Fitch affirms Singapore at 'AAA'; Stable Outlook
(The following statement was released by the rating agency) Fitch Ratings has affirmed Singapore's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AAA'. The Outlooks on the ratings are Stable. The agency has also affirmed the Country Ceiling at 'AAA' and the Short-Term Foreign-Currency IDR at 'F1+'. Key Rating Drivers The affirmation of Singapore's sovereign ratings reflects the following factors: -The 'AAA' ratings are underpinned by Singapore's strong sovereign balance sheet that serves to insulate the small and open economy from external shocks. Sustained fiscal surpluses have enabled the accumulation of fiscal reserves of at least 61.3% of GDP at end-March 2012. Singapore also possesses large external buffers with official international reserves reaching USD259.3bn, equivalent to 5.4 months of current external payments and 65.2% of broad money supply, at end-2012. -External finances are a rating strength. The sovereign's large current account surplus has been a main driver for sustained accumulation of foreign-exchange reserves. The country is one of the largest net external creditors (in sovereign, bank and non-bank sectors) among 'AAA' peers. Its net international investment position (NIIP) reached 276% of GDP in 2011, the highest among 'AAA' sovereigns. -Singapore has a solid track record of fiscal prudence. The country's fiscal framework is underpinned by the government's commitment to balance its budget over the course of a term. There is limited disclosure on the balance sheet of the government's sovereign wealth funds, but the ratings rest solely on publicly available information, which understate the sovereign's fiscal strength. In the long run, age-related spending is projected to increase due to ageing demographics, but this is currently not a rating driver. -Singapore's ratings are supported by strong economic performance, which is underpinned by an attractive investment environment, a low tax regime and high-quality public institutions. These factors have contributed to large inflows of foreign direct investment (FDI) and helped create a high-income economy. However, as a small open economy, Singapore's economic growth is more volatile than the 'AAA' range median and is more exposed to global economic cycles. Nevertheless, Singapore has a demonstrated capacity to weather economic volatility, helped by its fiscal flexibility. -High loss-absorption buffers and a prudent regulatory backdrop underpin the strength of Singapore's banking system. Domestic banks maintain solid asset quality and are well-capitalised, with a non-performing loan ratio of 1.2% and core Tier 1 capital adequacy ratio (CAR) of 12%-13% at end-2012. Risks related to a potential build-up of a property bubble, spurred by prolonged negative real interest rates and optimistic prospects for Asia, led the authorities to introduce a seventh round of property cooling measures in January 2013. These measures, together with banks' strong standalone strength and healthy household balance sheets, mitigate downside risks for the domestic banking sector. The system may face more risks from growing exposure to high-growth markets such as China, India and Indonesia, but this is not a material risk in the near term. -There are growing public concerns over the influx of foreign labour, inflation and growing income inequality. The political landscape has prompted the government to fine-tune its economic model and to focus on redistribution as seen in more re-distributive recent budgets. However, Fitch does not expect social and political pressure to force changes of policy on a scale that would impair Singapore's sovereign credit strengths. Rating Sensitivities The Stable Outlook reflects Fitch's assessment that Singapore's 'AAA' rating has solid fundamental underpinnings. The main factors that could lead to a negative rating action, individually or collectively, are: -severe instability in the banking system, given the banking sector's large size in the economy -a marked erosion of the social consensus behind Singapore's economic model, or heightened social discontent resulting in significant shifts in policy Key Assumptions -An international environment that remains conducive to global trade and investment flows, which has underpinned the economic success of the small open economy for decades. Fitch further assumes Singapore's policy orientation will remain outward and geared towards attracting investment into the country. -A continued high level of political stability and highly attractive business environment. -Maintenance of robust external and public finances which would play a key role in cushioning Singapore from negative effects from a severe global economic downturn or financial shocks.
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