RPT-IMF says Singapore needs to narrow current account surplus

Thu Nov 14, 2013 6:56pm EST

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(Repeats item issued late Thursday, with no change to text)
    * IMF warns of risk from rapid credit growth, high home
prices
    * Stress tests show risks to Singapore banks are manageable

    By Kevin Lim
    SINGAPORE, Nov 14 (Reuters) - Singapore needs to narrow its
huge current account surplus further and the International
Monetary Fund supports the government's plans to raise public
spending on infrastructure and social services, the IMF said on
Thursday.
    "Singapore's external position appears to be stronger than
warranted by fundamentals, suggesting the importance of further
efforts to narrow the current account surplus over the medium
term," the IMF said on Thursday in its annual review of economic
developments and policies in the wealthy Southeast Asian
city-state.
    A few IMF directors even felt Singapore should consider
tightening monetary policy further by letting the local dollar
 rise at a faster pace to aid external rebalancing, the
fund said.    
    The IMF, in a separate report, also said Singapore's
financial regulation and supervision frameworks were among the
best globally, with stress tests indicating its financial
institutions would be able to cope in the event of adverse
developments such as a sharp drop in property prices.
    IMF carries out annual reviews of most member countries. In
the case of systemically important jurisdictions such as
Singapore, the fund also conducts a thorough financial sector
assessment programme once every five years.
    Singapore, unlike many developed economies, enjoys huge
current account surpluses. This is partly due to the government
routinely posting budget surpluses and its success in developing
the city-state's wealth-management industry, which has attracted
large capital inflows.
    Singapore is also Asia's number one foreign exchange trading
centre as well as a key Asian base for commodities traders and
fund managers. 
    The island, which has a population of just 5.4 million
people, enjoyed a current account surplus of $51.4 billion last
year, which was a massive 18.6 percent of gross domestic product
(GDP).       

    CREDIT, REAL ESTATE
    The IMF, however, warned that Singapore needed to be wary of
risks arising from the rapid growth of credit and real estate
prices in recent years, noting the city-state's economy has
become increasingly sensitive to macroeconomic shocks and
interest rate cycles.
    "Significant risks have built up under very low interest
rates, but appear manageable, although confirmation will come
only once the cycle has turned," the IMF said.
    The IMF recommended that Singapore impose a countercyclical
capital buffer on banks as well as step up its monitoring of
banks' credit risks and foreign currency liquidity practices.
    Other suggestions by the IMF include ensuring the
city-state's banking industry "adequately contributes to the
cost of resolving failed banks and further develop recovery
plans for Singapore Exchange ". 
    Singapore has been grappling with higher-than-normal
inflation in recent years as low global interest rates boosted
property prices, even as ongoing measures to make it harder for
firms to bring in cheap foreign workers pushed up the wages of
lower-skilled residents.
    The Monetary Authority of Singapore, the city-state's
central bank, last month warned that core inflation was likely
to accelerate in 2014 as it stuck to its tight monetary policy
stance of allowing a "modest and gradual" appreciation of the
local dollar. 
    The fund forecasts Singapore's core inflation will rise from
1.9 percent this year to 2.8 percent next year, which would make
it the highest since 2008.   
    Core inflation excludes the cost of cars and accommodation
since these are more influenced by government policy.
    Home prices, however, have stabilised this year after a
series of government measures to cool the housing
market. 

    TABLE: SELECTED ECONOMIC AND FINANCIAL INDICATORS
    
                           2010   2011   2012   2013*  2014*
 GDP growth (pct)          14.8    5.2    1.3    3.5    3.5
 CPI inflation              2.8    5.2    4.6    2.5    3.1
 core inflation             1.5    2.2    2.5    1.9    2.8
 government budget          5.4    9.0    8.0    5.8    5.2
 surplus - overall                                     
 balance (pct of GDP)                                  
 current account surplus   26.8   24.6   18.6   18.3   17.5
 (pct of GDP)                                          
 *forecast

 (Editing by Jacqueline Wong)
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