Why It Matters

Testament to Singapore's stability

The decision by Fitch Ratings on Monday to affirm Singapore's AAA rating may not have seemed like big news in a country that has long held this top accolade.

At first glance, it shows that the country's financial situation has not changed, yet this very constancy is in itself remarkable, especially in the light of how uncertain the global economy has been in the past year.

Fitch revised its growth outlook for Singapore over 2015 and 2016 to an average of 2.1 per cent, from an earlier forecast of 3.2 per cent. However, this growth slowdown is not expected to translate into a significantly weakened credit profile, it said.

In short, even as Singapore's economic growth softens, creditors, such as holders of Singapore sovereign bonds, can still expect to be repaid on time. As Fitch notes, this is a testament to Singapore's exceptionally strong external balance sheet, robust fiscal framework, high levels of per capita income and strong governance.

Indeed, Singapore is one of only two sovereigns in the Asia-Pacific - Australia being the other - to have the AAA rating from Fitch. Globally, Singapore is one of only 12 sovereigns with the distinction.

To be sure, Fitch also flagged some potential risks to Singapore's credit rating, including a severe regional or global economic shock sufficient to force the country to draw down past reserves on a scale that impairs its balance-sheet strength.

However, this would have to be even more severe than the global financial crisis, the agency said.

Fitch also warned that sustained rapid credit growth in the private sector could lead to reduced resilience in the face of economic volatility, especially as the banking sector is so large here. The Monetary Authority of Singapore noted last week, however, that although debt among Singapore firms has risen over the past five years, it is still at comfortable levels.

As the Asia-Pacific enters a period of slower and choppier growth, the AAA rating is a marker of safety and stability that will help distinguish Singapore as a safe haven that investors seek harbour in.

A version of this article appeared in the print edition of The Straits Times on December 02, 2015, with the headline 'Testament to S'pore's stability'. Print Edition | Subscribe