Singapore's twin pillars of fiscal discipline and prudent financial regulation continue to hold the economy aloft. Despite a challenging year, the country has retained its top credit rating by all three leading ratings agencies: Fitch, Moody's, and Standard & Poor's. The latest affirmation came from Moody's earlier this month. This is no mean feat. Only nine other countries share the unanimous triple-A rating that is the strongest mark of trust in an economy's ability to repay its debts. This trust keeps its borrowing costs competitively low.
This distinction can be compromised in the blink of an eye. The United Kingdom lost the last of its top ratings following Brexit in June, while the United States was downgraded to the second-highest rating by Standard & Poor's in 2011 after bitter political gridlock over raising the country's debt ceiling. This year, a record number of countries have suffered credit downgrades amid a slowdown in global trade and a rise in political uncertainties.
Singapore's ample coffers, financial stability and effective policies have saved it from a similar fate so far. What will secure its future creditworthiness is how attentively it navigates the structural and demographic shifts that will characterise its move into the ranks of the world's advanced economies. One key benchmark will be to ensure that it manages smoothly its transition to structurally lower economic growth by successfully raising labour productivity and broadening the demographic base through controlled immigration. That will keep the economy's fundamentals on a par with its triple-A peers, even as growth slows inevitably.
Another area to watch is increasing demands on the public purse as the population ages. To prevent premature depletion of its wealth, Singapore will need a compassionate but firm hand on the Budget, and enhanced strategies to maximise returns for its invested reserves in a low-yield environment. Keeping step with evolving financial industry trends - both in innovation and in regulation - will also be central to maintaining the country's position as a global financial centre. This is a role which helps to cement its premium credit rating.
On the home front, steadying property price fluctuations will help household assets continue to far surpass household liabilities. With Singapore's open economy always at risk of exposure to external shocks and the bad-debt ripples that follow, its capital buffers must also be reviewed constantly to ensure that they are more than adequate to prevent systemic financial failure. The country's underpinnings are sound. However, it will be such proactive and prudent policies that will make the difference in keeping it on its prime perch.
