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Dec 3 (Reuters) – (The following statement was released by the rating agency)
Fitch Ratings has affirmed Singapore’s Long-Term
Foreign- and Local-Currency IDRs at ‘AAA’. The issue ratings on Singapore’s
senior unsecured foreign- and local-currency bonds are also affirmed at ‘AAA’.
The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed
at ‘AAA’ and the Short-Term Foreign-Currency IDR at ‘F1+’.
KEY RATING DRIVERS
The affirmation of Singapore’s IDRs with Stable Outlook reflects the following
key rating drivers:
-The Singapore sovereign has an exceptionally strong balance sheet. Its reported
net financial assets were worth 61% of GDP at end-March 2012 (latest available).
Fitch estimates the sovereign’s net foreign asset position was worth 93% of GDP
at end-2012, the seventh strongest ratio among rated sovereigns. Not all assets
are disclosed and the balance sheet is likely to be stronger.
-Singapore’s gross general government debt stock was 110% of GDP at end-2012, of
which about 66% of GDP took the form of non-marketable securities issued to the
fully-funded state pension system. Excluding this, gross government debt was 44%
of GDP. However, the Singapore sovereign does not issue debt for fiscal
financing purposes. Constitutional restrictions on running a deficit over a term
of government underpin fiscal discipline. Singapore drew down fiscal reserves
(“past reserves”) for the first and only time to date in 2009; the amount
(SGD4bn) was repaid in 2011, although there was no legal or constitutional
requirement to do so.
-The external finances are also exceptionally strong. Fitch projects the economy
will be a net external creditor to the tune of 100% of GDP at end-2013. The net
international asset position is projected at 243% of GDP. Singapore had a
current account surplus of 17.4% of GDP in the year to September 2013. It has
been in surplus since 1988, underpinned by a domestic savings rate that averaged
48% over 1988-2012.
-Singapore’s wealthy, high value-added and flexible economy supports the
ratings. Fitch projects the Singaporean economy’s growth rate to average 4.6%
over 2009-2013 against a median for ‘AAA’ peers of 0.9%. Average incomes at
purchasing power parity are USD61,100 against a ‘AAA’ median USD43,300. The
economy is more volatile than high-grade peers, but the economy’s wealth and the
sovereign’s balance-sheet strengths provide substantial buffers against this.
-Singapore’s banking system is strong, although private-sector indebtedness is
rising. The asset-weighted average of the standalone Viability Ratings of banks
in the system is ‘aa’, one of only three systems at this high level (with none
at ‘aaa’). Credit to the Singaporean private sector rose 14.8% in the year to
September 2013. The stock remains moderate compared with high-income peers (136%
of GDP projected end-2013 against 153% for the ‘AAA’ median). However, it is
rising after staying closer to 100% of GDP over 2002-2011.
-Singapore has strong public institutions and the world’s most favourable
business climate, according to the Ease of Doing Business survey. However,
Singapore’s public finances are less transparent than most of its high-rated
peers. In particular, the assets of GIC Private Limited, the sovereign wealth
fund, are not fully disclosed, but have been described by the government as “at
least USD100bn” (about 34% of 2013 GDP). Furthermore, the country scores below
the median for the ‘AAA’ range on “voice and accountability” under the World
Bank’s framework of governance indicators.
-The government aims to overhaul Singapore’s growth model to reduce dependence
on low-cost imported labour and raise productivity. Fitch believes this will be
challenging given the economy’s already advanced and highly productive level.
Concern over population growth and potential overcrowding is a charged political
issue. Pressure to curb population growth without a strengthened productivity
performance could ultimately lead to slower trend economic growth.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch’s assessment that the downside risks to the
‘AAA’ rating are currently not material. Nonetheless, the following risk factors
could result in negative rating action:
-Sustained rapid credit growth that eventually increases Singaporean
private-sector leverage to a level significantly above rating peers.
-A negative regional economic shock sufficient to force the sovereign to draw
down past reserves. By implication this would have to be more severe than the
global shock of 2008-2009.
KEY ASSUMPTIONS
The ratings and Outlooks are subject to a number of assumptions as follows:
-A continuation of the strong social and political consensus behind Singapore’s
model of a business-friendly environment and disciplined macroeconomic policies.
-Fitch assumes Singapore does not experience systemic financial instability on a
scale sufficient to lead to a draw-down of past reserves to support the
financial system, or to cause significant disruption to the real economy.
RPT-Fitch affirms Singapore at "AAA"; outlook stable
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