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Rating Action:

Moody's affirms Singapore's Aaa rating, maintains stable outlook

01 Sep 2020

Singapore, September 01, 2020 -- Moody's Investors Service ("Moody's") has today affirmed the Government of Singapore's long-term issuer and senior unsecured ratings at Aaa. The outlook remains stable.

The rating affirmation is driven by Moody's view that Singapore's structural credit strengths continue to provide resilience to adverse cyclical shocks and long-term trends. In particular, strong institutions and governance and the government's formidable fiscal reserves underpin the country's ability to weather the unprecedented shock posed by the global coronavirus outbreak. Although Singapore faces medium- to long-term risks from challenges to its externally-oriented growth model, population aging and climate change, the sovereign's track record of structural transformation and underlying competitiveness support Moody's view that Singapore is likely to adapt in a way that preserves its credit profile.

Singapore's long-term local and foreign currency bond and deposit ceilings remain unchanged at Aaa. The short-term foreign-currency bond and deposit ceilings also remain at Prime-1.

RATINGS RATIONALE

RATIONALE FOR AFFIRMING THE Aaa RATINGS

CREDIT STRENGTHS REMAIN INTACT

Against the backdrop of a historically severe cyclical shock, Singapore will retain its structural credit strengths, which underpin its ability to weather future shocks and adverse long-term trends.

In particular, strong public finances and capable administration have allowed for a significant fiscal response to help guard against more material economic and financial risks. Approximating 20% of GDP, the countercyclical package committed to date is large and will prevent more severe damage to the economy than currently implied by Moody's projection of a 6.2% contraction in real GDP for 2020.

While larger as compared to relevant peers, the magnitude of Singapore's policy response will not contribute to a rise in government indebtedness. Moody's expects that a fiscal deficit of 15.6% of GDP in 2020 will be funded entirely by accumulated surpluses and past reserves, thereby preserving fiscal strength. Even as the government draws down an unprecedented amount from its reserves, Moody's estimates that Singapore's financial buffers will remain large, allowing ongoing contributions to the annual budget and providing contingent sources of extraordinary financing in the event of future shocks.

Singapore's strong banking system and exceptionally healthy external payments position will also remain intact, contributing to macroeconomic stability and supporting the recovery once the shock subsides.

COMMITMENT TO FISCAL DISCIPLINE AND STRUCTURAL REFORM AMID POLITICAL EVOLUTION

Moody's expects the government to adhere to its long-standing disciplined approach to fiscal management. Beyond the wide deficits incurred to offset the near-term impact of the coronavirus outbreak, Moody's expects that fiscal balances will revert to surplus or near-surpluses over the medium-term with the government promulgating the necessary adjustments to accommodate higher spending needs related to population aging, infrastructure development and economic restructuring.

Even prior to the coronavirus outbreak, Singapore's growth model was already being challenged by wider global trends, such as rising trade protectionism, the associated impact on the restructuring of supply chains, the emergence of disruptive technologies, and digitalization. With the pandemic shock potentially accelerating these shifts, the government's policy response includes ongoing funding towards structural transformation, with an emphasis on skills upgrading and improving productivity. Moreover, the government has already embarked on initiatives to review and make necessary adjustments to prevailing growth strategies in light of possibly long-lasting shifts brought about by the pandemic. The sovereign's track record of preempting and adapting to structural changes in industry and services bodes well for its capacity to adjust to global trends in the next few decades.

Similarly, the government has announced over the past year adjustments to the policy framework to accommodate population ageing. In particular, the retirement age will be gradually increased to 65 by 2030 from 62 currently, while the re-employment age—the maximum age for which employers are obligated to renew employment beyond the aforementioned retirement age—will be similarly increased to 70 from 67. In conjunction with these changes aimed at assuring continued employment, the government has bulked up wage subsidies for older workers and will build on the targeted expansion of the social safety net that had already been progressively enhanced over the past decade.

Elections held in July 2020, in which the opposition secured a historically large proportion of seats in Parliament, has limited implications for political risk. Abrupt policy changes or impairments to policy effectiveness appear unlikely. While the ruling People's Action Party continues to maintain a strong mandate to govern, having won 83 of 93 contested seats in the legislature and more than 60% of the popular vote, the subsequent establishment of an official "Leader of the Opposition", a role common in other countries but newly instituted in Singapore, indicates a nascent institutionalization of stronger checks and balances, likely leading to a more consultative form of governance that potentially improves accountability.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS

Environmental considerations are not material to Singapore's credit profile, despite exposure to climate change-related risks. Global warming and a sustained rise in temperatures could have an impact on long-term health and remediation costs. Singapore as a low-lying island nation is also vulnerable to rising sea levels over the long run, with potential consequences including coastal erosion, more frequent and severe flooding, and the contamination of its domestic water supply with seawater. Periodically, Singapore's air quality has deteriorated because of smoke from fires in neighboring countries, which have been set to clear land for cultivation. This has led to occasional disruptions to sectors such as tourism and air transport. However, while Singapore is exposed to environmental risk, it is well positioned to adopt climate adaptation strategies given the institutional, technical and financial resources at its disposal.

Social considerations are not material to Singapore's credit profile. Like many other developed economies, Singapore faces demographic pressures from an aging population, although its historic openness to foreign labor remains a key mitigant to the potential impact on long-term economic growth. At the same time, Singapore retains considerable fiscal flexibility to accommodate an expansion of social spending, especially for elderly citizens. Its fully funded, defined contribution savings scheme, the Central Provident Fund, insulates the government from the potentially large pension liabilities that some similarly rated peers face.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. For Singapore, the shock materializes in a sharp fall in domestic demand related to pandemic containment measures, as well as a deterioration in external demand.

Governance considerations are material to Singapore's credit profile. Its very sound framework of governance and policymaking, incorporating its track record of prudent regulatory oversight and financial stability, as well as its forward-looking approach to macroeconomic and fiscal management, are key factors underpinning Singapore's credit strengths.

RATIONALE FOR STABLE OUTLOOK

The stable outlook is based on Moody's expectation that the government will maintain its ability to adapt policies that mitigate the negative impact of changing global economic conditions and a challenging demographic outlook, to limit the country's vulnerability to external demand and financial shocks such as the coronavirus outbreak, and to avoid sustained damage to its currently robust fiscal and external position.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

The rating could be downgraded should there be evidence that Singapore is unable to manage the various challenges to its economic model, leading to a deterioration in Moody's assessment of the country's economic strength or fiscal strength relative to its Aaa-rated peers. Such a scenario would involve an erosion of Singapore's currently ample macroeconomic buffers and very high fiscal strength, potentially owing to a shift in fiscal policy or the realisation of significant contingent liabilities.

GDP per capita (PPP basis, US$): 103,181 (2019 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 0.7% (2019 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.8% (2019 Actual)

Gen. Gov. Financial Balance/GDP: -0.3% (Fiscal Year 2019 Revised) (also known as Fiscal Balance)

Current Account Balance/GDP: 17.0% (2019 Actual) (also known as External Balance)

Economic resiliency: aa1

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 27 August 2020, a rating committee was called to discuss the rating of the Singapore, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutions and governance strength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer's susceptibility to event risks has not materially changed.

The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christian de Guzman
Senior Vice President
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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