SCHOOL OF

BUSINESS
MANAGEMENT

Decoding Singapore’s Economic Success: A

Group 5
Saurabh Bakre HRA001
Yashaswini Motwani HRA004
Eashna Jain HRA005
Hunar Ahuja HRA006

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Introduction

Singapore is one of the very rare countries who made a leap from Third World poverty to a

developed world affluence completely and very quickly. In the 1960s, Singapore was known

for its opium dens, gang-ridden streets, fetid slums and racial tensions. Now it is known for

its high-tech industries, comfortable lifestyle and high-speed Internet penetration.

Development in Singapore began with sweatshops that produced garments and shoes and

light assembly plants that produced toys and cheap electronics. Singapore initially invested a

lot in public health and witnessed the growth of GNPs, family size shrink and lifespan

lengthen.

Singapore achieved its initial economic success because of the island’s location, harbour and

a free port status. Initially, Singapore served as a centre for trade and transhipment, but later

goods like rubber and tin from Malay Peninsula were being imported to Singapore. The

country also became the regional centre for distribution of European manufactured goods.

Industrialization brought the maximum economic progress for Singapore. Singapore attracts

foreign direct investment resulted in a large share of Singaporean manufacturing being

foreign owned and a high degree of export-led growth. Further we will be looking in depth of

the growth in the economy of Singapore.

Objective

Our objective is to understand the movements of fundamental macroeconomic variables of

the economy of Singapore during the last one decade and also identify the reason behind its

growth and movement of the macroeconomic variables.

● Understanding macroeconomic variables like GDP, Public expenditure, Taxes, BOP,

Consumption, Investment, Inflation etc.

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 ● To see the movement and growth of it in the past 10 years

● Understanding and analysing the importance of Singapore’s economy in accordance

to the whole world.

Economic development and growth are influenced by four factors: human resources, physical

capital, natural resources and technology. Highly developed countries have governments that

focus on these areas. Hence, Singapore being one of the developed countries, it is important

to understand and analyse it and also giving valid reasons to why we selected this economy.

Analysis of Macroeconomic scenario in the economy of Singapore during the years

between 2008 and 2020 (till two quarters)

Various parameters of macroeconomic scenario of an economy are- gross domestic product

(GDP), Inflation rate, unemployment rate, Interest rates and balance of payments. The trend

of these parameters for the years 2008 to early 2020 of Singapore was as follows:

1) Gross Domestic Product (GDP): In the decade, before the global financial crisis of 2008,

the GDP of Singapore grew at 6.0% on average but this growth dipped to 1.87% in 2008. In

fact, Singapore was the first Asian nation to experience the effects of US financial crisis as it

is a financial services hub. In 2009, the dip in economic growth continued and the growth rate

declined to 0.12%. However, the steps taken by government of Singapore in 2009 started

bearing fruits from last quarter of FY-2009-2010 and in next financial year the growth rate

jumped rapidly to 14.53%. Some amount of this high growth rate was also because of

favourable base effect of past year. In year 2011, the growth rate stabilised and the economy

grew by 6.34%. The growth rate dipped by about two percentage points and remained

comparatively at same rate for year 2012, 2013 at 4.46% and 4.84% respectively. The growth

rate further declined to 3.94% in 2014 and then to 2.99% in 2015. This dip was mainly due to

external headwinds arising from a moderation in regional growth, continued slowdown in oil

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 exploration activities and softer global demand for electronics. This trend continued in year

2016 but a slight improvement in growth rate was achieved as the economy grew by 3.24%.

In year 2017, the demand for electronics products in world increased which helped the

economy of Singapore to grow at 4.34%. The growth rate of Singapore got reduced to 3.44%

in 2018 and then to only 0.73% in 2019. This slowdown in economic growth was mainly due

to trade tensions between USA and China and the decision to exist EU by UK affected the

financial, transportation and electronics manufacturing sectors of the country. The outbreak

of the pandemic further affected the growth rate of Singapore and its economic growth

further contracted by 13.3% in first quarter due to cessation of economic activities in

government impose lockdown. However, the economy improved a bit in second quarter and

the contraction of 5.8% was observed.

2) Inflation Rate: The inflation rate of the economy of Singapore was 6.5% in 2008 but it

dropped to 0.6% in 2009. This was mainly due to improvement in global oil prices,

moderation of global food prices and the ‘resilience package’ which was offered by the

government to curb the negative effects of 2008 financial crisis. The inflation rate jumped to

2.82% in 2010. This increase was mainly due to strong underlying domestic demand and

large capital inflows. These factors continued into next year and the inflation rate jumped to

5.25% in 2011. The continuous increase in inflation forced the central bank to follow tight

monetary policy. Due to measures taken by it the inflation got controlled and it reduced to

4.58% in 2012 to 2.36% in 2013. It further reduced to 1.03% in 2014. The inflation rate fell

to -0.52% and -0.53% in 2015 and 2016 respectively. The reasons for this were very low oil

prices, lacklustre economic growth and soft housing rental market. These scenarios forced the

central bank of Singapore to follow expansionary monetary policy due to which the inflation

rate became positive and clocked 0.58%, 0.44%, 0.57%in 2017, 2018, 2019 respectively. Till

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 the second quarter of 2020 the inflation rate was -0.17% due to the effects of pandemic and

resulting slowdown in the economy.

3) Unemployment rate: The unemployment rate in 2008 was 3.96% but it shot up to 5.86% due

to the effect of 2008 financial crisis. There was steep loss in employment in the well-

developed financial sector of the country. To overcome this situation the government of

Singapore launched various schemes and a special resilient package. As a result, the

unemployment rate slowly reduced to 4.12%, 3.89% and 3.72% in 2010, 2011 and 2012

respectively. Good demand for electronic goods, recovery in the financial sector further

helped the country to maintain comparatively constant unemployment rates of 3.86&, 3.74%,

3.89% for 2013, 2014, 2015, respectively. The US-China trade tensions impacted the

manufacturing and service sector of Singapore resulting in an increasing unemployment rate

to 4.08% and 4.20% in 2016 and 2017 respectively. Due to continuation of these factors the

unemployment remained mostly constant at 4.02% and 4.11% in 2018 and 2019 respectively.

In 2020, due to the pandemic, the unemployment rate increased to 4.38% (till the second

quarter). This rate is, however, lower as compared to other East Asian economies.

4) Real Interest Rates: The interest rate in 2008 was 6.86%. Due to the great recession of 2008,

there was potential fear of slowing the economy, therefore the central bank took action and

the interest fell to 2.35% in 2009. It was increased to 4.23% in 2010 as a result of

intervention of the central bank as the monetary authority wanted to keep inflation in control.

In subsequent years the interest rate was almost constant at 4.28% and 4.89% in 2011 and

2012, respectively. To keep inflation in control, the interest rate was slightly kept at a higher

level of 5.86% and 5.63% in 2013 and 2014 respectively. In subsequent years, the interest

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 rate was kept lowered to further boost the economy which was the world trend. The value of

the same for years 2015 to 2019 was 3.2% on average.

5) Balance of Payments: Singapore has mostly enjoyed a favourable balance of payment due to

its favourable location. Even during the harsh years of 2008 and 2009 it remained favourable

for the country and it clocked overall $18.5 and $16.5 billion USD. However, there was a

continuous decline of balance of payment was observed from year 2012 to 2016 during which

it declined from $32.6 to -$2.5 billion USD. This was mainly due to slowdown in electronic

products demand and overall slowdown in global trade resulting in decrease in exports. The

on-going trade war between US and China has led to reduction in demand of smartphones

and personal computers which form the main item of exports of the country whereas the price

of refined and crude petroleum which are its main items of imports have increased. These

combining factors led to further decrease in balance of payment of Singapore and it further

reached to one of the lowest levels of -$11.4 billion USD in 2019.

Macroeconomic Policies in Singapore’s economy

acts as a more effective tool for maintaining price stability in the Small and Open Singapore

Economy. It is relatively controllable through direct interventions in the foreign exchange

markets and bears a stable and predictable relationship with the price stability. The Monetary

Authority of Singapore (MAS) guides the exchange rate to appreciate or depreciate

depending on the expected inflationary pressures are strong or weak respectively. Through

direct sales or purchases of the US dollar in the foreign exchange market, the MAS

implements its exchange rate policy. The Money Market Operations serve to offset short-

term fluctuations in banking liquidity. The Money Market Tools include foreign exchange

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swaps, inter-banking lending/ borrowing, and sales/ purchases or repurchase agreements in

government securities.

2) Fiscal Policy (https://www.mof.gov.sg/policies/fiscal)

The Fiscal policy of Singapore is very prudent as it complements the monetary policy in

promoting sustained economic growth without inflation. Over the term of the Government,

the Fiscal rules require a balanced budget. Prudent expenditure programs and fair tax policies

are the key reasons for Singapore’s successful Fiscal Policy. Three key objectives are

supported by Singapore’s Fiscal Policy viz.

i) Ensure Fiscal Sustainability

A sound and sustainable fiscal system enables Singapore to plan for a long term in advance.

Its aim is to run balanced budgets over the long term and at the same time they ensure that

there are sufficient resources to meet society’s needs.

Public spending is focused on public goods and infrastructure which enables people and

businesses to thrive and grow. The investment is also directed towards building skills,

education and infrastructure to develop people and lay the foundations for ensuring economic

growth over a long term. An increasing amount of public spending is also channelled towards

social spending. The social spending has almost doubled from $ 17 Billion in FY2010, to $

31 Billion in FY2019. Today, the largest part of the Annual Government Expenditure is made

by the Social Spending. A large part of this Social spending has gone towards the healthcare

sector for which, the spending has almost tripled over the last decade.

A strong long-term orientation is what characterizes the Fiscal Policy in Singapore. This

helps in planning ahead of time for challenges such as ageing and climate change.

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Their plan is to cater to several spending priorities like health and aged care, pre school

education and SkillsFuture, strengthening social security systems, renewing city

infrastructure and protection against new security threats.

Singapore plans to maintain a light fiscal burden on taxpayers even though they ensure

sufficient public spending to meet their society’s and economy’s changing demands.

Singapore’s Government expenditure as a share of GDP is the lowest across advanced

economies.

Singapore focuses on ensuring the quality rather than increasing the volume of spending.

Despite low levels of spending as a percentage of GDP, in areas such as education, health,

policing, they have consistently achieved outcomes near the top internationally.

A small country with no natural resources like Singapore relies on its financial strength to

respond effectively to crisis. The country has been prudent and disciplined in building up its

reserves. These reserves have helped Singapore to deal with unexpected shocks like COVID-

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19 outbreak. Without borrowing heavily and avoiding the passing of financial burdens to the

future generations these reserves have helped Singapore to deal with the crisis. The Net

Investment Returns Contribution (NIRC) forms the largest single component of Government

Revenues. About 2% of the GDP is paid in debt servicing of accumulated debt by the

advanced countries. To pay of the debts, these countries collect taxes. But in Singapore, it is

not the case. Singapore has grown a steady stream of returns from investments of reserves for

current spending which helps to keep their taxes low.

ii) Support Growth

Macroeconomic stability and the conditions that are conducive for growth are provided

by the sound and sustainable fiscal policies. Singapore devotes a large part of its budget

to development and investment. About 25% of its budget is devoted to the development

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 expenditure. The Government also invests strongly to give innovation and digitalization

push, grow its base of innovative enterprises and pursue new frontiers of growth.

Investment has been made in order to do research in areas of health and biomedical

sciences, climate change and artificial intelligence. Through good strategies, all

Singaporeans have been able to enjoy fruits of progress.

The growth that Singapore has experienced is higher than that of many advanced

economies is evident from the above chart. The Fiscal policy of Singapore encourages

collective responsibility at all levels of the society. Its aim is to support, enable and

amplify the efforts, ideas and initiatives of the business and people sectors and to build a

better Singapore together.

iii) Promote Equity

A progressive fiscal system that fosters social mobility and uplifts the vulnerable in the

society is sought by Singapore. The work related to it has been constantly in progress.

Singapore has its system of taxes and transfers which is highly progressive which enables

all classes of people to receive more benefits than the taxes they pay.

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The country has also strengthened the support for low wage workers, vulnerable seniors and

houses that have greater caregiving burdens through programs like Workforce and Silver

Support. People who grow up in lower income families in Singapore have a better chance of

moving up the ladder as compared to those in most advanced countries.

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