Press Release No. 24/297

IMF Executive Board Concludes 2024 Article IV Consultation with Singapore

July 31, 2024

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Singapore.

Singapore continues to follow a path of gradual recovery. Growth moderated to 1.1 percent in 2023 mainly due to a contraction in manufacturing in 2023H1, originating from the downturn in the global electronics cycle. Growth started to recover in 2023H2, reflecting improved global demand for semiconductors, and strengthened further to 2.7 percent (year-on-year) in 2024Q1, supported by strong inbound tourism.

Gradual disinflation is expected to continue. Headline inflation declined to 2.7 percent in April 2024, and MAS core inflation (which excludes costs of accommodation and private transport but includes food and energy prices) decreased to 3.1 percent in April 2024, supported by disinflation in food and tradable goods. However, signs of persistence in services inflation remain. Two-year ahead inflation expectations based on consensus forecasts have been well-anchored at around 1.8 percent.

While labor market conditions have started to ease in 2023 amid weaker GDP growth and an inflow of foreign workers, the unemployment rate remained low at 2.1 percent in 2024Q1 and the job vacancy to unemployed persons ratio still exceeded the pre-pandemic level. The current account surplus rose, led by an improvement in the primary income balance. Singapore’s banking sector continues to demonstrate ample capital buffers, sound asset quality, high profitability, and a comfortable liquidity position. Non-bank financial institutions, mainly comprising investment funds and insurers, have weathered stresses from the high interest rates well. High borrowing costs encouraged the nonfinancial corporate sector and households to deleverage, while the housing market cooled down moderately in 2023.

Executive Board Assessment[2]

Executive Directors noted that Singapore’s growth is gradually recovering, supported by an improvement in external demand, while downside risks to growth have diminished. Disinflation continues but is expected to be gradual, with significant upside inflation risks from tight labor market and high volatility in global energy and food prices. In this context, Directors underscored the need to maintain a prudent macroeconomic policy mix to promote price stability, while continuing with a steadfast implementation of the authorities’ reform agenda to tackle Singapore’s structural challenges, boost productivity growth, and strengthen climate resilience.

Directors agreed that the current broadly neutral fiscal policy stance will help moderate price pressures, while appropriately providing support to vulnerable households and firms. They concurred that Singapore is well-positioned to increase government spending to address medium- and long-term challenges, given its strong public finance and fiscal institutions. A slower pace of fiscal surplus accumulation within the government’s balanced budget rule in the coming years could help accommodate the spending needs.

Directors supported the authorities’ tight monetary policy stance, noting that it should remain in place until inflationary pressures firmly recede. They emphasized that monetary policy should continue to be data dependent and articulated through clearly communicated policy decisions.

Directors concurred that the financial sector remains sound, with solid capital and liquidity buffers, though vigilance against potential vulnerabilities remains important. They stressed that the tight macroprudential policy stance is appropriate and should be maintained to prevent the buildup of systemic risks from the housing market. The authorities should also continue monitoring banks' cross-border and foreign exchange exposures, the small segment of highly leveraged corporates and households, and the linkages between non-bank financial institutions and banks.

Directors noted that Singapore’s external position remained substantially stronger in 2023 than warranted by fundamentals and desired policies, while acknowledging the uncertainties around the external sector assessment (ESA) estimates. Higher public spending and stronger social safety nets would reduce Singapore’s large external surpluses. Many Directors were of the view that external current account surpluses will moderate over the medium-term due to population ageing, slowing income growth, and anticipated increases in healthcare and climate related spending.

Directors welcomed the authorities’ efforts to promote a more inclusive, resilient, and greener economy. The Forward Singapore initiative appropriately aims to address Singapore’s challenges, particularly rapid population ageing and technological advancements, including Artificial Intelligence, through stronger social safety nets and lifelong learning. Directors also welcomed the authorities’ robust implementation of climate policies, including the planned increase in carbon taxes and improved climate risk management for the financial sector.

[1] 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.

[2] 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. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.