Fitch affirms Singapore at 'AAA'; outlook stable- Additional Statements

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.

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Fitch affirms Singapore at 'AAA'; outlook stable- Additional Statements

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