Starting with the genesis and global impact of the Global Financial Crisis (GFC), this paper details drills down into its impact on Singapore's economy, and the measures that were taken by the island-state to limit the damage caused.

1. Global Financial Crisis: Impact on
Singapore and Policy Measures Taken to
Counter It
A Policy Brief
Vikas Sharma, PMP®, Principal Consultant
Public Sector Consulting Practice
Frost & Sullivan
March, 2013

2. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
2
SINGAPORE’S FINANCIAL POLICIES LEADING UP TO THE GLOBAL FINANCIAL CRISIS (GFC)
Gaining independence from Malaysia in 1965, Singapore’s small domestic market and a lack of natural resources
made it necessary that the island-state focus on outward-oriented growth. These constraints, coupled with its
ambition to become an international financial centre laid the foundations for Singapore’s policymaking. The
Monetary Authority of Singapore (MAS) floated the Singapore dollar (S$) in 1973, followed by the gradual lifting
of all exchange controls by 1978. This facilitated capital markets and aided economic growth.
In the initial years, the economy was fueled by heavy foreign direct investments. The country slowly moved from
labor-intensive manufacturing in the 1960s, to more capital-intensive manufacturing in the 1970s, and further, to
high-value-added production like chemicals and electronics in the 1980s. By then, Singapore’s trade receipts were
more than twice its GDP, reflecting the heavy dependence on the external sector. Also, the non-existent exchange
controls made Singapore vulnerable to international currency markets. Recognizing this and bearing in mind that for
a small trade-oriented nation like Singapore, foreign exchange rates had more impact on economic growth than the
interest rate; MAS adopted an exchange-rate-centered monetary policy in 1981.
Since then, the MAS has managed the S$ against a basket of currencies on a trade-weighted basis. The exchange
rate is allowed to fluctuate within a policy band, whose level and slope is decided on semi-annually. This band
provides room to absorb short-term fluctuations and allows continual assessment. MAS’ long term policy is to allow
the S$ to appreciate gradually. This is meant to counter inflationary pressures and at the same time, motivate
exporters to move up the value chain (to remain competitive even as their goods get more expensive due to the
appreciating S$). This is a departure from several Asian countries that are known to subdue their currency
appreciation in order to keep exports attractive. On the basis of evidence, Singapore’s policy has worked well, with
the per capital income rising from US$ 5200 in 1981 to US$36000 in 2007.
Soon after the adoption of an exchange-rate policy in 1981, the MAS took steps to discourage internationalization of
the S$ out of fear that a large offshore market in the S$ could cause greater exchange rate instability, and could fuel
speculative currency attacks. It was stipulated that banks consult with MAS before providing S$-denominated credit
greater than S5 million to non-residents, or to residents that intended to use the proceeds overseas. By doing so, the
MAS could closely monitor speculative activity. Again, this policy worked well and along with Singapore’s high
reserves, contributed to the S$’s resilience towards speculative currency attacks over the 80s and 90s. It lent S$ the
aura of a ‘safe haven’ currency, so much so that during the Asian Financial Crisis (AFC), S$ appreciated against
Asian currencies owing to strong inflows from the region.
In the AFC’s aftermath, MAS endeavored to develop capital markets as engines of credit and growth, and reduce
dependence on banking institutions. With this aim, it scaled back on non-internationalization of the S$. Credit to
residents was fully liberalized and credit facilities to non-residents were also relaxed for equity listing and bond
issuance. These efforts were in line to make Singapore an international financial centre. Other similar efforts
included a move away from ‘regulation’ to ‘supervision’ for financial services entities and a reliance on the market
to discipline behavior. Also, MAS gradually removed protective measures for local financial institutions in order to
foster competition and innovation. These reforms worked as intended – Between 1995 and 2007, domestic bank
loans to businesses grew only two-fold, while bond markets rose 7.4 times and stock market turnover rose 6 times.
Also, number of banks consolidated while the number of capital market financial institutions like insurance
companies, stock broking firms, fund managers and investment advisers rose.
Striving towards an open and fully liberalized economy, Singapore has become an important global financial centre.
While its economic growth is linked closely to external factors, Singapore’s persistent current account surpluses and
large foreign exchange/fiscal reserves have enabled it to weather crises quite well over the years

3. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
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GLOBAL FINANCIAL CRISIS – GENESIS, TRIGGERS & IMPACT
The global financial crisis (GFC) was triggered in August 2007 when the US sub-prime mortgage defaults began to
rise and foreclosures increased. It spread fast to other parts of the world and truly deserves its ‘global’ moniker on
the back of its wide-ranging impact. This crisis is different from many preceding ones in that it started at the ‘core’
of the world economy (the United States), and spread to the periphery; rather than the other way round (as was the
case with many previous crises).
Genesis of the Crisis:
While the mortgage crisis was the ‘trigger’, at a fundamental level, the crisis was attributable to persistent large
global ‘imbalances’. These took some key forms: 1) the current account deficits in the US vis-à-vis current account
surpluses in the rest of the world. 2) the absence of proper risk premiums in the financial sector.
Following the dot-com bust and 9/11, the US Fed eased monetary policy aggressively, lowering interest rates and
maintaining them at low levels for a long time. The low rates encouraged consumption and investment. Money
poured into asset markets – equity and real estate – driving their prices higher, with these strong gains stimulating
consumption and investment further via wealth effects. Aggregate demand consistently surpassed domestic output in
the US and this was manifested in the widening current account deficits. This US consumption demand was met by
the rest of the world, especially, east Asian countries, that grew large current account surpluses as a result. They then
recycled these surpluses back into the US via purchase of US debt, thereby, facilitating the continued supply of
cheap money and low interest rates for continued consumption.
And then there were the risk imbalances accrued by the financial institutions. The low rate environment in the US
forced banks to look for other ways to earn profits – 1) Large capital flows to the emerging economies 2) Relaxed
lending practices whereby mortgage loans were offered to ‘sub-prime’ customers (those that would not have
qualified typically). Popular wisdom at the time seemed to dictate that this was a worthwhile risk since real estate
prices kept inching upwards and hence, even if defaulted, the loan amounts could be well recovered. Such loans
further increased demand for real-estate and contributed to the ever-expanding bubble in asset prices. 3) The ‘create
and transfer’ model of packaging mortgage contracts into often complex securities (mortgage based securities-
MBS) that were then sold off to a variety of investors – pension funds, mutual funds, other banks etc. Evidence
suggests that credit rating agencies responsible for assessing the risks associated with these securities, failed to do a
competent job, and gave undeserved high ratings to several such securities that were in fact composed of risky
underlying assets (for instance, subprime mortgages). The ‘create and transfer’ model also led to the transmission of
mortgage debt across the global financial system, with financial entities from across the world eventually holding
such securities, trusting implicitly in their quality, without understanding their underlying assets and risks.
Triggering of the Crisis
The fuse was lit actually in 2004 as the Fed started to tighten monetary policy gradually, allowing interest rates to
edge up. This led to a fall in aggregate demand and also in housing demand, leading to the prices turning downwards
in 2006. With falling collateral (house prices), banks did not feel so safe extending credit to sub-prime customers
and froze new loans (in some cases even in other areas of consumer credit). In parallel, the rising rates ballooned
mortgage payments for several house-owners, who started to default. The number of disclosures almost doubled
over 2006-2007, hurting the balance sheets of the lender banks tremendously. It also came to light that not just
banks, but in fact, several other financial institutions across the world had high exposure to the US mortgage market
via mortgage-based securities (MBS). Liquidity in the markets froze as the banks etc. tried to sell off their MBS. As
some major institutions fell, liquidity disappeared even for basic business credit and interbank lending operations.
Even banks with healthy operations and no/low exposure toxic MBS were hit by the liquidity crunch. Confidence in

4. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
4
the global financial system seemed to have evaporated. In light of the dimmed economic prospects, equity markets
tanked globally. Even so-called ‘safe-haven’ assets (for e.g. precious metals) saw prices plummet as investors
scrambled to liquidate and pour into the US dollar.
Impact of the Crisis
The weak credit markets, dimmed economic prospects and drop in consumer spending, led to a sharp drop in global
trade and industrial production. Countries across the globe felt a ‘synchronized’ downturn, with both advanced as
well as emerging economies feeling the brunt of the crisis. World output contracted by a worrying 6.25% in Q4
2008 (vis-à-vis growth of 4.0% a year earlier), with advanced economies worse hit (7.5% decline) as compared to
emerging economies (4.0% decline). In Asia, the less trade-dependent economies like India held up comparatively
better, while export-oriented economies like Singapore, Malaysia and Thailand saw large declines. Globally, the
deterioration in business sentiment saw job cuts and spikes in unemployment. The crisis also affected capital flows
in developing countries. Net private capital flows to the emerging economies fell from a peak of US$ 696 billion in
2007 to US$ 129 billion in 2008, and further to a net outflow of more than US$ 50 billion in 2009. These capital
flow declines contributed to equity market collapses and pressures on exchange rates of emerging economies.
To summarize, the GFC was a highly contagious crisis -1) the fallout was not restricted to the financial sector but
pervaded into the real economy, 2) started in the US but pushed the global economy into deep recession. It has
required unprecedented monetary/fiscal policy responses from world governments to contain the damage and
refocus on to the growth trajectory. Given below are some figures that illustrate the impact of the GFC.
Figure 1
Q3-2008 Q4-2008 Q1-2009 Q2-2009 June-08 March-09 Change (%) June-08 March-09 Change (%)
US 0.7% -0.8% -3.3% -3.8% 11,350 7,608 -33.0% - - -
Eurozone 0.6% -1.4% -4.9% -4.8% 3,315 2,036 -38.6% 1.57 1.32 -15.9%
Japan -0.2% -4.3% -8.7% -7.2% 13,481 8,109 -39.8% 106.21 98.96 -6.8%
Korea 3.1% -3.4% -4.2% -2.2% 1,674 1,206 -28.0% 1,046.05 1,383.10 32.2%
Hong Kong 1.7% -2.5% -7.8% -3.8% 22,102 13,576 -38.6% 7.79 7.75 -0.5%
Thailand 3.9% -4.3% -7.1% -4.9% 768 431 -43.9% 33.44 35.50 6.2%
Malaysia 4.7% 0.1% -6.2% -3.9% 1,186 872 -26.5% 3.26 3.64 11.7%
Philippines 5.0% 4.5% 0.6% 1.5% 2,459 1,986 -19.2% 44.95 48.32 7.5%
Taiwan -1.0% -8.4% -10.1% -7.5% 7,523 5,210 -30.7% 30.35 33.91 11.7%
Singapore 0.0% -4.3% -9.5% -3.5% 2,947 1,699 -42.3% 1.35 1.52 12.6%
Indonesia 6.4% 5.2% 4.4% 4.0% 2,349 1,434 -39.0% 9,228.00 11,700.00 26.8%
GDP Growth Rates (YoY) Stock Market (month-end) US$ Appreciation against local
Countries
0
200
400
600
800
1000
1200
US Banks UK Banks Eurozone
Banks
Asian Banks
Figure 2
Estimates of
Global Bank
Write-Downs
(2007-2010)
(in US$ billion)

5. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
5
IMPACT OF THE GFC ON SINGAPORE
With its open and outward-facing economy, Singapore was not immune to the vagaries of the Global Financial
Crisis. As the external environment deteriorated, not surprisingly, the local economy also weakened markedly in the
second half of 2008 and early 2009. This section provides a broad overview of the impact of the crisis on various
aspects of the Singapore economy.
Banking & Financial Sector:
Heading into the crisis, Singapore’s banking sector had minimal exposure to toxic assets linked to US home
mortgages or to distressed financial institutions like Bear Stearns and Lehman Brothers. However, the cases that did
emerge of local banks having sold such structured notes caused several headlines and significant embarrassment for
the banks and regulatory institutions. Many of the affected investors took class action against the distributors, calling
for their notes to be declared ‘void’ and their stakes repaid. Several financial institutions compensated the less
sophisticated investors who were affected, with MAS estimating total settlements for decided cases at S$105
million, a tiny fraction when compared to total bank assets of S$581 billion and equity of S$39.3 billion (as of
2007). The crisis did however manifest itself upon the share prices of local banks as erosion of investor confidence
led to corrections of more than 50% from the peak. As the global slowdown unfolded and slowed down business
activities, local banks saw reduced demand for loans. Also, they became more risk-averse in order to keep their
capital adequacy ratios sound. This saw banks turning away riskier borrowers, especially SMEs. Overall lending in
Asian Currency Units (ACU) contracted 16% from its peak in October 2008 and September 2009. Increased loan
delinquencies saw a deterioration of the banks’ Non-Performing Loan (NPL) ratio, from a bottom of around 1.5% in
Q4-2008 to more than 2.5% in Q2-2009.
Labor Market:
Towards the end of 2008, the local labor market started to weaken as reduced economic activity forced companies to
lower operational costs. Cost cutting measures included hiring freezes, downward pressure on wages, and outright
redundancies. According to Ministry of Manpower (MOM), job creation slowed down to 21,600 in Q4-2008, less
than 50% of the number for Q3-2008. Redundancies (retrenchments and early contract terminations) rose from
1,880 in Q2-2008 to 9,410 in Q4-2008, and peaked at 11,000 in Q1-2009 before easing downwards. The
Manufacturing sector accounted for more than 70% of these Q1-2009 redundancies. However, the impact on the
labor market was not as severe as in the 1998 and 2001 recessions. For instance, while the overall unemployment
rate edged up to 3.4% in September 2009, it was still only half the 6.2% peak in September 2003. This greater
resilience could be attributed to prompt fiscal measures and also to the continued demand from the construction and
services sectors. Projects such as Marina Bay Financial Center, Integrated Resorts, MRT Downtown Line etc. raised
demand for construction work, while the upcoming IRs, along with the associated shopping malls, hotels, and retail
outlets, supported jobs in the services sector.
Trade:
Since its independence, Singapore has had an outward-facing trade-oriented economy. In 2007, on the cusp of the
crisis, the country’s exports and imports were 254% and 225% of GDP respectively. Over the period from 1990-
2007, Singapore’s net exports (as a % component of GDP) rose from 10% to 30%, while other components (private
consumption, investment, public sector spending) either held constant or declined. This shows that net exports were
driving Singapore’s rapid economic growth. Of course, the downside of such an exports-oriented setup is that in the
event of a global recession, exports are very vulnerable and can impact the whole economy adversely. This is what
happened in Singapore during the GFC. The impact of the US recession began to be felt in Q4-2007. Net exports
declined 11% year on year in that quarter, and then plunged over the next few quarters. The deterioration in net

6. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
6
exports was caused by imports declining slower than exports (shown in figure 3 below). Between September 2008
and February 2009, total exports declined 36%, led by the drop in mineral fuels exports (a 52% drop). Declines for
some other key industries are shown in figure 4 below.
Exports to the G3 countries (Europe, US and Japan) fell as demand decreased. In addition, fall in end-user demand
in G3 countries also resulted in a synchronized decline in intermediate goods that comprised the key trade flows
with other ASEAN countries. Exports also suffered as the S$ appreciated vis-à-vis other regional currencies, in the
process, putting price pressures on local exporters. This was especially prominent in the case of Electronics where
Singapore exporters regularly competed with similar products from Malaysia and Korea.
Foreign Direct Investment:
FDI forms an disproportionately high part of Singapore’s gross fixed capital formation. This ratio stood at 60% in
2007, as compared to an average of just 9.8% for other Asian countries (excluding HK). Hence, Singapore’s GDP is
highly reliant on FDI. As export revenues plummeted, foreign investment in export manufacturing in Singapore fell
too. FDI in Singapore fell from S$7.8 billion to just S$0.7 billion in the first 3 quarters of 2008.
Real Economy:
The crisis transmitted through the trade and financing channels into the real economy, as manifested in the Industrial
Production Index (IPI) for Singapore. From March 2008 to March 2009, the IPI for the Manufacturing sector fell by
32%. The worst affected were the electronics and chemicals sectors. Data collected by the Singapore Department of
Statistics shows that several indicators for business expectations (over the coming quarter) turned deeply negative
during this time. For instance, General Business Expectations dropped from +25 at the end of Q3-2007 to -57 at the
end of Q4-2008. As for the Services sector, Singapore’s linkages to the rest of the world through service industries
like transportation, logistics, tourism etc. also contributed to the slowdown of economic activities locally. The
seaport and airport saw declines in cargo tonnage and passengers handled in the second half of 2008. As people
across the region cut down sharply on discretionary spending, the tourism sector was hard hit with the number of
arrivals falling from a peak of 900 thousand in December 2007 to around 725 thousand in March 2009. In addition,
spending per visit by tourists also contracted.
It is clear from the facts presented above that Singapore was hit hard by the GFC. The Singapore government came
out with a string of policy measures to moderate the impact of the crisis and ready the economy for an anticipated
upturn. These measures are discussed in the next section.
Figure 3 Figure 4
-60.00%
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
Net Exports
Exports
Imports
-36%
-52%
-42%
-35%
-26%
-60% -50% -40% -30% -20% -10% 0%
Total
Mineral Fuels
Electronics
ManufacturedGoods
Chemicals

7. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
7
SINGAPORE’S POLICY RESPONSES TO THE GFC
Singapore’s policy responses to the GFC have been successful in general, as is evidenced in the strong recovery of
the economy ever since. For the purpose of this paper, the policy responses have been categorized into three broad
buckets – 1) Banking & Financial Sector 2) Monetary Policy and 3) Fiscal Policy.
Banking & Financial Sector:
While the financial system in Singapore remained broadly stable and robust during the GFC, the MAS took some
precautionary measures to boost confidence in the country’s banking and financial sector. In October 2008, the
Government announced a blanket guarantee on deposits of individuals and non-bank customers in banks, finance
companies, and merchant banks holding MAS licenses. Similar steps had been taken by a number of other countries
in Asia – Malaysia, Taiwan, Hong Kong, and Indonesia. By doing so, the MAS intended to ensure a level
international playing field for Singapore banks. The guarantee was valid till the end of 2010, and was backed by S$
200 billion of Singapore Government reserves. This measure helped immensely in assuring depositors of the
stability of local banks and helped prevent any episodes of runs on local banks.
With the Lehman collapse in the US, money markets globally had come under pressure and interbank lending had
dropped sharply. While Singapore’s money markets had continued to function smoothly, nevertheless, given the
openness of Singapore’s economy and the fact that Singapore is the largest foreign exchange centre in Asia (outside
of Japan), it was considered prudent by the MAS to proactively ensure accessibility of S$ and US$ to financial
institutions. With this in mind, MAS established a US$ 30 billion swap line with the US Federal Reserve in October
2008. In doing so, the MAS became one of 13 central banks globally to have taken such a measure. The swap
facility allowed the US Federal Reserve to provide US$ liquidity to financial institutions in these countries through
their central banks. Originally intended to be active till April 2009, the swap facility was extended eventually to
April 2010. While Singapore never needed to access the facility, its presence helped drive confidence in the
resilience and stability of Singapore’s foreign exchange markets.
In addition, MAS also cracked down hard on errant banks that had been involved in the distribution of toxic
structured notes linked to Lehman Brothers. In July 2009, MAS imposed bans on the sale of structured notes by 10
financial institutions locally (ABN Amro Bank, CIMB-GK Securities, DBS, DMG and Partners Securities, Hong
Leong Finance, Kim Eng Securities, Maybank, OCBC Securities, Phillip Securities, and UOB Kay Hian). The ban
period was between 6 months and 2 years, and during this period, the institutions had to satisfy MAS that there were
adequate measures to ensure proper training for financial advisory representatives, and consistent risk rating
procedures for the structured products sold by them. On a similar note, MAS published a consumer guide titled
‘Making Sense of Structured Products’ to help consumers make informed decisions. The guide was developed in
cooperation with Association of Banks in Singapore and the Securities Investors Association (Singapore). In unison,
these measures helped rebuild public faith in the local financial institutions.
Monetary Policy:
As mentioned earlier, Singapore exercises monetary policy by means of an exchange-rate mechanism, not by
altering interest rates. This is because of it being a small, highly trade-dependent economy that is affected more by
changes in exchange rate, than by changes in interest rates. Hence, to steer monetary policy, MAS manages the SG$
NEER (Nominal Effective Exchange Rate) in a band, lowering it during economic downturns and raising it during
economic booms. Accordingly, MAS used the NEER to implement policy during the GFC.
GDP data for Singapore for 2008 shows that the full effects of the GFC were not felt until around mid-2008. Prior to
that, in its April 2008 Monetary Policy statement, MAS had decided to re-centre the S$ exchange rate band and

8. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
8
continue its four-year policy of gradual appreciation of the S$ (tantamount to an upward shift in the policy band).
However, as Singapore’s economy started to feel the downward pressure of the crisis, MAS responded by
abandoning its strong S$ policy. At its policy review meeting in October 2008, the policy stance was shifted to zero
appreciation (or neutral bias) for the NEER. While halting appreciation was not enough to fully counteract the
economic slump, it did help to soften the blow and instill confidence among local exporters.
In early 2009, as the crisis worsened, so did the impact on Singapore’s economy. MAS’ zero-appreciation policy did
not seem adequate to moderate the slowdown. With this in mind, in its monetary policy meeting in April 2009, MAS
took further steps. While it maintained its zero-appreciation bias for the S$ NEER, it did however re-center the
policy band to the prevailing level of the NEER. Since the S$ was trading around 0.5% away from the floor of the
policy band prior to the meeting, in essence, by re-centering the band, MAS reversed the tightening made back in
April 2008. Thereafter, MAS did not implement any further monetary easing. The fluctuations in the S$ NEER over
this period are shown in the figure below..
It is important to note here the difference between MAS response to the GFC and to earlier crises such as the Asian
crisis and SARS outbreak. During the earlier crises, MAS had allowed the S$ to depreciate. However, during the
GFC, MAS declared its confidence in the fundamentals of the Singapore economy, declining to depreciate the
currency significantly. Instead, it only shifted to a neutral/depreciating stance. With the benefit of hindsight, MAS’
decision seems validated as Singapore’s economy recovered admirably from the crisis without having to resort to
significant currency depreciation.
Fiscal Policy:
Not traditionally known for its welfare-oriented largesse, the Singapore government dug into its national reserves for
the first time, and came up with an unprecedented ‘Resilience Package’ worth S$ 20.5 billion in the budget
announcement for FY 2009. The traditional stance of maintaining a budget balance (excluding transfers to
endowment funds and contributions from net investment returns) was abandoned in the midst of the economic
downturn. In FY 2009, Singapore’s government ran a deficit of S$ 8.7 billion (3.5% of total GDP).
The Resilience Package worth S$20.5 billion comprised a diversified set of measures, targeting multiple impact
points. The key measures can be divided into five buckets. These buckets are shown in the next figure along with the
monetary allocations to each. The rest of this section describes these measures in more detail.
Figure 5

9. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
9
1. Preserving Jobs for Singaporeans: Numerous efforts were made to preserve jobs. One such initiative was the Job
Credit Scheme (JCS) meant to lower companies’ cost of hiring employees. Employers received a 12% cash grant
on the first S$ 2500 of monthly wages for each employee on their CPF payroll. Initially rolled out for a year, this
scheme was extended for six months with graduated payments. The JCS helped companies hold on to workers
during the downturn in preparation for an anticipated economic upturn. In addition to JCS, course subsidies under
the Skills Programme for Upgrading and Resilience (SPUR) were raised from 80% to 90%. Selected tertiary
courses at Singapore’s public universities were included. The aim of this initiative was to help employees upgrade
themselves during the downturn to increase their future employability. To help moderate the impact of the downturn
on low-income workers, the existing Workfare Income Supplement (WIS) scheme was temporarily enhanced to
include an additional 50% payment, and eligibility criteria were relaxed. Plans were also announced to increase
public sector hiring by 18,000 over two years to cushion unemployment.
2. Stimulating Bank Lending: Through its Special Risk-Sharing Initiative (SRI), the government took on a
significant share of bank lending risks, so as to ensure that viable businesses continued to have access to credit to
finance their operations. The SRI comprised of – a. Bridging Loan Programme (BLP) and b. Trade financing
schemes. With the new BLP, loan quanta were raised from S$500,000 to S$5 million, and government’s share of the
risk raised from 50% to 80%. The BLP intended to meet the working capital needs of most small to medium sized
companies. Addressing the reduced risk appetite in the economy, the government, for the first time, took a share of
the risk in trade financing. In doing so, it intended to help companies that had existing orders and needed loans to
execute those orders, as well as companies that wanted to insure against payment defaults by their buyers. Both
these schemes under the SRI were extended till the end of January 2011.
3. Enhancing Business Cashflow and Competitiveness: Singapore has traditionally had a flat headline corporate tax
rate, with a declining trend as the country tried to become an attractive investment destination. Prior to the GFC, this
headline rate stood at 18% (down from 26% in 1997-2000). In response to the GFC, the government cut this rate
further by 100 basis points to 17%. This made Singapore’s corporate tax rate one of the lowest in the region, close to
Hong Kong’s 16.5%. In the real estate sector, the government instituted a 40% rebate on property tax for
commercial assets, and deferred property tax for approved development land. The intent was to prevent fire sales of
assets and to encourage developers to hold back on intended developments.
4. Supporting Households: The government declared a personal income tax rebate of 20% (capped at S$ 2000). In
addition, it also doubled the Goods and Services Tax (GST) Credits for households. The elderly and low-income
workers benefited from increased allowances, service and conservancy rebates; and top ups of medical and elder-
care funds. A 40% property tax rebate was announced for owner-occupied residential properties. In addition, to
ensure affordable public housing, the CPF housing grant was raised from S$ 30,000 to S$ 40,000.
5. Infrastructure Improvements: In line with the argument that the government’s direct consumption of goods and
services has a higher economic multiplier, the Singapore government brought forward several infrastructure
development projects. Some of these projects included Housing Development Board (HDB) lift upgrading, park
connectors, school upgrading, military facilities, and sewage/drainage projects. These initiatives intended to help
firms within the construction industry that were feeling the brunt of the economic slowdown
Preserving Jobs for
Singaporeans
(S$ 5.1 billion)
Stimulating Bank Lending
(S$ 5.8 billion)
Enhancing Business Cash Flow
and Competitiveness
(S$ 2.6 billion)
Supporting Households
(S$ 2.6 billion)
InfrastructureImprovements
(S$ 4.4 billion)
Resilience
Package
(S$ 20.5 billion)
Figure6

10. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
10
KEY TAKEAWAYS & LESSONS
The wrath of the GFC seems a distant memory for Singapore now as the country is back on its growth trajectory.
Having contracted by 1% in 2009, real GDP grew by 14.8% in 2010 and another 4.9% in 2011. It is a worthwhile
exercise to re-look at the salient lessons from the crisis and what enabled Singapore to tide over it.
The GFC essentially laid waste to the theory of decoupling of emerging and developing economies from the West.
The impact was not restricted to advanced economies and the reduction in economic activity was a global
phenomenon. Countries are increasingly dependent on each other in regard to export and investment growth,
securities and property markets and also investor confidence. Policy responses need to recognize these linkages and
be designed and coordinated accordingly. The GFC witnessed such coordination as several countries (China,
Germany, Canada, France, US, and Singapore) unveiled their stimulus packages in quick succession
Singapore’s strong economic fundamentals allowed it more ‘breathing space’ with its crisis response. Going into the
crisis, it had persistent high current account surpluses, strong FDI inflow, well-regulated banking system, good fiscal
health, and vast accumulated foreign exchange reserves. This meant Singapore was in a position to take strong
measures to stem the adverse shocks triggered by the crisis, and at the same time, keep stakeholders assured that its
long-term prospects were not being compromised in the process. A good example is the Resilience Package. The
government was able to finance its efforts through surpluses rather than from borrowing, which enhanced
effectiveness of the measures since there was no signaling of higher taxes in the future to finance this spending.
Also, since the government did not have to borrow to finance its fiscal measures, there was no threat of drawing on
available credit in the market and crowding out private investors.
Singapore’s bureaucratic efficiency worked to its advantage during the crisis. Instead of using monetary policy in
isolation via measures like changing the real exchange rate, tight coordination among the various government
agencies allowed for such successful implementation of measures as cash subsidies, wage supplements, tax rebates
etc. Case in point is the Jobs Credit Scheme under which 100,000 employers with 1.3 million employees received
almost S$1 billion as wage credits. This large-scale program was implemented swiftly owing to the robust Central
Provident Fund (CPF) database already in place to determine wages, and Unique Entity Numbers (UENs) that all
businesses in Singapore carry and that help match records among numerous agencies easily.
In addition to being swift, the policy measures also come across as well-thought out, not knee-jerk reactions to the
adverse economic conditions. Policy makers recognized that the typical policy measures geared towards boosting
domestic demand would not be useful for a small outward-facing economy like Singapore’s. Hence, the Resilience
Package focused chiefly on the ‘supply-side’, that is, enabling businesses to obtain credit, keep employees and
increase competitiveness, in anticipation of the eventual upturn in the economy. Evidence would suggest that these
measures worked well. The JCS programme was estimated to be capable of saving up to 30,000 jobs in 2009 and
50,000 each in 2010 and 2011. The SRI initiative facilitated more than 14,000 loans amounting to about S$8 billion.
These loans benefited more than 13,000 companies, out of which 90% were SMEs. In a similar vein of gearing up
for future competitiveness, were the cuts in corporate tax rates. While they did cost the government some tax
revenue in the short term to ease cashflow for businesses, at the same time, they increased Singapore’s long-term
competitiveness as an investment hub and primed the economy for future growth which should make up for the lost
tax revenues eventually. In increasing public expenditure again the sound reasoning at work is visible. Policymakers
recognized that public spending would have a higher economic multiplier effect than private investment and hence,
brought forward several infrastructure projects.
The GFC was indeed a watershed event for the island-state. Singapore’s policymakers reacted in a timely and well-
planned manner to limit the damage caused and the country has resumed its growth story since. It remains to be seen
how Singapore maintains its edge going forward as its usual export markets gear up for a period of slow growth.

11. Global Financial Crisis: Impact on Singapore and Policy
Measures Taken to Counter It
2013
11
APPENDIX
Reference Sources
The key sources referred to for developing this policy brief are listed below. Please note that this is not meant to be
an exhaustive list.
1. Sanchita Basu Das, 2010. “Road to Recovery – Singapore’s Journey through the Global Crisis” Institute of
South East Asian Studies (ISEAS)
2. Michael Lim Mah-Hui and Jaya Maru, 2010. “Financial Liberalization and the Impact of the Financial
Crisis on Singapore” Third World Network Global Economy Series
3. Khor, Hoe Ee, Jason Lee, Edward Robinson and Saktiandi Supaat, 2007. “Managed Float Exchange Rate
System: The Singapore Experience” The Singapore Economic Review, Vol. 52
4. Chow, Hwee Kwan, 2008. “Managing Capital Flows: The Case of Singapore” ADB Institute Discussion
Paper No.86, February
5. Monetary Authority of Singapore (MAS), 2001. “Singapore’s Exchange Rate Policy” Mimeograph,
February
6. Monetary Authority of Singapore (MAS) “Monthly Statistical Bulletin” Several quarterly issues
7. Singapore Department of Statistics (SDOS), 2008. “Yearbook of Statistics”