Moody's lauds S'pore for its fiscal strength

According to credit rating agency Moody's Investors Service, the Government's ability to contain a housing price boom and engineer a "soft landing in house prices" shows its policy effectiveness.
According to credit rating agency Moody's Investors Service, the Government's ability to contain a housing price boom and engineer a "soft landing in house prices" shows its policy effectiveness.ST PHOTO: DESMOND FOO

Agency rates the Republic's economic and institutional strengths as 'very high'

The Singapore Government's stable credit profile reflects its fiscal strength and ability to adapt its policies - handy attributes for a nation in transit towards less volatile, albeit lower, economic growth, said Moody's Investors Service in a report yesterday.

Last December, the credit rating agency reaffirmed Singapore's sovereign bond rating as "Aaa" - the highest credit quality.

Yesterday's report was part of regular surveillance by the agency.

Singapore's economic strength was assessed to be "very high", owing to its high per-capita income, higher than for any Aaa-rated sovereign state except Luxembourg.

Although domestic demand "remains muted", Singapore is benefiting from a trade recovery and ongoing economic restructuring efforts will contribute to lower, albeit less volatile, growth, said Moody's.

It rated Singapore's institutional strength as "very high", citing the Republic's prudent monetary regime and healthy banking system. "Price stability, a proxy for policy effectiveness, is intact," said Moody's.

The Government's ability to contain a housing price boom and engineer a "soft landing in house prices" also demonstrates its policy effectiveness, it said.

And while Singapore faces an ageing population and consequently larger expenditure outlays over the long term, the country's sovereign wealth funds provide large fiscal buffers.

Geopolitical risk is also "very low", given Singapore's generally smooth relationships with neighbours and trading partners.

Moody's said: "There have been some recent tensions with China, in part due to Singapore's support of the Permanent Court of Arbitration's ruling on China's territorial dispute with the Philippines in the South China Sea, as well as its military training ties with Taiwan.

"We do not expect such periodic disputes to have a material impact on bilateral economic or commercial linkages.

"Singapore has been the largest investor in China since 2013, and a recent bilateral meeting affirmed the intention of both countries to negotiate an enhancement to the existing China-Singapore Free Trade Agreement."

Moody's noted that the Republic's Aaa rating could come under pressure if the shift to lower growth results in weaker economic strength, or if the Government's balance sheet weakens from a shift in fiscal policy or the realisation of significant contingent liabilities.

A version of this article appeared in the print edition of The Straits Times on August 18, 2017, with the headline 'Moody's lauds S'pore for its fiscal strength'. Print Edition | Subscribe