Singapore has taken a bold, comprehensive and coordinated policy approach to cushion the impact of Covid-19, the International Monetary Fund (IMF) said, adding that the risks to the recovery are balanced.

It said that if hazards do materialise, "Singapore's ample fiscal buffers can be further drawn upon as a first line of defence".

The remarks came in an annual economic review that involved IMF economists visiting all 190 member countries to assess their economic and financial developments, and discuss their policies with government and central bank officials.

While giving a clean bill of health, IMF said Singapore's recovery faces some concerns but also potential upside: "The uncertainty surrounding the outlook is larger than usual, but risks are balanced," it said.

IMF said Singapore as a financial and trading hub is exposed to global financial shocks and threats to globalisation and trade.

It also addressed the risks posed by Covid-19: "An intensification of the pandemic could derail the recovery. On the upside, a faster-than-anticipated global vaccine roll-out and pandemic containment could accelerate the recovery."

The IMF's World Economic Outlook had already flagged the risk of virus mutations outpacing the vaccine roll-out.

Ms Selena Ling, chief economist and head of treasury research at OCBC Bank, said pointing out Singapore's vulnerability to global occurrences will be seen as IMF's acknowledgement of the country's importance as a financial and trading hub.

"The downside risks largely pertain to the path of the Covid pandemic, and the vaccination progress amid the virus mutations is being played out both domestically and globally," Ms Ling added.

IMF said that while the economic impact of the pandemic was severe, Singapore's economy has been recovering since the middle of last year. The economy shrank 5.4 per cent last year after a record contraction in the first half, and may expand 4 per cent to 6 per cent or more this year.

"The authorities have responded appropriately with a bold, comprehensive, and coordinated policy response that protected lives and livelihoods, and stabilised domestic financial conditions," the IMF said.

It also gave a vote of confidence to Singapore's "more targeted" fiscal support in Budget 2021, and welcomed the Government's plans to fund new long-term infrastructure projects through borrowing under the proposed Significant Infrastructure Government Loan Act.

"As the recovery proceeds, the authorities' shift from broad emergency relief to more targeted fiscal support in 2021, combined with skills upgrades and job creation initiatives to facilitate resource reallocation across sectors, is welcome."

However, IMF said that in view of the "substantial uncertainty", targeted policy support should remain in place until the recovery is firmly entrenched.

Inflation may pick up as domestic demand recovers, but is likely to remain contained given continued slack in the economy, IMF said.