Fitch Affirms Singapore at 'AAA'; Outlook Stable

Fitch Ratings has affirmed Singapore's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AAA'. The debt issue ratings on Singapore's senior unsecured local-currency bonds are also affirmed at 'AAA'. The Outlooks on Singapore's Long-Term IDRs are Stable. The Country Ceiling is affirmed at 'AAA' and the Short-Term Foreign Currency IDR at 'F1+'.

KEY RATING DRIVERS

Singapore's of 'AAA' ratings reflect the following key rating drivers:

- One of Singapore's key credit strengths is the sovereign's exceptionally strong balance sheet, which provides the authorities with significant headroom to implement counter-cyclical policies in the event of a shock. Fitch estimates the sovereign's net foreign assets at end-2013 amounted to 91.7% of GDP, which is well over the median of 7.4% for 'AAA'-rated peers.

- Fitch estimates consolidated gross general government debt (GGGD), excluding debt held by the state pension fund, was 42.5% of GDP at end-2013, which is slightly below the 'AAA' median. However, in contrast to most other 'AAA' peers, Singapore has no fiscal financing needs and the debt is partly issued to develop the domestic bond market. Net GGD is -1.4%, implying a net creditor position, far superior to the 'AAA' median of 40% of GDP, while GGGD is wholly denominated in the local currency.

- The Government of Singapore Investment Corporation says it manages "over USD100bn" of sovereign financial assets. However, Fitch believes the figure is likely to be significantly higher than this. Fitch bases its credit assessment on publicly disclosed information, which is sufficient to support the ratings at 'AAA'.

- Fiscal discipline is another credit positive for Singapore and is underpinned by a constitutional mandate that prevents the government from running fiscal deficits during its term. Presidential approval is needed to use the country's "past reserves" (fiscal reserves accumulated during terms of previous governments). The general government fiscal surplus averaged 15.9 % of GDP annually over 2010-2014.

- Exceptionally strong current account surpluses, averaging more than 20% of GDP over the last decade, have generated a large positive net international investment position (IIP) equivalent to 190% of GDP at end-2013. Although Fitch estimates a slightly weaker current account surplus over the near- to medium-term, due to less favourable external conditions, an appreciating Singapore dollar and reduced savings because of an ageing population, it is still expected to remain strong. Fitch forecasts the current account surplus to narrow slightly to 16.5% in 2015 and 16.3% in 2016 from an estimated 17% in 2014.

- Singapore's favourable business operating environment is underpinned by respect for rule of law, strong public institutions and a supportive tax regime, which makes the country one of the preferred investment destinations in the world. Singapore is ranked as the most favourable destination for doing business in the World Bank's latest Ease of Doing Business report.

- Rising income inequality, foreign labour participation and population growth remain important political issues. The authorities aim to maintain economic growth in the face of an ageing population and a slower rate of population growth through structural reforms to raise productivity. However, weaker population growth without a strengthened productivity performance could ultimately lead to slower trend economic growth. Political stability remains underpinned by continued strong support for the ruling People's Action Party.

- As a small, open economy, Singapore inevitably experiences greater macroeconomic volatility than its 'AAA' peers. However, the strength of Singapore's sovereign and external balance sheets and the flexibility of its economy mitigate risks associated with this.

RATING SENSITIVITIES

The Stable Outlook reflects Fitch's assessment that downside risks to the 'AAA' ratings are not material. Nonetheless, the following risk factors could result in negative rating action:

- A severe regional or global economic shock sufficient to force the sovereign to draw down past reserves on a scale that impairs the sovereign's balance sheet strength. By implication this would have to be more severe than the global shock of 2008-2009

- Sustained rapid credit growth that eventually increases Singaporean private-sector leverage to a level significantly above rated peers and leads to reduced resilience to macroeconomic volatility.

- A severe banking system crisis could have a major spill-over into the economy because of the large size of the banking sector. By implication this would have to be more severe than the global shock of 2008-2009.

KEY ASSUMPTIONS

- Fitch assumes that Singaporean authorities will continue to demonstrate sound economic policy management and political consensus will remain behind the present business-friendly growth model.

- Fitch assumes the continuation of a broadly open global economic environment conducive to cross-border trade and investment activity from which Singapore strongly benefits.

- Fitch assumes regional geopolitical tensions remain contained at a level that does not have lasting repercussions for economic or financial activity.

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Fitch Affirms Singapore at 'AAA'; Outlook Stable

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