Singapore: Risk Assessment
Country Risk Rating
Business Climate Rating
- Significant non-price competitiveness
- Development of high added value sectors (new technologies, finance, chemicals, pharmaceuticals)
- Major regional and international trading hub and for the financial sector
- Large FDI inflows thanks to the advantageous tax regime, political stability, and an excellent business climate
- Leading exporter of capital in Asia through the Temasek and Government of Singapore Investment Corporation (GIC) sovereign funds
- Economy dependent on exports
- Shortages of skilled labor
- Aging population
- Vulnerability to slowdown in the Chinese economy
Stable Singaporean Economy
Economic growth in Singapore in 2018 should hold steady despite a slowing in exports to China. It will be sustained by world economic demand, in particular in the new technologies sector, with the upturn in exports of semiconductors that started in 2017, in financial services and retail sales. The slight rise in oil prices will benefit exports as Singapore is the world’s third-largest refining center. The slow rise in energy prices, a slight upturn in household consumption and the government’s expansionary budget policy (increased redistributive spending) will give a boost to inflation. Household confidence will, however, be kept buoyant thanks to the stability of the Singapore dollar (pegged to a mainly US dollar-weighted basket of currencies) and a falling unemployment rate. In addition public investments will make a positive contribution to growth in this context, in particular through infrastructure projects such as the high-speed rail link between the City-State and Kuala Lumpur, as well as “future economy” programmes which, in 2017, involved $8 billion (approximately 2.5% of GDP), to improve productivity and stimulate innovation in the 23 industries which are already growth hubs. The aim is to achieve growth of 2% to 3% a year for the next 10 years by improving the competitiveness of companies and the workforce. In addition, the advantageous tax regime will continue to attract significant foreign direct investments, equal to 19% of GDP in 2018.
Confirmed Resilience of Financial Situation
The budget situation for Singapore will remain very sound. In 2018, thanks to increased receipts by the sovereign funds, the country will continue to record a budget surplus whilst maintaining its expansionary budget policy. In addition, whilst there is a high level of public debt, this is more than made up for by the size of the financial assets held by the sovereign funds. The bond issues are not used to finance the public debt but to develop a local State bond market and to support the Central Provident Fund, the leading Singaporean pension fund.
In 2018, the current account balance will run a large surplus. Whilst the surplus in the balance of trade will increase, in particular, thanks to the slight uplift in energy prices, this trend will be counterbalanced by a deterioration in the balance of services and income. In addition, the opening of the City-State, and the matching role as a regional and international trading hub, explains why the downwards trends in exports are mirrored by fluctuations in imports, and thus the constancy of the current account balance. In this context, the level of foreign currency reserves will remain high (at around 7 months of imports in 2018).
Whilst the banking sector is exposed to property market risks, its granting of mortgages has been cautious and remains in line with the regulatory requirements: the rapid expansion of credit, combined with very high property prices, is not expected to present a risk for 2018. Singaporean banks are also exposed to risks associated with the high level, although deemed sustainable, of household indebtedness (the equivalent of 75% of GDP in 2017), the slowdown in the Chinese economy through trade finance operations, and the pressures associated with low oil and gas prices. However, the levels of capitalization and liquidities, the stabilizing of bad debt levels, as well as strong performances in the resistance tests carried out by the Singaporean financial authorities would indicate that the banking sector will be resilient in 2018.
Stability on Political Stage
The Prime Minister, Lee Hsien Loong, who comes from the People’s Action Party (PAP), which has held power since independence in 1965, was elected in mid-2017 for a term of office ending in 2021. Politics in Singapore are symbolized by stability and continuity with the PAP successfully maintaining its domination of national political life, credited with careful supervision of the active economic policies and the tranquil nature of the social milieu. Governance in the country is also excellent, thanks to its effective legal system which facilitates debt collection, helping to underpin the business climate, near the top of world rankings. In 2018, Singapore will hold the Presidency of the Association of South East Asian Nations (ASEAN) and intends, in this context, to work to improve regional security, reinforce economic integration to increase the attractiveness and competitiveness of the region and to promote collaboration in terms of innovation, and this in particular in the new technologies sector. Finally, Singapore diplomatic efforts have been working towards improving relations with Malaysia.