MARC has affirmed its public information foreign currency sovereign rating of AAA/stable on the Republic of Singapore (Singapore), based on its national rating scale. The AAA rating reflects a number of strengths, including a dynamic and competitive economy. Singapore’s success as a global business and financial hub has been and continues to be underpinned by sound macroeconomic management as well as credible governance and institutions.

The rating also takes into account its strong fiscal discipline, as reflected by the government consistently generating more annual surpluses than deficits. Meanwhile, its external position remains robust, thanks to persistent current account surpluses that have led to the accumulation of a massive stock of foreign exchange reserves.

Given its small open economy, Singapore is thus open to external shocks over which it has little control. Its growth volatility, which is higher than that of most of its AAA-rated peers, is a reflection of this fact. Notwithstanding the exposure, we do not expect Singapore’s macro-financial stability to become a matter of concern, thanks to its robust external balance sheet.

The city state’s rapidly ageing population remains a long-term issue. We see fiscal policy becoming more challenging given the need to counteract the demographically induced downward pressure on growth potential. As such, Singapore’s march towards a technology-driven and innovation-based economy could be affected, though we do not expect the transition to be an issue given its effective and credible institutions.

The stable outlook is based on our expectation of the government’s continued pragmatic and effective response to the current health and economic crisis without substantially eroding its fiscal and external buffers. It has thus far announced four stimulus packages amounting to about 19.5% of GDP to mitigate the impacts of the pandemic. Given the government’s strong balance sheet, we do not expect its fiscal position to be materially affected by the unprecedented size of the packages. We are nevertheless cautious on the outlook given the pandemic headwinds that continue to buffet the global economy.

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