The ratings reflect Singapore's enduring fiscal and external strengths and competitive economy, while taking into account the challenges it faces as a small and open economy.

Singapore's general government surplus is estimated at 8.8 per cent of GDP in fiscal 2007 (ended March 31, 2008) and averaged 8.0 per cent of GDP between 2003 and 2007.

'This level of surplus, one of the highest in the world, provides strong fiscal flexibility, which is needed for structural reforms, such as the ongoing efforts to diversify the economy to be less reliant on electronics exports and to enhance cost competitiveness,' said S&P's credit analyst Yee Farn Phua.

'The ratings on Singapore are also supported by its strong record of political stability and prudent macroeconomic management,' Mr Phua said.

'The government has consistently embraced a responsible, pragmatic, and forward-looking approach to policy making.'

Given its small and open economy, Singapore is more exposed to exogenous shocks than some of its peers, albeit its medium-term growth prospects remain favorable compared with other mature developed economies.

The sound and stable financial system, which has ample liquidity, good capitalisation levels, and effective regulation, helps mitigate the potential risks from exogenous shocks. -- REUTERS