Moody's sees structural strength in Singapore amid restructuring, weak trade

MOODY'S on Thursday kept Singapore's Aaa rating and maintained a stable outlook for the country, noting that the country's structural strengths offset near-term cyclical risks and provide some cushion to meet challenges.

The ratings agency pointed out that Singapore is undergoing restructuring amid a prolonged slowdown in global trade.

"Risks to the global economic outlook and prospects for global trade continue to be tilted to the downside," Moody's said in a report.

"At the same time, Singapore faces structural challenges faced by other high-income economies in an ageing population, compounded by the continued restriction on foreign worker inflows as the government continues to pursue its drive to transition the country to a higher-productivity, knowledge-based economy."

But Moody's said that while economic growth has likely stepped down on a sustained basis and is converging towards the median held by Aaa-rated countries, the slower growth also reflects the ongoing maturation of an economy that already has the highest gross domestic product (GDP) per capita in the Asia-Pacific.

"Singapore's fiscal buffers have not been affected by the downturn in growth and continue to be more robust than those of other Aaa-rated peers. These buffers include ongoing budget surpluses that contribute to growing fiscal reserves, which in turn further enhance the government's financial position," Moody's said.

While Singapore is a highly open economy - and therefore exposed to global financial shocks - its current account surplus is the highest among Aaa-rated countries, at around 20 per cent of GDP. This, said Moody's, reflected both Singapore's high level of saving and the income generated from its large overseas assets. "The current account surplus provides an ample buffer against capital flow volatility."

And even as household debt has risen by more than nine percentage points to around 75 per cent of GDP in 2015, household assets are six times the size of its liabilities, providing a substantial buffer against rising interest rates and the ongoing softening in residential real estate prices, Moody's said.