Singapore's fiscal position strong despite lower real returns from GIC, Temasek: Moody's

THE Singapore government's fiscal position remains strong despite lower real returns from its GIC and Temasek Holdings, Moody's Investors Service said on Wednesday.

The credit-rating agency added that the lower returns from the two government-owned investment entities would have a limited impact on the country's fiscal position over the near to medium term.

Moody's conclusion takes into account expectations of a weaker and more volatile performance in the future by GIC (unrated) and Temasek (Aaa stable).

"Singapore will meet its fiscal targets for 2016, based on the conservative nature of the government's fiscal rules - which require it to run a balanced budget over its five-year tenure - and its large stockpile of existing fiscal reserves," Moody's said in a report titled "Government of Singapore: FAQ on the Fiscal Impact of Lower Returns from Government-Owned Investment Entities".

Moody's believes that Singapore has sufficient fiscal buffers to withstand deficits over the near to medium term.

"However, if low real returns were to persist, such results would weigh on budgetary balances, and limit scope for future fiscal stimulus to boost growth. Moody's would view lower returns as credit negative if they resulted in persistent fiscal deficits, the creation of debt, or an erosion of accumulated reserves," it warned.

The agency noted that such developments are not its current baseline expectation and they would mark a departure from Singapore's historical trends.

Moody's pointed out that, while long-term expected real returns from GIC and Temasek, as well as Singapore's central bank, were important sources of revenue to the government's annual budget, any fall in contributions would be gradual.

"While growth in Singapore, as in many advanced economies, is slowing, the country's strong institutional, fiscal and external buffers provide significant credit support. In particular, strict rules governing the draw on past reserves from GIC and Temasek suggest that the buffers will most likely be preserved," Moody's said.