Singapore: Staff Report for 2015 Article IV Consultation

IMF Staff Country Reports, July 22, 2015

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Singapore preparing to celebrate its 50th anniversary in August; economy continues to perform well.
Projected economic growth of about 2.9 percent in 2015 is consistent with full employment and price stability.
Growth projected to slow down in the medium term, consistent with reduced reliance on foreign workers and rapid population aging.
Risks to the baseline are tilted to the downside:
- Exposure to external shocks due to Singapore’s highly open economy, most notably slower global growth and side effects from volatility in global financial markets.
- Domestic vulnerabilities, including elevated private indebtedness, can amplify the impact of external shocks.

In January, the Monetary Authority of Singapore (MAS) reduced the pace of appreciation of the nominal effective exchange rate (NEER) band in response to a decline in expected inflation and a more uncertain outlook for growth.
Assessment of monetary stance:
- The more benign near‑to medium‑term inflation outlook warrants the relative easing of monetary policy.
- The monetary policy framework is described as robust and flexible.
- Rising domestic leverage and heightened global interest rate and exchange rate volatility warrant heightened vigilance in assessing the balance of forces between the various channels of monetary policy.
Regulatory and supervisory stance:
- Singapore continues to maintain high regulatory and supervisory standards.
- Recent macroprudential measures have contributed to smoothing the cycle for credit and house prices.

The budget’s focus on boosting productivity, equality of opportunity, and inclusiveness is highlighted as laudable.
The fiscal impulse is considered opportune given cyclical conditions.
Authorities are recalibrating fiscal policies with associated inter‑ and intra‑generational impacts to address rapid population aging, enhance inclusiveness, and reduce inequality while maintaining principles of individual responsibility and sound public finances.

Authorities have re‑engineered the country’s growth model to boost productivity while reducing reliance on foreign workers, taking into account Singapore’s physical resource limits.
The restructuring entails:
- Lower steady state growth.
- A shift in the functional distribution of income toward labor.
Policy instruments and challenges:
- Incentives for firms to increase productivity‑enhancing investments and for Singaporeans to upgrade skills aim to support a successful transition.
- Potential constraints: slower potential growth and a lower share of profits in income could affect investment incentives; gains in productivity could be realized only slowly.
- Flexibility in the application of foreign worker policies and continued review of incentives are warranted.

International Monetary Fund. Singapore: Staff Report for 2015 Article IV Consultation (July 22, 2015).