Economy and Trade
The island republic of Singapore, which is linked to the southern tip of Malaysia by a causeway, is one of the world’s most prosperous and technologically advanced cities. Although 77% of the population is Chinese, English is widely spoken, and is the language of business and administration in the former British colony. The economy has weathered various regional crises, including the 1997 Asian markets slump and the 2003 SARS virus outbreak. An open, highly developed, trade-driven economy, Singapore is very much geared toward the global economic cycle. Exports in 2010 amounted to some US$351 billion, with Hong Kong, Malaysia, Indonesia, China, South Korea, and Japan ranking as Singapore’s main export markets. The list is significant since it shows the ever-growing importance of intra-Asian trade to the major Asian economies.
Major industries include petroleum refining, electronics, oil-drilling equipment, rubber products, processed food and beverages, ship repair, financial services, and pharmaceutical manufacturing. The country is seeking to reduce its reliance on the manufacture and export of electronics by developing its services sector, as well as its chemical, petrochemical, and biotechnology industries. The People’s Action Party has ruled the country since independence in 1959.
Economic Policy over 12 Months
Vigilant to the threat that the looming global economic slowdown posed to the trade-based Singapore economy, the government brought forward the 2009 budget to January and announced a series of major economic support measures to help get Singapore through the global crisis. The government’s US$13.3 billion stimulus package, announced in January 2009, amounted to some 6% of GDP. The package focused on job preservation, a corporate income tax cut, loans to small and medium-sized businesses, and spending on infrastructure. The support package also subsidized jobs and guaranteed bank loans.
The package subsidized 12% of the first S$500 of every employee’s monthly pay, while also guaranteeing the first 80% of private bank loans of up to S$1 million. The leap in spending stretched the country’s 2009 fiscal deficit to a record and was partly funded by a S$0.9 billion drawdown of the country’s reserves. In August 2009 the Prime Minister suggested that no “new prescription” was needed on top of the existing stimulus package, though in December 2009 the government announced a one-year extension of financing schemes for small businesses, albeit on slightly revised terms to take account of the improved economic backdrop. In 2009, the government’s enhanced financing scheme catalyzed loans with a total value of S$8 billion for around 13,000 companies, more than 90% of which were SMEs.
The Singapore central bank sets policy only twice each year. Rather than setting interest rates, the central bank manages its currency in trade-weighted bands against a basket of others. Having eased policy in April 2009, effectively through currency devaluation, the central bank assumed a more neutral stance in October 2009 by adopting a policy of zero appreciation for the currency. However, noting in April 2010 that the economy had recovered strongly in the first quarter—growing by an unprecedented 32% from the previous quarter on a seasonally adjusted and annualized basis—the central bank aggressively tightened monetary policy by effectively revaluing the Singapore dollar. The bank also switched policy with the objective of a modest and gradual appreciation of the currency.
Economic Performance over 12 Months
Prior to the 2008–09 downturn, Singapore had enjoyed strong economic growth, expanding by 7.6% and 7.7% in 2006 and 2007, respectively. However, growth slumped in 2008, reflecting the impact of the global economic slowdown on this very open and trade-dependent country. Thus, the economy expanded by just 1.1% over the course of the year, and, by the end of the year was shrinking rapidly—GDP contracted by 4.2% in the fourth quarter. All major sectors, except for construction, business services, and information and communications, saw contractions, according to the Ministry of Trade and Industry, with the downturn extending well into 2009. However, the economy ended the year much as it had begun it, with no further major contraction. The economy bounced back in 2010, recording an astounding 14.5% growth as Singapore demonstrated its ability to recover faster than most other economies.
In presenting the Singapore Budget for 2011, Tharman Shanmugaratnam, the Minister for Finance, said that unemployment had returned to pre-crisis levels and cited the IMF’s view that Singapore had recovered fully from the crisis by the second quarter of 2010. By way of contrast, he pointed out that the major economies of the United States, the eurozone, and Japan remain challenged and are likely to take at least another four years to get back to their potential output levels.
With the rebound essentially complete, growth in 2011 would be more restrained and the chief challenge will be dealing with the build-up of inflationary pressures in emerging Asian economies in general, and in Singapore in particular. “Further spikes in commodity prices could lower economic growth in Asia if governments are forced to tighten domestic policies to control inflation,” he warned. The government anticipates growth in 2011 coming in at between 4% and 6%, which would still be above the anticipated trend growth of 3% to 5% for Singapore over the next 10 years. The rebound in 2010 attracted high levels of investment and according to Shanmugaratnam, will create up to 21,300 new skilled jobs once the projects involved come to fruition.
Support for Inward Investment and Imports
The government is keen to attract foreign investment and, with the exception of restrictions in financial services, professional services, and the media, Singapore maintains a predominantly open investment regime. The World Bank report, “Doing business 2009,” ranked Singapore as the easiest country in the world in which to do business. A government body, the Economic Development Board of Singapore (EDB), acts as a one-stop agency for those interested in investing in the country.
Singapore is generally a free port and an open economy, and more than 99% of all imports enter the country duty-free. Information on importing goods into Singapore can be found on the website of the Singapore Customs Service.
Singapore has a range of incentives to help businesses establish and expand their operations in the country. For example, it provides full or partial exemption on withholding tax for royalty payments, or technical assistance fees payable to nonresidents. This includes royalties, fees, and contributions to R&D costs paid for the transfer of technology and knowledge to Singapore. For more information on all the incentives offered by the government, see the guide published by the EDB.
For detailed information on the tax regime in Singapore, see the website of the Inland Revenue Authority of Singapore.
GDP growth: 4% (official, 2011 est.)
GDP per capita: US$62,100 (2010 est.)
CPI: 2.8% (2010 est.)
Key interest rate: n/a
Exchange rate versus US dollar: S$1.3702 (2010)
Unemployment: 2.1% (2010 est.)
FDI: US$274.6 billion (2010 est.)
Current account surplus: US$44 billion (2010 est.)
Population: 4,740,737 (July 2011 est.)
Source: CIA World Factbook except where stated