Singapore- Some Facts

Island Nation – With a total area of 704 square kilometers (vs India’s 32,87,590)

Limited Manufacturing Potential

Strong Services Sector – with Travel and Hospitality, Financial Services and Retail and Wholesale trade accounting for a large part of the GDP.

Trading / Trans-shipment Hub –The second largest container port in the world

Monetary Authority of Singapore

MAS has traditionally adopted a Strong Singapore Dollar policy

The result is a) Stable Singapore Dollar

b) Low Inflationc) Low Interest Rated) Confidence in Singapore’s

financial sector. MAS believes that a large depreciation in the

currency to enhance export competitiveness jeopardizes all the above.

Monetary Policies & Currency

HISTORY OF SGD

1845-1939, Singapore used Straits Dollar, which was replaced by Malayan Dollar

1953 – Malay and British Borneo Dollar

Till 1963 – shared common currency with Malaysia

1965 – Monetary union between Singapore, Malaysia and Brunei broke down

SGD is not Pegged

The Singapore dollar, SGD, is under a managed float regime guided by the currency's trade weighted index. The MAS`s long term policy is to manage a “trade weighted appreciation of the currency” to dampen imported inflation and to balance aggregate demand.

INSTRUMENTS TARGET

Interest Rates

Money supply

Exchange rates

Price stability –Inflation

GDP growth

Full Employment

Balance & foreign reserves

Monetary Policy in theory

What Singapore Decided

Ultimate Objective :

Price Stability as the Basis forSustained Economic Growth

Intermediate Target:

Trade-Weighted Exchange Rate

Rationale Behind Exchange Rate Policy

Small Size of Economy & ResourceConstraints

Openness to Trade

Openness to Capital Flows

Elaboration for the Exchange Rate Policy

The high degree of financial openness and sensitivity of capital flows to interest rate differentials makes it difficult to target either money supply or interest rates in Singapore.

Net flows of funds from abroad account for the bulk of changes in domestic money supply. Likewise, domestic interest rates are largely determined by foreign rates and market expectations on the future strength of the Singapore dollar.

Given the small domestic base, any attempt by the MAS to raise or lower the domestic interest rates, or money supply, for any sustained basis would be foiled by a shift of funds into or out of Singapore.

2006-2007 SIBOR

SIBOR : stands for Singapore Interbank Offered Rate and is a daily

reference rate based on the interest rates at which banks offer to

lend unsecured funds to other banks in the Singapore wholesale

money market

The S$ interbank rate (S$ SIBOR) hovered between 3.44 % & 3.55

% in 2005 and has come up to 5.9% in the early 2007. The SIBOR is

expected to stabilize around the current levels 0f 5.7% against

the back drop of a pause in US Fed Funds rate hikes.

LIBOR vs SIBOR

LIBOR : 5.51 %

SIBOR : 5.76%

Source : http://www.mas.gov.sg

RATES

Fixed Deposit Rates : 2.8% to 4.6%

Prime Lending Rates : 5.1 % to 6.1%

Cash Reserve Ratios: 5% to 7.2% (slightly higher)

Singapore Foreign Exchange Reserves

Singapore Foreign Exchange Reserves in Millions (US $)

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

140,000.00

160,000.00

2001 2002 2003 2004 2005 2006

Year

(Source: Monetary Authority of Singapore)

Figures in Million US$

2003 2004 2005 2006

38909 36414.5 47616.5 57660.6

344872.7 418576 474526.4 530409

299696.8 368989.2 417274.4 463919

2003 2004 2005 2006

-30735.7 -12868.4 -31923.3 -33261.5

2003 2004 2005 2006

3601.2 -3077.2 4703.5 2596.6

2003 2004 2005 2006

11774.5 20468.9 20396.7 26995.7

2003 2004 2005 2006

-11774.5 -20468.9 -20396.7 -26995.7Official Reserves (Net)

Net Errors and Ommissions

year

Overall Balance

year

imports

year

Capital Account Balance

year

year

Current Account Balance

exports

BOP Variables

-100000

0

100000

200000

300000

400000

500000

600000

2003 2004 2005 2006

Year

Am

ou

nt

in $

Current Account Balance

Exports

Imports

Capital Account Balance

Overall Balance

Balance of Payments - Analysis

The rising current account position has been associated with an improving official foreign reserves (OFR) position, which increased almost 12-fold since 1980 to reach S$163 billion at end-2003

The increased flows through the financial account balance have largely reflected net outflows from the portfolio and "other investment" accounts, which have typically offset the inflows due to foreign direct investment (FDI)

From the trade perspective, the contraction in gross national expenditure had caused imports to decline, thus boosting the merchandise trade surplus. On balance, these factors have boosted the current account surplus position.

FISCAL POLICIES

Singapore - Fiscal Policy

Singapore’s fiscal policy is Expansionary

The private sector is the engine of growth, and the government's role is to provide a stable and conducive environment for the private sector to thrive

Tax and expenditure policies should be justified on microeconomic grounds and focus on supply-side issues, i.e. incentives for saving, investment and enterprise

Fiscal Policy...

12% 4%

42%

42%

Year 2006

11% 4%

48%

37%

Year 2007

Expenditure Distribution

Source : http://www.mas.gov.sg

Fiscal Policy…

• Objectives of Tax Policy– Revenue Raising – Promotion of Economic and Social Goals

• Principles of Tax Policy– keep tax rates low – tax base broad

• Fy-07 Taxation Highlights- Corporate Income tax reduced- Goods and service tax hiked

Source : http://www.mas.gov.sg

Corporate Tax comparison – with other countries

Source : http://www.mas.gov.sg

Tax rate comparison

Effect of Fiscal Policy-GDP growth

East Asian Currency Crisis

Impact of Asian Currency Crisis

Demand in

Affected

Countries

Plummets

Singapore’s

Brokerage

Firms hurt

Singapore’s

Banks were

Hit

Singapore’s

Exports become

Less

Competitive

Singapore’s

Exports to

Affected

Countries

falls

Asian Currency

Crisis

Impact of Asian Currency Crisis

Impact of Asian Currency Crisis

Monetary Authority of Singapore (MAS) allowed the SGP Dollar to fall against the US Dollar in line with the regional currencies

It allowed the SGP Dollar to fluctuate in a flat and wider target band.

The decision was facilitated by absence of domestic inflation and necessitated by the desire to remain competitive.

Asian Currency Crisis - Singapore’s Response

Asian Currency Crisis - Singapore’s Response

The govt. unveiled a S$ 2 billion off budget package in mid 1998.

Package of incentives

Property Tax Rebates

Rental and Utilities Rebates

Speeding up of Development Projects

Deferring stamp duty on uncompleted projects.

Property Prices began stabilizing in the second half of 1998.

Researched & Presented by students of SPJCM for educational purpose.