The Executive Board of the International Monetary Fund (IMF) has concluded its Article IV consultation* with Singapore for 2016, noting that the Singapore economy continues to perform well despite being
impacted by a combination of cyclical and structural factors,
originating both at home and abroad.
Growth moderated from 3.3%
in 2014 to 2% in 2015. It was 2.2% in the
first half of 2016. Unemployment has remained low, but net employment
generation slowed rapidly in 2015 and headline inflation has stayed
below zero since late 2014. In response, macroeconomic policies have
become more accommodative, spearheaded by monetary policy easing and an
expansionary budget. Financial sector and macroprudential policies have
ensured financial stability. On the external front, lower global
energy prices contributed to a higher current account surplus in 2015,
though the surplus declined in the first quarter of 2016.
Growth is projected to moderate slightly to 1.7% in 2016,
as the full impact of the global shocks experienced in 2015 is felt, and
is expected to recover to 2.2% in 2017. Economic activity
will be supported by accommodative policies, along with low energy
prices and the ongoing global recovery. However, near-term risks are
skewed to the downside, including from slow global and regional growth
and spillovers from renewed global financial volatility. Headline and
core inflation are benign, expected to be -0.3% and 0.8% in 2016,
respectively, before rising to 1.1% and 1.4% in 2017 on
gradually recovering energy and commodity prices. The current account
surplus is expected to moderate over the medium term amid rapid
population ageing and reforms to boost domestic demand, including
through better health care, pensions, and other social insurance
arrangements.
Structural policies continue to focus on moving toward an
innovation-based economy that relies less on labor and more on
productivity growth, especially in the non-traded sector. Policies
focus on targeted support to businesses to promote automation,
innovation, and internationalisation. The government is also raising
investment in infrastructure and other long-term capital projects and
rolling out policies to improve access to education and health care,
particularly for the elderly.
Executive Directors observed** that Singapore’s highly open economy
enjoys strong fundamentals and continues to perform well, and commended
the authorities for their skillful management. Directors noted that
Singapore’s strong external position and ample fiscal space allows the
authorities to adjust policy settings in response to slower growth
and external risks stemming from protracted lower growth in advanced and
emerging economies and global financial market volatility.
Directors considered the authorities’ expansionary fiscal policy
stance and further easing of monetary policy in April as appropriate, in
view of the weaker‑than‑expected inflation and growth developments.
They agreed that the current accommodative fiscal stance is providing
welcome support to activity and applauded the authorities’
willingness to act quickly in response to evolving conditions.
However, a
number of Directors saw scope for additional fiscal stimulus to
boost domestic demand, close the output gap, and provide insurance
against elevated downside risks to growth. In this context, a number
of Directors underscored that the current fiscal rule has served the
country well for many years, while a number of others saw merit in
considering aligning it to the business cycle. Turning to monetary
policy, Directors considered that current policy settings are
appropriate. They agreed that clear monetary communications are
desirable, particularly to avoid short‑run instability. While some
Directors considered that more frequent elaboration of inflation
prospects would be beneficial, a number of other Directors recognised
merits in the authorities’ current approach, which has served the
country well and should be retained.
Directors observed that Singapore is at the mid‑point of a decade
long restructuring to a knowledge‑based economy. They welcomed the
authorities’ more targeted approach to supporting automation,
innovation and productivity, while expanding social insurance and safety
nets. Directors urged the authorities to increase spending on
research and development (R&D), promote private sector R&D, and
support new, creative firms. They looked forward to the unveiling of
initiatives by the Committee on the Future Economy, which was set up to position Singapore for the future and identify areas of growth.
Directors observed that Singapore’s financial cycle has turned
and that credit growth to residents has moderated. They noted that macro
prudential policies in place made a decisive contribution to
containing household indebtedness and should be retained. Directors
considered that high levels of corporate debt warrant caution and
close monitoring, although risks are mitigated by companies’ high
debt‑servicing capacity.
Directors recognised Singapore’s high regulatory and supervisory
standards in the financial sector. They noted that banks have remained
profitable with low non‑performing loans and large capital and
liquidity cushions as they adjust to changes in the direction of capital
flows and lower oil prices. Directors welcomed that the regulation
and supervision of banks is being further enhanced, and emphasised the
need for banks to remain vigilant. They noted the authorities’
continued efforts to align the anti-money laundering and countering financing of terrorism (AML/CFT) framework with international
standards, and welcomed recent steps to strengthen its enforcement.
Directors noted the finding that Singapore’s external position is
substantially stronger than is consistent with macroeconomic fundamentals
and desirable policies, while acknowledging that considerable
uncertainty surrounds the assessment. The current account surplus
increased further in 2015, as buoyant consumption only partly offset
the narrowing of the oil trade deficit. Fiscal expansion should help
reduce the external imbalance in the near term. Rapid population
ageing and policies to boost domestic demand and enhance inclusion,
including better health care, pensions, and other social insurance
arrangements, should over time lead to a significant reduction in
Singapore’s external imbalance.
*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.
**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. Read the qualifiers used in summaries.
