Singapore’s gAAA(pi) rating anchored by strong fiscal and external strength

Published on 06 April 2015

RAM Ratings has reaffirmed Singapore’s respective global-scale and ASEAN-scale sovereign ratings of gAAA(pi)/stable and seaAAA(pi)/stable. The ratings are backed by the country’s fiscal strength, solid external position and the impressive institutional quality and fundamentals which continue to support and drive its resilient economy. These strengths negate structural challenges pertaining to labour and an aging population, and the fact that Singapore’s small, trade-oriented economy is highly exposed to global conditions. 

“Singapore’s long-term objectives of making the economy a capital-intensive one and promoting inclusivity have resulted in greater social and development spending,” notes Esther Lai, RAM’s Head of Sovereign Ratings. The government is expected to register a fiscal deficit for the second consecutive year as a result of increased spending in these areas (projected 2015: 1.7% of GDP; actual 2014: 0.03% of GDP), which will be funded by accumulated past budget surpluses. RAM does not envisage the government of Singapore to consistently register budget deficits as a balanced budget over a 5-year term is required by law. Separately, the government is prohibited from raising debt for fiscal spending, which illustrates its prudent fiscal management. Instead, debt is issued for the development of the domestic debt market and the Central Provident Fund’s investments. More importantly, the republic has sizeable fiscal reserves, which amply cover its debts and provide a buffer in respect of unexpected spending.

Singapore’s external position remains one of its key strengths, the island republic consistently recording large current-account surpluses and attracting ample FDI inflows. This is sustained by its competitive economy, favourable business climate and strong institutional framework. We also view the country’s stable political environment and top-tier governance favourably, the government having taken effective pre-emptive measures to address economic challenges. While there is growing discontent among citizens arising from the widening income disparity, the influx of foreign labour and infrastructure bottlenecks, we note that the government has been addressing these issues with measures proposed in Budget 2014 and Budget 2015, such as initiatives to ease the cost of living (GST cash vouchers) and improve the public transport system.

Media contact
Serene Tan
(603) 7628 1088
serene@ram.com.my