Information about Asia and the Pacific Asia y el Pacífico
Chapter

I Introduction

Author(s):
Kenneth Bercuson
Published Date:
December 1995
Share
  • ShareShare
Information about Asia and the Pacific Asia y el Pacífico
Show Summary Details

Since attaining independence in 1965, Singapore has experienced exceptionally rapid growth, low inflation, and a healthy balance of payments (Chart 1-1). Over the past 30 years, real GDP per capita has grown at an average annual rate of 7 ƈ1/4 percent and, at US$14,482 in 1992, was among the highest in the region. This Occasional Paper reviews Singapore’s economic development from a long-term perspective and examines some of the factors that have contributed to the sustained rapid growth.

Chart 1-1Selected Economic Indicators

Source: IMF, International Financial Statistics Yearbook, 1993.

Section II uses a growth-accounting framework to analyze Singapore’s development. The analysis shows that of the 8 1/4 percent annual increase in real GDP between 1960 and 1991, 6 1/2 percentage points are attributable to factor accumulation of capital and labor, while the remaining 1 3/4 percentage points are due to improvements in total factor productivity. Physical capital alone is shown to have contributed more than half of the growth in output, owing to the approximate doubling of the capital stock on average once every six years.

Section III discusses the policies adopted by Singapore to foster rapid development of the economy. In large part, Singapore’s rapid growth can be attributed to macroeconomic stability, an open trading system, and flexible labor markets. These factors ensured that foreign firms were eager to locate in Singapore, setting the stage for investment- and export-led growth. In addition, however, Singapore has relied on “market-leading” policies for active promotion of investments in those sectors thought to possess the greatest growth potential.

Singapore’s fiscal and monetary policies are reviewed in Section IV. Fiscal policy is guided mainly by medium-term rather than cyclical considerations. The budget has typically been in surplus at moderate levels of expenditure and taxation. The long-term goal is to achieve structural balance in the primary operating budget, while limiting expenditure to a moderate share of GDP. State-owned enterprises have been a prominent feature of the public sector, but their role is being gradually reduced through privatization. The approach to monetary policy has been shaped by the small and extremely open character of Singapore’s economy. The key policy instrument is the exchange rate, and the goal is to maintain a low and stable inflation rate, while leaving monetary aggregates to be determined by demand.

Section V discusses wages and labor market policies and the supporting institutions. Policies evolved to maintain labor market flexibility and meet changing circumstances. As the large-scale unemployment of the mid-1960s gave way to labor shortages in the 1970s, the policy emphasis shifted from wage restraint in support of rapid industrialization to skill development and a rapid increase in labor costs to promote higher technology and value-added activities. Since 1987, wage determination has been left largely to market forces, while policy has continued to emphasize skill development.

The importance of Singapore’s ongoing commitment to a liberal external regime is explored in Section VI. Singapore is one of the most open economies in the world, with two thirds of the domestic output of goods and services exported and almost all imports entering free of duties or other restrictions. A high degree of capital mobility has resulted from the absence of formal exchange controls and Singapore’s evolution as an important regional and international financial center based partly on tax and other incentives. Foreign direct investment (FDI) in manufacturing and financial services has been a major factor in Singapore’s development, while Singaporean investment abroad has increased in recent years.

Singapore’s rapid rate of capital accumulation and strong balance of payments position has been underpinned by a high saving rate, which rose from negative levels in the early 1960s to an average of over 40 percent of GNP in recent years. Section VII identifies demographic change, rapid growth of private disposable income, and the high rate of public sector saving as the most important factors in the high rate of saving. Compulsory saving in the form of contributions to the national savings plan are high, but the evidence is that this has largely substituted for voluntary saving.

For a basic data overview of the Singapore economy, see Table 1-1.

Table 1-1Basic Data
Social and demographic indicators (1993)
Area641 square kilometers
Population2.9 million
Rate of population growth2.0 percent
Gross domestic productUS$55.1 billion
Gross national productUS$55.8 billion
Gross national product per capitaUS$19.500
Sources: Singapore authorities; and IMF staff estimates and projections.

Contribution to GDP growth.

Fiscal year beginning April 1; in percent of estimated fiscal year GDP.

Excludes net lending, capital revenue, and net investment income. Equals operating revenue less operating and development expenditure.

Medium- and long-term debt of the public sector; data on short-term debt, monetary liabilities, and the private sector are not available.

The Monetary Authority of Singapore monitors the value of the Singapore dollar against an undisclosed trade-weighted basket of currencies.

IMF Information Notice System index (1980 = 100); period average.

Relative unit labor costs in manufacturing against 11 major trading partners; in U.S. dollar terms.

19881989199019911992Preliminary 1993
(Annual average; percent change unless otherwise noted)
Output and expenditure
Real GDP11.19 28.86.76.09.9
Of which:
Manufacturing18.09.69.55.42.59.8
Commerce16.58.311.09.34.58.5
Financial and business services5.39.711.87.55.313.1
Real domestic demand6.49.614.25.87.512.2
Net external demand15.22.3-5.11.4-1.4-1.7
Prices and labor market
Consumer prices1.52.43.43.42.32.4
Unit labor costs3.48.98.57.02.5-0.5
Labor force participation rate (percent)62.963.163.164.865.364.5
Unemployment rate (midyear; percent)3.32.21.71.92.72.7
Terms of trade-1.4-0.20.60.9-1.0-1.3
Export volume32.49.59.612.47.217.6
Import volume28.59214.97.46.519.0
(In percent of GDP)
Central government budget2
Operating revenue18.519.819.621.121.822.0
Operating expenditure11.110.811.211.210.611.5
Development expenditure7.06.94.94.84.55.5
Primary operating surplus30.42.13.65.16.75.0
Savings and investment
Gross national savings40.444.945.247.448.247.5
Gross capital formation36.935.539.538.040.443.8
Foreign savings-3.6-9.5-5.7-9.4-7.7-3.7
(End-of-year; percent change)
Money and credit
Credit to the private sector11.219.514.412.49.815.2
Total liquidity (M2)13.522.520.012.48.98.4
Interest rate (3-month interbank; percent)5.35.64.93.32.23.2
Velocity of M21.261.211.121.061.031.10
(In billions of U.S. dollars unless otherwise noted)
Balance of payments
Exports, f.o.b.38.043.651.157.262.172.0
Of which: Re-exports14.716.317.920.822.727.3
Imports, c.i.f.-43.8-49.7-60.6-66.1-72.1-85.2
Services and transfers (net)6.78.911.612.913.715.2
Current account balance0.92.82.14,03.72.0
As percent of GDP369.55.79.47.73.7
Overall balance1 72.75.44.26.17.6
Reserves
Gross official reserves17.120.327.734.139.946.4
In months of imports4.54.85.35.96.77.0
External debt4
Medium- and long-term nonmonetary0.20.10.10.10.10.1
Total (percent of GDP)0.80.50.40.30.30.2
Debt-service ratio0.10 10.10.10.10.1
(Units as indicated)
Exchange rate5
Average exchange rate (S$/US$)2.011.951.811.731.631.62
Nominal effective exchange rate6101.9108.8117.2121.6125.3125.1
Real effective exchange rate686.990.796.599.2101.0100.2
Relative unit labor costs (1985 = 100)767.575.680.985.286.179.7
Sources: Singapore authorities; and IMF staff estimates and projections.

Contribution to GDP growth.

Fiscal year beginning April 1; in percent of estimated fiscal year GDP.

Excludes net lending, capital revenue, and net investment income. Equals operating revenue less operating and development expenditure.

Medium- and long-term debt of the public sector; data on short-term debt, monetary liabilities, and the private sector are not available.

The Monetary Authority of Singapore monitors the value of the Singapore dollar against an undisclosed trade-weighted basket of currencies.

IMF Information Notice System index (1980 = 100); period average.

Relative unit labor costs in manufacturing against 11 major trading partners; in U.S. dollar terms.

Sources: Singapore authorities; and IMF staff estimates and projections.

Contribution to GDP growth.

Fiscal year beginning April 1; in percent of estimated fiscal year GDP.

Excludes net lending, capital revenue, and net investment income. Equals operating revenue less operating and development expenditure.

Medium- and long-term debt of the public sector; data on short-term debt, monetary liabilities, and the private sector are not available.

The Monetary Authority of Singapore monitors the value of the Singapore dollar against an undisclosed trade-weighted basket of currencies.

IMF Information Notice System index (1980 = 100); period average.

Relative unit labor costs in manufacturing against 11 major trading partners; in U.S. dollar terms.

    Other Resources Citing This Publication