Singapore Business Review – 22 hours ago
Here is what Moody's has to say.
Moody's Investors Service says Singapore has demonstrated a very high degree of resilience to global financial shocks, despite the openness of its economy and its dependence on global trade and finance.
Singapore's Aaa sovereign rating and stable outlook reflect Moody's assessment in four factors, namely its "very high" economic, institutional, and government financial strengths, as well as its "low" susceptibility to risks from financial, economic, and political events.
According a new Moody's report titled "Credit Analysis: Singapore," the substantial accumulation of public savings, along with fiscal prudence and a fully funded public pension system, supports the Singaporean government's strong financial position.
Singapore's "very high" economic strength mainly reflects the trend of a high growth rate for an advanced economy, as well as high per-capita income. Singapore's scores on these metrics have exceeded the Aaa medians in both real GDP growth and per-capita income in terms of purchasing power parity over the last 10 years.
In addition, sound regulatory and supervisory frameworks have helped foster a strong and well-managed financial system.
These factors, coupled with a competitive economy and investment regime, have led to a strong external position. Singapore has one of the world's largest net-asset international investment positions.
Moreover, a strong balance sheet ensures debt affordability and buffers external shocks. The government has also maintained the focus of its monetary policy on financial prudence, while accommodating demands for
greater social equity.
The rating is also supported by the track record of political stability and social cohesion since the country's independence in 1965, despite the gradual increase in the opposition to the ruling party's monopoly on
Challenges facing the authorities include containing consumer price and property inflation over the near term, and fostering a growth model that is driven by productivity and innovation over the longer term.
Singapore 'can withstand most shocks'
It has enough in financial arsenal should global meltdown occur: HSBC
SINGAPORE will have enough in its financial arsenal to ward off all but the worst of external shocks if the euro zone crisis triggers another global meltdown, said an HSBC report.
The bank noted that Asia would not be spared by the euro zone's woes but economies such as Singapore, China, South Korea, the Philippines, Indonesia and Hong Kong have enough in the bank to help themselves through.
The debt crisis in Europe could intensify within days with Greece heading to the polls tomorrow.
If the results are inconclusive, uncertainty and panic in the markets could break out, said OCBC economist Selena Ling.
'Expect more confusion in financial markets as a repeat of Greece going to the polls ad infinitum is unsustainable,' she added.
However, Barclays Capital economist Leong Wai Ho believes the risk of a big blow-up in Europe remains low.
'These events could be triggered by a sudden liquidity crunch or a bank failure that is large enough to unhinge confidence globally,' he said.
'Fortunately, with the liquidity buffers that central banks have put in place, the probability of contagion is minimised.'
But should the crisis escalate, there is no doubt that Singapore will be the hardest hit in Asia, said Credit Suisse economist Robert Prior-Wandesforde.
He noted that Singapore's exports to the euro zone directly account for more than 12 per cent of the economy while private sector holdings of euro zone debt and equities are higher than anywhere in Asia except Hong Kong.
Euro zone banks also make up a bigger proportion of domestic bank lending in Singapore than in other Asian economies, he said.
'It is obviously extremely hard to quantify how big the hit to GDP (gross domestic product) would be from a Greek exit and significant contagion to other euro zone countries, but we would not be surprised if the initial effect was at least as large as that experienced during the global financial crisis,' he added.
In the first quarter of 2009, Singapore's economy contracted 8.8 per cent, although it bounced back up after interest rates fell and the Government acted to inject funds into the economy.
Mr Prior-Wandesforde noted: 'The good news is that Singapore again has a huge amount of fiscal flexibility to tackle a major growth shock, but unfortun-ately the same cannot be said of both fiscal and monetary policy in most other countries in the world.'
HSBC's Mr Frederic Neumann agreed, noting that Singapore is one of several Asian nations with the capacity to use fiscal policy to buffer the fallout.
Based on public information, Singapore has government debt of 60 per cent, but this is misleading due to accounting numbers. Gross public debt leaves out the Government's assets from past surpluses, which the Government has been accumulating over the years.
'In the case of Singapore, however, this is misleading given the vast amounts of hidden fiscal reserves that the Government possesses,' said Mr Neumann.
He also noted that countries such as Singapore, which did not have a deficit of more than 3 per cent, are in a financially healthier position to roll out stimulus if needed.
The Government has a mandate to balance the budget books over the course of its term in office even though it does record budget deficits on a year-to-year basis. Still, this means that economies such as China, Hong Kong, South Korea and Singapore 'have plenty of room to add a kick to growth', said Mr Neumann.
In 2008, the Government said it would set aside $150 billion of past reserves to guarantee deposits in Singapore until the end of 2010. In 2009, it also drew down $4.9 billion from its reserves for the first time to fund the Jobs Credit programme and a special risk sharing initiative that helped keep credit lines open.
Money, The Straits Times, Saturday, June 16 2012, Pg C10