Research and Presentation on Singapore & its Monetary & Fiscal outlook of 2007 by Management students SPJCM.

2. Singapore- Some Facts
 Island Nation – With a total area of 704 square
kilometers (vs India’s 32,87,590)
 Limited Manufacturing Potential
 Strong Services Sector – with Travel and Hospitality,
Financial Services and Retail and Wholesale trade
accounting for a large part of the GDP.
 Trading / Trans-shipment Hub –The second largest
container port in the world

3. Monetary Authority of Singapore
 MAS has traditionally adopted a Strong Singapore
Dollar policy
 The result is
a) Stable Singapore Dollar
b) Low Inflation
c) Low Interest Rate
d) Confidence in Singapore’s
financial sector.
 MAS believes that a large depreciation in the
currency to enhance export competitiveness
jeopardizes all the above.

4. Monetary Policies & Currency

5. HISTORY OF SGD
1845-1939, Singapore used Straits Dollar, which
was replaced by Malayan Dollar
1953 – Malay and British Borneo Dollar
Till 1963 – shared common currency with
Malaysia
1965 – Monetary union between Singapore,
Malaysia and Brunei broke down

6. SGD is not Pegged
 The Singapore dollar, SGD, is under a managed float
regime guided by the currency's trade weighted
index. The MAS`s long term policy is to manage a
“trade weighted appreciation of the currency” to
dampen imported inflation and to balance aggregate
demand.

7. Monetary Policy in theory
INSTRUMENTS TARGET
 Interest Rates  Price stability –
 Money supply Inflation
 Exchange rates  GDP growth
 Full Employment
 Balance & foreign
reserves

8. What Singapore Decided
 Ultimate Objective :
Price Stability as the Basis for
Sustained Economic Growth
 Intermediate Target:
Trade-Weighted Exchange Rate

9. Rationale Behind Exchange Rate Policy
Small Size of Economy & Resource
Constraints
Openness to Trade
Openness to Capital Flows

10. Elaboration for the Exchange Rate Policy
 The high degree of financial openness and sensitivity of
capital flows to interest rate differentials makes it difficult to
target either money supply or interest rates in Singapore.
 Net flows of funds from abroad account for the bulk of
changes in domestic money supply. Likewise, domestic
interest rates are largely determined by foreign rates and
market expectations on the future strength of the Singapore
dollar.
 Given the small domestic base, any attempt by the MAS to
raise or lower the domestic interest rates, or money supply,
for any sustained basis would be foiled by a shift of funds into
or out of Singapore.

11. 2006-2007 SIBOR
 SIBOR : stands for Singapore Interbank Offered Rate and is a daily
reference rate based on the interest rates at which banks offer to
lend unsecured funds to other banks in the Singapore wholesale
money market
 The S$ interbank rate (S$ SIBOR) hovered between 3.44 % & 3.55
% in 2005 and has come up to 5.9% in the early 2007. The SIBOR is
expected to stabilize around the current levels 0f 5.7% against
the back drop of a pause in US Fed Funds rate hikes.

12. LIBOR vs SIBOR
 LIBOR : 5.51 %
 SIBOR : 5.76%
Source : http://www.mas.gov.sg

13. RATES
Fixed Deposit Rates : 2.8% to 4.6%
Prime Lending Rates : 5.1 % to 6.1%
Cash Reserve Ratios: 5% to 7.2% (slightly
higher)

14. Singapore Foreign Exchange Reserves
Singapore Foreign Exchange Reserves in Millions (US $)
160,000.00
140,000.00
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
2001 2002 2003 2004 2005 2006
Year
(Source: Monetary Authority of Singapore)

15. year 2003 2004 2005 2006
Current Account Balance 38909 36414.5 47616.5 57660.6
exports 344872.7 418576 474526.4 530409
imports 299696.8 368989.2 417274.4 463919
year 2003 2004 2005 2006
Capital Account Balance -30735.7 -12868.4 -31923.3 -33261.5
year 2003 2004 2005 2006
Net Errors and Ommissions 3601.2 -3077.2 4703.5 2596.6
year 2003 2004 2005 2006
Overall Balance 11774.5 20468.9 20396.7 26995.7
year 2003 2004 2005 2006
Official Reserves (Net) -11774.5 -20468.9 -20396.7 -26995.7
Figures in Million US$

16. BOP Variables
600000
500000
400000 Current Account Balance
Amount in $
300000 Exports
Imports
200000 Capital Account Balance
100000 Overall Balance
0
2003 2004 2005 2006
-100000
Year

17. Balance of Payments - Analysis
The rising current account position has been associated with an
improving official foreign reserves (OFR) position, which
increased almost 12-fold since 1980 to reach S$163 billion at end-2003
The increased flows through the financial account balance have largely
reflected net outflows from the portfolio and quot;other investmentquot;
accounts, which have typically offset the inflows due to foreign direct
investment (FDI)
From the trade perspective, the contraction in gross national expenditure
had caused imports to decline, thus boosting the merchandise trade
surplus. On balance, these factors have boosted the current account
surplus position.

18. FISCAL POLICIES

19. Singapore - Fiscal Policy
Singapore’s fiscal policy is Expansionary
The private sector is the engine of growth, and the
government's role is to provide a stable and conducive
environment for the private sector to thrive
Tax and expenditure policies should be justified on
microeconomic grounds and focus on supply-side issues, i.e.
incentives for saving, investment and enterprise

20. Fiscal Policy...
Expenditure Distribution
Year 2006 Year 2007
12% 4% 11% 4%
42% 37%
42% 48%
Source : http://www.mas.gov.sg

21. Fiscal Policy…
• Objectives of Tax Policy
– Revenue Raising
– Promotion of Economic and Social Goals
• Principles of Tax Policy
– keep tax rates low
– tax base broad
• Fy-07 Taxation Highlights
- Corporate Income tax reduced
- Goods and service tax hiked
Source : http://www.mas.gov.sg

22. Corporate Tax comparison – with other countries
Source : http://www.mas.gov.sg

23. Tax rate comparison

24. Effect of Fiscal Policy-GDP growth

25. East Asian Currency Crisis

26. Impact of Asian Currency Crisis
Singapore’s
Exports to
Affected
Countries
falls
Demand in Singapore’s
Affected Exports become
Countries Less
Plummets Asian Currency Competitive
Crisis
Singapore’s Singapore’s
Brokerage Banks were
Firms hurt Hit

27. Impact of Asian Currency Crisis

28. Impact of Asian Currency Crisis

29. Asian Currency Crisis - Singapore’s Response
Monetary Authority of Singapore (MAS) allowed the
SGP Dollar to fall against the US Dollar in line with
the regional currencies
It allowed the SGP Dollar to fluctuate in a flat and
wider target band.
The decision was facilitated by absence of domestic
inflation and necessitated by the desire to remain
competitive.

30. Asian Currency Crisis - Singapore’s Response
The govt. unveiled a S$ 2 billion off budget package in mid 1998.
Package of incentives
Property Tax Rebates
Rental and Utilities Rebates
Speeding up of Development Projects
Deferring stamp duty on uncompleted projects.
Property Prices began stabilizing in the second half of 1998.

31. Researched & Presented by students of SPJCM for educational purpose.