Singapore, May 17, 2022 -- 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 is emerging from the pandemic shock with its structural credit strengths intact, having preserved its ability to weather subsequent shocks, including the challenges to the global economy posed by the Russian invasion of Ukraine. The economy has largely avoided scarring, while a large increase in government debt seen in rating peers was averted as the fiscal response to the pandemic was funded from government's still-formidable reserves. The pandemic shock has demonstrated again the government's capacity to manage shocks, as well as its continued ability to adapt to changing circumstances, especially in the context of long-term challenges posed by hurdles to globalization, population aging and climate change.
Singapore's long-term local- and foreign-currency country ceilings remain unchanged at Aaa. The Aaa local currency ceiling reflects a moderate government footprint, very predictable and effective institutions, very low external imbalances and political risks, all of which reduce the risks posed to non-government issuers by government actions and/or shocks that would commonly affect the government and the private sector. The foreign currency ceiling at Aaa reflects the country's very strong policy effectiveness and open capital account which reduce transfer and convertibility risks to minimal levels.
RATIONALE FOR AFFIRMING THE Aaa RATINGS
FUNDAMENTAL CREDIT STRENGTHS REMAIN INTACT
Singapore's ongoing recovery from the pandemic shock has not been marked by economic scarring, with its level of economic activity restored to pre-pandemic peaks by early 2021 despite the persistence of relatively strict containment measures, including border controls, through mid-2022. Consequent labor market stability has also been underpinned by the government's formidable policy response, which included extensive wage subsidies for resident workers, although the total workforce remains below pre-pandemic levels given the net loss of non-resident workers.
Going forward, Singapore's near-term growth outlook will benefit from the progressive reopening of the economy, especially in sectors such as tourism and transport that are reliant on the cross-border movement of people; the government only reopened borders to all fully vaccinated travelers at the beginning of April 2022. Retail sales and broader domestic consumption will also stand to benefit from the broad relaxation of most pandemic control measures, that came into effect later that same month.
Singapore's fiscal strengths have also endured despite the very large fiscal response to the pandemic. While many advanced economy peers saw double-digit increases in government debt as a share of GDP, Singapore avoided a similar rise as it tapped on its fiscal reserves to fund the consequent revenue shortfall. 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.
Moody's expects stable GDP growth in the next few years as very high income levels and the government's financial and institutional capacity will help insulate the economy and population from spillovers from the Russia-Ukraine military conflict. The strong correlation of Singapore's economy with global trade will translate in a slowdown in exports compared to Moody's pre-conflict expectations of a steady recovery. Moreover, higher inflation reflecting the pass-through from higher global commodity prices pose downside risks to consumption, even as the central bank has embarked on monetary tightening via exchange rate appreciation. To counter these shocks, the government has announced targeted measures to help households and businesses cope with higher prices, including cash transfers, transportation vouchers, rebates on fees and the extension of grant assistance for small businesses that were originally intended as support for pandemic-affected firms.
Singapore's banking system and external payments position also remain exceptionally strong, underpinning broad macroeconomic stability in the face of ongoing shocks.
REFORM MOMENTUM ACCELERATING AS LONG-TERM CHALLENGES ARE CLEARLY IDENTIFIED
Strong governance is reflected in the government's continued ability to adapt to changing circumstances, especially in the context of long-term challenges posed by geopolitical hurdles to globalization, population aging and climate change.
In the wake of the advent of the coronavirus pandemic, the government sought to reorient its existing economic restructuring efforts to incorporate changes and risks wrought by the pandemic by adapting its industry-specific plans accordingly. These revised industry transformation maps will continue to be progressively rolled out, even as the government has announced plans to accelerate digitalization and sustainability as new growth drivers under a forthcoming "Singapore Economy 2030" strategy. Although details have not been finalized, the new strategy is aimed at building on Singapore's prevailing strengths, including its advanced digital infrastructure supported by strong regulatory and intellectual property frameworks, as well as its sizeable, sophisticated manufacturing base.
Such a strategy appears to address concerns over the long-term challenges to globalization, particularly in the context of interlinked issues such as geostrategic competition between the U.S. and China, supply chain restructuring, and a growing wave of economic nationalism globally. At the same time, growth opportunities in areas such as green financing, carbon services and trading, and sustainable development would leverage Singapore's current status as a hub for financial services and commodities trading, and its strengths in urban planning.
The Singapore government has also started to enact fiscal reforms with an eye towards financing long-term expenditure pressures, such as climate mitigation and adaptation and healthcare. As the pandemic had underscored issues related to income inequality, with those most affected by job and income losses disproportionately represented by lower wage workers, these reforms also appear to be focused on more inclusive growth in a bid to alleviate social risks.
In May 2021, the passage of the Significant Infrastructure Government Loan Act (SINGA) allowed the government to issue debt securities for the purposes of infrastructure development, but only for nationally significant, long-term projects, without abandoning its commitment to balanced budgets over the course of single terms of government. The government will also implement a two-step increase in the goods and services tax (GST, a consumption tax), specifically earmarking the marginal additions to revenue as funding towards healthcare, as well as an increase in tax rates for the top marginal personal income tax rate, residential properties and luxury cars.
The effect of continuous economic restructuring and shifts in fiscal policy help to provide greater certainty that Singapore will retain its very strong positioning with regards to economic strength and fiscal strength over the long-term.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Singapore's ESG credit impact score is Positive (CIS-1), reflecting manageable exposure to environmental and social risks, and to a greater degree than many highly-rated advanced economies, very strong governance and financial strength that supports its capacity to address environmental and social risks.
Singapore's E issuer profile score is Neutral-to-Low (E-2), encompassing moderately negative exposure to physical climate risks, in particular stemming from sea level rise. As a low-lying island nation, Singapore is vulnerable to climate change over the long run. However, Singapore has a very high capacity to respond to environmental hazards, and is well positioned to adopt climate adaptation strategies given the institutional, technical and financial resources at its disposal.
Singapore's S issuer profile score as Neutral-to-Low (S-2), reflects low exposure to social risks across most categories. However, like many other advanced economies, Singapore faces demographic pressures from an ageing population, as highlighted by a plateauing of the working-age resident population and a rising dependency ratio. 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.
Singapore's very strong institutions and governance profile support its rating, as captured by a Positive G issuer profile score (G-1). 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, population aging and climate change, to limit the country's vulnerability to external demand and financial shocks and avoid sustained damage to its currently robust fiscal and external position.
GDP per capita (PPP basis, US$): 98,512 (2020 Actual) (also known as Per Capita Income)
Real GDP growth (% change): -4.1% (2020 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0% (2020 Actual)
Gen. Gov. Financial Balance/GDP: -10.8% (2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 16.8% (2020 Actual) (also known as External Balance)
External debt/GDP: [not available]
Economic resiliency: aa1
Default history: No default events (on bonds or loans) have been recorded since 1983.
On 11 May 2022, a rating committee was called to discuss the rating of 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
Singapore's rating is Aaa, which is already at the top of our rating scale. An upgrade to a higher rating is therefore not possible.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Given the stable outlook, Moody's does not anticipate downward rating pressure to emerge on Singapore's Aaa government rating in the foreseeable future. However, such pressure would arise should there be evidence that Singapore is unable to manage the various challenges to its credit profile, 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 material shift in fiscal policy or the realisation of significant contingent liabilities.
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.
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.
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Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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Christian de Guzman
Senior Vice President/Manager
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Moody's Investors Service Singapore Pte. Ltd.
71 Robinson Road #05-01/02
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077