SINGAPORE

Economic growth Inflation Employment Balance of payments Exchange rate

High, sustained economic Mild inflation Low unemployment BOP equilibrium Modest, gradual appreciation
Aims
growth of the SGD
GDP: SGD 57b2 (2Q07) CPI (2004=100) Unemployment: 2.3%3 (June Surplus of SGD 71b on the 2006 Averages1
Growth: 8.6%1 (2Q07) June 07: 102.01 2007) goods balance in 2006 (up 1 USD : 1.589 SGD
August 07: 104.51 from SGD 61b in 2005)1 1 EUR : 1.995 SGD
Statistics
1 RMB : 0.203 SGD
Foreign reserves: SGD 225b
(USD 147b)1 (August 2006)
Singapore focuses more on of Mild inflation is good as it is a Singapore chiefly suffers Singapore’s BOP runs a Singapore’s exchange rate
long run growth than on sign of economic growth from structural surplus (X>M) regime is a managed float.
short run growth unemployment  We tend to export more (Read more under “Monetary
Generally affected by cost- high-value goods Policy”)
Policies in place are more on push inflation Result of moving up the value
the supply side chain and tertiarization For major exports/imports, The MAS policy on a modest
 Attracting investments Especially vulnerable to see below and gradual increase of our
 Increasing employability, import-led inflation (see exchange rate is in place to
education, or skills exchange rate) Singapore’s capital and make imports cheaper in light
financial account is always of our dependence on
negative imports for raw materials
Remarks
(cost of production of our
subsequent exports are thus
cheaper) – case in point:
granite/sand ban)

The exchange rate is kept

high to avoid imported
inflation. Note also that we
are able to do this due to our
tendency not to compete on
price.
TRADE
Note that Singapore is a free port, and imposes no tariffs on goods/services entering the country. FTAs,
therefore are signed on terms unrelated to tariffs (on Singapore’s side of the agreements).

Major Exports Major Imports

Refined petroleum, industrial machines, electronic Crude petroleum, iron and steel, industrial machines,
components and parts electonic components and parts

Top trading partners

USA Malaysia China Indonesia Japan Taiwan Thailand
2006 volume1
47.5 45.5 34.2 17.4 32.0 19.7 12.5
(billions SGD)

Other partners: Australia, India, Vietnam, Myanmar

Free Trade Agreements

Aside from being part of AFTA (ASEAN Free Trade Area), Singapore has also established FTAs with the following
countries and blocs: Korea, Australia, Jordan, India, Japan, New Zealand, Panama, EFTA (consisting of
Switzerland, Iceland, Liechtenstein and Norway), Chile and Brunei (with New Zeland, under the Trans-Pacific
SEP) and the United States.
ASEAN itself maintains a FTA with Korea, and negotiations are still under way between ASEAN and China for
the realization of ACFTA by 2010, after the signing of a framework agreement between the two parties in late
2001.

Also, there are ongoing negotiations between Singapore and various countries for the establishment of FTAs.
These include Canada, China, the Gulf Cooperation Council (comprising of Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and the UAE), Mexico, Pakistan, Peru and Ukraine.
Add to these negotiations under way between ASEAN and various countries, including Australia, New Zealand,
India and Japan.

For more information on the various FTAs, head over to Singapore’s FTA Website.

FISCAL POLICY
Singapore does not conduct fiscal policy on the demand side due the following
 Small, open economy – are price takers
 Overall high MPW – multiplier is small
o High MPM – Imports amount to 171% of our GDP
o High MPS – The gross domestic savings (GDS) rate was 50.5% in 2006
o Low MPT – have to maintaing competitiveness, attract investments
 Not a welfare state, no need for large tax revenues
 Corporate taxes: kept low (lowered from 20% to 18% in 2007)
 Attract foreign investment
 Encourage local enterprise
 Income taxes: kept low
 Prevent brain drain
 Attract foreign expatriates

Singapore’s FP is directed primarily towards long term economic growth

 The private sector as the engine of growth, with the government providing a stable, conducive
environment for the private sector to thrive
 A focus on enhancing economic competitiveness, attracting foreign investments (see next point)
 Hence, in addition to low corporate taxes, we have tax incentives for MNCs to take root locally
Government expenditure is thus spent on supply-side policies
 Improving existing infrastructure
 Expanding our labour force and our citizens’ employability
o WIS, retraining etc.

Hence, having a prudent FP, Singapore allows other macroeconomic tools (like the exchange rate policy) to be
able to focus on their primary goals without needing to balance these goals against requirements for deficit
financing.

MONETARY POLICY
Our main conduct of monetary policy is through our exchange rate policy
 Singapore is a price taker
 Wants to allow free capital flows (recall theory of the impossible trinity)
o Forgoes the control of interest rates
 Domestic interest rates are thus determined by foreign interest rates
 And also by investor expectations of futures in the SGD

Singapore’s Exchange Rate Policy

The S$NEER is managed against a basket of currencies of our major trading partners and competitors
 Different currencies given different weights
 Based on extent of trade dependence with that country
 This basket is periodically revised to take into account changing trade patterns

The exchange rate regime is a managed float

 Allowed to fluctuate within an undisclosed policy band
 Should the exchange rate move out of the band, MAS intervenes by selling or buying forex
 This gives us the flexibility to cope with periods of uncertainty

The MAS maintains the SGD at a gradual appreciation

 Contributes to low and stable inflation
o (X-M) decreases, reducing demand-pull inflation
o Prices of imported RMs decrease, lowering COP and reducing cost-push inflation
o Prices of imports decrease in general, reduces imported inflation
 Contributes to economic growth
1) Investments
o A low and stable inflation rate provides certainty in long term planning
o A gradual appreciation of the SGD enhances the value of K assets
o Thus, investments increase, which constitutes a direct injection to AD, increasing NY
o Investments also help to increase the AS in the long run, allowing Singapore to achieve non-
inflationary economic growth
2) Export earnings
o In the long run, exports are more competitive compared to exports of other countries which
experience higher inflation rates
ETC.
Singapore’s Gini coefficient is rather high, at .468 in 2006.
It might also be worth noting that in Singapore, SMEs contribute to 46% of the GDP and employ 63% of the
workforce. (A SME in Singapore must employ not more than 200 employees, having fixed asset investments of
less that S$15m.)
REFERENCES
1. Singapore Department of Statistics. (October, 2007). Monthly Digest of Statistics (September). Retrieved from Singapore Statistics:
[Link]
2. Ministry of Trade and Industry Singapore. (10 August, 2007). Improved outlook for 2007 as growth broadens and economy diversifies.
Retrieved from Statistics Singapore: [Link]
3. Ministry of Manpower. (2007, September 14). Labour Market, Second Quarter 2007. Retrieved from Ministry of Manpower:
[Link]