After a series of external shocks over the past decade, from the Asian crisis to the bursting of the technology bubble, Singapore’s economy experienced a strong turnaround starting in mid-2003—aided by a favorable external environment, supportive macroeconomic policies, and continued structural reforms, the IMF said in its annual economic review. At the same time, sustained fiscal surpluses, an absence of external debt, healthy reserves, and large current account surpluses provided a strong buffer against exogenous shocks, the IMF Executive Board added. Economic growth is expected to moderate in the near term, however, as global demand—particularly for electronics—softens.
The Board welcomed the authorities’ resolve to continue identifying new sources of growth in an increasingly challenging regional and global environment. In recent years, the government has undertaken a wide range of structural reforms to adjust to stronger competition from lower-cost economies in the region. These reforms have produced more wage and labor market flexibility, lower business costs and taxes, and a stronger outward expansion of Singapore firms.
Since early 2004, when signs of inflationary pressures emerged, the Monetary Authority of Singapore has maintained a tight monetary stance, which the Board considered an orderly withdrawal of the stimulus provided in recent years. However, if growth slows more than expected, the Board said a more supportive monetary policy may be needed.
The authorities’ current fiscal stance is broadly neutral. The Board praised the authorities’ use of fiscal policy in recent years to support the economy, while adhering to the objective of a balanced operational budget over the medium term. The prudent medium-term fiscal framework resulted in significant reserve accumulation which in turn strengthened investor confidence. The financial sector remains robust, benefiting from an efficient legal system and good accounting standards.
|(percent of GDP)|
|Central government overall|
|balance (FY starting April)||3.5||4.2||6.3||3.1||3.0|
|Current account balance||-18.7||-21.4||-30.9||-28.8||-23.3|