Moody's: Strong fiscal and debt metrics underpin Singapore's AAA rating

Three strengths behind Singapore's top credit rating
But Moody's warns about rising living costs and impact of restructuring
By Chia Yan Min, The Straits Times, 20 Jun 2014

A STRONG fiscal position, low debt and a positive growth outlook are behind Singapore's coveted triple-A credit rating, according to Moody's Investors Service.

However, the ratings agency warned in a report yesterday that rising living costs and the impact of economic restructuring are challenging the high score.

It expects Singapore's economy to grow 4 per cent this year - at the upper end of the official forecast range of 2 per cent to 4 per cent. This is on the back of stronger exports as growth strengthens among key trading partners, and robust domestic demand due to public infrastructure projects and wage growth.

But Singapore's medium-term growth potential will be lower than in the past, partly due to challenges from changing demographics and tepid labour productivity growth, Moody's said.

It added that government policies to boost labour productivity and innovation will take time to show tangible results.

A recent International Monetary Fund study found that real wages have grown faster than labour productivity in Singapore, and cautioned against the risks to the country's competitiveness and output growth if wage increases are not matched by productivity gains.

Domestic and political event risks are very low in Singapore, which has shown a high degree of social and political stability since its independence in 1965, the report said. However, "this has not been tested by electoral change".

Still, while domestic politics has become livelier, political stability and social cohesion are not under threat and the Government has responded by increasingly adopting policy measures supportive of low- and middle-income households, added Moody's.

It expects a government Budget surplus of about $1.6 billion in the 2014 fiscal year, equivalent to 0.4 per cent of projected gross domestic product. This is based on the Budget performance over the past decade.

The ratings agency also said maintaining market-friendly and fiscally prudent economic policies would help keep Singapore's ratings at the highest level, while publishing more detailed statistics - such as on the Government's external assets as well as consolidated public sector finances - would enhance transparency.

Moody's affirms Singapore top-level AAA rating
Stable outlook unlikely to change over next 12 to 18 months, ratings agency says while noting that some credit challenges remain on the horizon.
Channel NewsAsia, 19 Jun 2014

Moody's Investors Service on Thursday (June 19) reaffirmed Singapore's top-tier AAA credit rating, citing the Republic's "very strong fiscal and debt metrics, strong growth outlook over the coming five years, and an extraordinarily large net external creditor position".

In a press statement accompanying the release of its Singapore credit analysis report for investors, the ratings agency assessed the credit profile of the city-state according to the four areas of its Sovereign Bond Rating Methodology:

- Economic Strength: Very High (-)

- Institutional Strength: Very High (+)

- Fiscal Strength: Very High (+)

- Susceptibility to Event Risk: Very Low

Singapore's long-term issuer rating - AAA with a stable outlook - is unlikely to change over the next 12 to 18 months, "given the government's very strong credit fundamentals", Moody's said.

But the ratings agency noted credit challenges on the horizon, including the possibility of regional political or economic instability, rising domestic social pressures due to a rise in the cost of living and "other side effects stemming from the implementation of the government's economic restructuring programme".

To stay credit positive at the highest ratings level, Moody's recommended that Singapore maintaining "a market-friendly and fiscally prudent economic policy approach".

MITIGATING THE COST OF AGEING

In giving Singapore the fiscal strength rating of "Very high (+)", Moody's cited the country's "very strong fiscal and government debt metrics, which are supported by a prudent fiscal policy framework, the specific nature of the Singapore government securities market, and sizeable government assets".

"These will help mitigate the expected medium-term impact from an ageing society on both government revenues and expenditures," said Moody's, adding that the rising costs related to an ageing demographic would be offset by the country's CPF system.

"Singapore's fully funded compulsory pension system and the absence of a comprehensive government-funded social welfare system mitigate future liabilities," the statement read.