Inflationary pressures remained modest in 2018. MAS core inflation slowed slightly to 1.6 percent on year-on-year basis in 2019Q1, largely reflecting the decline in electricity prices and lower global oil prices. The current account surplus declined in 2019Q1 from a year ago but remains large as a share of GDP.

With less support from external demand, growth is expected to slow to 2 percent in 2019. Given global trade tensions, support from external sectors is expected to fall and growth drivers are projected to shift back to domestic demand. Investment is expected to pick up with the push for digitalization and new industry-related projects. MAS core inflation is expected to slightly edge down as the output gap closes, but headline inflation is expected to rise as the drag from accommodation and private road transport costs recede. Over the medium term, growth should stabilize around 2½ percent, increasingly driven by modern services alongside other trade-related sectors. Risks to the outlook are tilted to the downside and mainly stem from external sources, including a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth.

Executive Board Assessment [2]

Executive Directors commended the authorities’ sound macroeconomic management and strong policy frameworks, which have contributed to robust and resilient economic performance and reduced income inequality. Directors noted that Singapore’s economic growth is expected to continue to moderate in 2019 as export momentum slows. The current account surplus remains large as a share of GDP. Looking ahead, risks are tilted to the downside stemming primarily from the external environment.

Directors commended the authorities’ long-term policy approach and supported the use of Singapore’s ample fiscal space over the medium and long terms to address challenges, including age-related spending, climate change, expansion and renewal of infrastructure, and programs to help workers and firms adapt to technological change, while preserving adequate fiscal buffers. Directors recognized that higher government spending would also support external rebalancing, given significant leakages through trade and remittances. A few Directors called for greater use of fiscal policy for a more balanced growth.

Directors supported the broadly neutral monetary policy stance. They recommended that monetary policy remain data-dependent. If downside risks materialize, fiscal policy should be the first line of defense and macroprudential policy could be eased while maintaining caution vis-à-vis financial stability issues. Directors welcomed the authorities’ commitment to begin publishing foreign exchange intervention data to improve transparency.

Directors welcomed the findings of the FSAP and supported the main recommendations. In particular, they noted that Singapore’s financial system is considered resilient, underpinned by a strong regulatory and supervisory framework. At the same time, liquidity stress tests reveal vulnerability in U.S. dollar liquidity. Directors, therefore, encouraged giving priority to bolstering banks’ foreign exchange liquidity. Directors also urged further progress in enhancing the bank resolution framework by devoting more resources to the Monetary Authority of Singapore’s resolution unit. Directors took positive note of the reforms to reinforce the safety of the payment system.

Directors welcomed the authorities’ proactive use of macroprudential and other property-related measures. They commended the continued monitoring of conditions in property markets and appropriate adjustment of macroprudential measures. They suggested eliminating residency-based differentiation for the Additional Buyer’s Stamp Duty, and then phasing out the measure once systemic risks dissipate.

Directors supported the authorities’ focus on balancing the promotion of financial innovation against preserving financial stability, investor protection, and financial integrity. They called for continued vigilance, including to guard against money laundering/terrorism financing and cyber-risk and to minimize reputational risk.

Directors commended the authorities’ structural reform agenda to raise productivity and turn Singapore into a global innovation hub through incentives to automate and innovate. They took note of programs to drive digitalization and technological adoption among businesses and promote lifelong learning and skill enhancement among individuals. Directors called for continued monitoring of the social impact of economic transformation. They underscored the need for greater efforts to incentivize the uptake of existing programs, especially among those more at risk of displacement by automation. They also emphasized that labor market policies should remain nimble to the rapidly changing nature of work. Directors welcomed the authorities’ efforts to reduce Singapore’s carbon emissions.

Singapore: Selected Economic and Financial Indicators, 2014–20

Nominal GDP (2018): US$364 billion

Population (2018): 5.64 million

GDP per capita (2018): US$64,567

Main goods exports (2018, percent of total exports): Electronic products (30 percent); mineral fuels (19 percent); and chemical products (14 percent).

Top three destinations for goods exports (2018, percent of gross goods exports): China (12.2 percent); Hong Kong SAR (11.8 percent); and Malaysia (10.9 percent).

Projections

2014

2015

2016

2017

2018

2019

2020

Growth (percentage change)

Real GDP

3.9

2.9

3.0

3.7

3.1

2.0

2.3

Total domestic demand

2.1

0.4

5.5

6.5

1.1

3.3

2.0

Final domestic demand

3.4

4.4

2.3

4.6

0.5

3.0

2.1

Consumption

3.0

5.9

2.9

3.6

3.0

3.0

2.6

Private consumption

3.6

5.2

2.7

3.4

2.7

2.7

2.7

Gross capital formation

0.8

-8.6

10.2

11.6

-2.1

3.8

1.0

Gross fixed investment

4.2

2.0

1.1

6.4

-4.0

2.8

1.1

Change in inventories (contribution to GDP growth, percentage points)

-0.9

-3.0

2.3

1.4

0.5

0.3

0.0

Net exports (contribution to GDP growth, percentage points)

2.1

3.6

0.0

-1.1

2.0

0.1

0.7

Saving and investment (percent of GDP)

Gross national saving

47.4

42.6

44.2

44.5

44.5

43.5

43.3

Gross domestic investment

29.4

25.4

26.7

28.2

26.6

27.7

27.5

Inflation and unemployment (period average, percent)

CPI inflation

1.0

-0.5

-0.5

0.6

0.4

1.0

1.3

CPI inflation, excluding food and energy 1/

0.6

-0.7

-0.9

-0.1

-0.2

0.8

1.2

MAS core inflation 1/

1.9

0.5

0.9

1.5

1.7

1.5

1.7

Unemployment rate

2.0

1.9

2.1

2.2

2.1

2.0

2.0

Central government finances (percent of GDP) 2/

Revenue

17.1

17.3

18.5

19.1

18.5

18.1

18.2

Expenditure

12.2

14.1

15.2

14.2

14.4

14.1

14.2

Net lending/borrowing

4.9

3.1

3.3

4.9

4.0

4.0

4.0

Net lending/borrowing, excluding nonproduced assets

1.1

-0.5

0.5

1.8

1.0

0.8

0.7

Primary balance 3/

-1.1

-2.6

-2.6

-1.5

-2.3

-2.7

-2.9

Money and credit (end of period, percent change)

Broad money (M2)

7.6

4.0

8.4

4.1

5.1

3.3

3.6

Credit to private sector

7.0

2.5

5.5

3.6

4.9

2.0

2.3

Three-month S$ SIBOR rate (percent)

0.5

1.2

1.0

1.5

1.9

Balance of payments (US$ billions)

Current account balance

56.5

53.0

55.7

55.4

65.1

58.7

61.2

(In percent of GDP)

18.0

17.2

17.5

16.4

17.9

15.8

15.8

Goods balance

86.7

92.6

87.1

92.5

98.4

96.5

100.0

Exports, f.o.b.

450.6

396.1

371.4

408.5

459.7

469.3

484.6

Imports, f.o.b.

-363.9

-303.7

-284.3

-316.0

-361.4

-372.8

-384.6

Financial account balance 4/

47.3

51.5

56.5

26.0

49.4

52.7

53.3

Overall balance 4/

6.8

1.1

-1.8

27.4

12.5

6.0

8.0

Gross official reserves (US$ billions) 5/

256.9

247.7

246.6

279.9

287.7

260.9

270.9

(In months of imports) 6/

6.6

6.7

6.0

6.2

6.1

5.4

5.4

Singapore dollar/U.S. dollar exchange rate (period average)

1.27

1.37

1.38

1.38

1.35

Nominal effective exchange rate (percentage change) 7/

0.6

-0.9

1.9

0.0

1.0

Real effective exchange rate (percentage change) 7/

-0.6

-2.7

-0.2

-1.2

-0.5

Memorandum items:

Nominal GDP (in billions of Singapore Dollars)

398.9

423.4

439.4

467.3

491.2

507.2

525.6

Growth (%)

3.7

6.1

3.8

6.3

5.1

3.3

3.6

Sources: Data provided by the Singapore authorities; and IMF staff estimates and projections.


1/ IMF staff estimates, showing projections from 2019. MAS core inflation excludes the costs of accommodation and private road transport.

2/ IMF staff estimates on a calendar year basis following GFSM 2014.

3/ Net lending/borrowing excluding net investment return contribution (NIRC).

4/ Following the BPM6 sign convention, a positive entry implies net outflows.

5/ The projections for official reserves for 2019 and onward reflect the transfers of S$45 billion from the official foreign reserves to GIC Pte. Ltd., as announced in May 8, 2019.

6/ In months of following year's imports of goods and services.

7/ Increase is an appreciation.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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