Singapore, November 12, 2018 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of Singapore's Aaa long-term issuer rating and Aaa long-term,
local-currency senior unsecured rating. The outlook remains
stable.
The affirmation of Singapore's Aaa ratings reflects Singapore's
significant economic, fiscal, and financial buffers that are
in line with and often surpass those of other Aaa-rated countries.
It also incorporates Moody's view of the government's very
strong institutional framework and high policy effectiveness that ensures
fiscal discipline and broad financial stability.
The stable outlook on Singapore's Aaa rating is premised on the
authorities' ability to adapt policies that mitigate the negative
impact of changing global trade conditions and a challenging demographic
outlook, limit the country's vulnerability to external demand
and financial shocks, and avoid sustained damage to its currently
robust fiscal and external position.
Singapore's long-term local- and foreign-currency
bond and deposit ceilings remain at Aaa. The short-term
foreign-currency bond and deposit ceilings remain at Prime-1.
RATINGS RATIONALE
SIGNIFICANT ECONOMIC, FISCAL AND FINANCIAL BUFFERS
Singapore's structural strengths offset near-term cyclical risks
and provide some cushion to address structural challenges, supporting
the Aaa rating.
As a highly open economy that is dependent on the cross-border
trade of both goods and services, Singapore is exposed to changing
global trade and financial conditions. However, Singapore's
high level of diversification-- in terms of economic activity
and sources of demand for its goods and services--will allow
the economy to adjust to disruptions to global value chains and trade
patterns, assuring sustained growth and domestic financial stability.
Nevertheless, risks to the global economic outlook are increasingly
tilted to the downside given increasing trade tensions between the US
and China as well as rising global interest rates. Singapore's
substantial trade and financial linkages with China pose both direct and
indirect risks in the event of a further escalation in trade tensions.
For example, Singapore manufactures key inputs to Chinese goods
that are subject to higher tariff rates, while there could be negative
spillovers to regional and global trade volumes that adversely impact
Singapore's trade-related services, such as seaborne
and air transport, logistics and financial services.
At the same time, Singapore faces structural challenges shared by
other high-income economies in an ageing population. In
response, the government has continued to pursue its drive to transition
the country to a higher-productivity, knowledge-based
economy. Reflecting the ongoing maturation of the economy,
the pace of Singapore's potential growth has converged towards the
Aaa-rated median, while retaining one of the highest levels
of GDP per capita among rated peers.
Amid shifting growth dynamics, Singapore's has retained its strong
fiscal buffers, which continue to be more robust than those of other
Aaa-rated peers and provide scope for countercyclical policy.
These buffers include generally balanced or surplus budget positions that
contribute to growing fiscal reserves, which in turn further enhance
the government's fiscal strength. In addition, Singapore
retains sizeable fiscal reserves, which have played an increasingly
important role in supporting budgetary revenue in recent years.
Under the Net Investment Returns Contribution (NIRC) framework,
the government can spend up to 50% of the expected long-term
real returns of GIC Private Limited, the Monetary Authority of Singapore,
and Temasek Holdings (Private) Limited. While the government does
not publish an estimate of the stock of its fiscal reserves, we
estimate that assets managed by its sovereign wealth funds are substantial
and far exceed the level of public indebtedness.
Moreover, Singapore's current account surplus is the highest
among Aaa-rated countries—at nearly 20% of GDP in
2017—reflecting Singapore's high level of aggregate saving.
These structural current account surpluses provide an ample buffer against
capital flow volatility. The sustained strength of the balance
of payments is also reflected in the central bank's large foreign currency
reserves and the country's large net international investment position,
which at over 200% of GDP is one of the highest in our rated universe.
In turn, vast foreign currency reserves contribute to the effectiveness
and sustainability of Singapore's exchange-rated based monetary
policy.
Together with high income levels, Singapore's large net asset position
in the household sector also imparts resilience to an environment of slowing
growth, tightening global financial conditions, and volatile
capital flows. These large and globally diversified financial assets
provide cushion against sector specific shocks, partly offsetting
the economy's small size relative to some other Aaa-rated sovereigns.
STRONG INSTITUTIONAL FRAMEWORK AND HIGH POLICY EFFECTIVENESS
Singapore has established a strong track record of maintaining broad macroeconomic
and financial stability on account of vigilant monetary policy and regulatory
supervision. Between 2002-2017, headline consumer
price inflation averaged 1.8%, in line with the median
for Aaa-rated sovereigns, reflecting effective monetary policy.
Despite the more challenging operating environment for their overseas
exposures, the weighted average standalone credit assessment for
Singaporean banks remains the highest among Aaa-rated countries,
in part reflecting the containment of risks from relatively high household
and corporate debt. Consequently, stringent banking regulation
has enhanced Singapore's role as a financial services hub.
Singapore's solid institutional framework is also evident in its fiscal
metrics. The government's adherence to and success in meeting its
balanced budget rules correspond to its low debt—none of which has
been incurred to finance budget deficits—and ample fiscal reserves.
Although policy is shifting towards the targeted enhancement of social
safety nets, the overall arc of prudent fiscal management remains
intact.
Policy effectiveness has also been demonstrated by the government's
proactive stance in addressing longer-term credit challenges,
such as maintaining long-term competitiveness. In response
to potentially disruptive shifts from technological change and trade protectionism,
the government's Committee on the Future Economy laid out last year
a broad strategy for economic restructuring. The Committee's
recommendations included further investments in human capital, infrastructure
and digital connectivity, while strengthening trade cooperation
with key trading partners. The implementation of the Committee's
recommendations have likely helped to sustain the improvement in productivity
growth, as measured by output per employed person, since late
2016.
In response to a projected rise in healthcare spending resulting from
an ageing population, the government recently announced the preemptive
implementation of a number of revenue-enhancing measures to offset
these spending pressures well before they arise, underscoring its
strong adherence to fiscal rules. Most notably, the government
will implement a two percentage point increase in the goods and services
tax (GST) to 9% some time between 2021 and 2025, from 7%
currently.
WHAT COULD CHANGE THE RATING DOWN
Given the stable outlook, we do not anticipate downward rating pressure
to emerge on Singapore's Aaa government rating. However,
such pressure would arise in the unlikely event of a sustained deterioration
in the country's economic or fiscal strength relative to its Aaa-rated
peers. Such a scenario may result from an erosion of Singapore's
currently ample macroeconomic buffers or a material weakening of the government's
balance sheet owing to a substantial shift in fiscal policy or the realisation
of significant contingent liabilities. While events or trends that
jeopardise Singapore's status as an international financial centre are
unlikely in our view, if they occurred, they would be credit
negative.
GDP per capita (PPP basis, US$): 94,105 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3.6% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.4%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: 2.2%
(FY2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 18.8% (2017 Actual) (also
known as External Balance)
Level of economic development: Very High level of economic resilience
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 07 November 2018, 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 institutional strength/ framework, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in December 2016. 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 ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
VP - Senior Credit Officer
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: 852 3758 1350
Client Service: 852 3551 3077
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
