Moody’s affirms Singapore’s triple-A rating

SINGAPORE — Moody’s Investors Service has affirmed Singapore’s Aaa rating and maintained a stable outlook for the city-state, saying that while risks to the global economic outlook and prospects for global trade continue to be tilted to the downside, the Republic has enough buffers to manage the challenges.

However, it also warned that, although unlikely, the rating could come under pressure should there be evidence that Singapore is unable to manage the transition to structurally lower economic growth, leading to a deterioration in its economic or fiscal strength when compared to its Aaa-rated peers.

The report pointed out that Singapore faces challenges from two sides: Domestic and external. “Singapore is exposed to the prolonged slowdown in global trade ... 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,” it said.

Nevertheless, Singapore has significant economic, fiscal, and financial buffers that are in line with and often surpass those of other Aaa-rated countries, allowing it to manage ongoing cyclical and structural challenges, Moody’s said. Singapore has also established a strong track record of maintaining broad macroeconomic and financial stability on account of vigilant monetary policy and regulatory supervision, it added. 

“Although faced with a challenging operating environment, the weighted average standalone credit assessment for Singaporean banks remains the highest among Aaa-rated countries ... Policy effectiveness has also been demonstrated by the government’s ability to contain a housing price boom in the wake of the global financial crisis,” it said. 

The rating and outlook are premised on authorities’ ability to adapt policies such as to mitigate the negative impact of a sustained slowdown in global trade and unfavourable demographics and limit the country’s vulnerability to external demand and financial shocks, and to avoid sustained damage to fiscal fundamentals.

Moody’s said Singapore’s rating could come under downward pressure if the country’s economic strength or fiscal strength deteriorates relative to its Aaa-rated peers. 

“Such a scenario could result from an erosion of Singapore’s currently ample macroeconomic buffers or if the government’s balance sheet weakened materially due to a shift in fiscal policy or the realisation of significant contingent liabilities. While events or trends that jeopardise Singapore’s status as an international financial centre are unlikely in our view, if they occurred they would be credit negative,” Moody’s said.