Singapore: Staff Report for 2015 Article IV Consultation

International Monetary Fund
Free sample

Outlook and risks. As Singapore prepares to celebrate its 50th anniversary in August, its economy continues to perform well. Despite the slow pace of the global recovery and a gradual decline in domestic credit growth and housing prices, projected economic growth of about 2.9 percent in 2015 is consistent with full employment and price stability. Growth is projected to slow down in the medium term, consistent with reduced reliance on foreign workers and rapid population aging. The authorities’ new growth model takes into account Singapore’s physical resource limits and aims to boost labor and land productivity. Risks to the baseline are tilted to the downside: Singapore’s highly open economy is exposed to external shocks, most notably slower global growth and the side effects from volatility in global financial markets. Domestic vulnerabilities, including elevated private indebtedness, can amplify the impact of external shocks. Policies. In January, in response to a decline in expected inflation and a more uncertain outlook for growth, the Monetary Authority of Singapore (MAS) reduced the pace of appreciation of the nominal effective exchange rate (NEER) band. The more benign near?to medium-term inflation outlook warrants the relative easing of monetary policy. The monetary policy framework is robust and flexible but rising domestic leverage and heightened global interest rate and exchange rate volatility warrant heightened vigilance in assessing the balance of forces between the various channels of monetary policy. Singapore continues to maintain high regulatory and supervisory standards. Recent macroprudential measures have contributed to smoothing the cycle for credit and house prices. The budget’s focus on boosting productivity, equality of opportunity, and inclusiveness is laudable, while the fiscal impulse is opportune given cyclical conditions. Restructuring and population aging. Building on Singapore’s success and faced with high income inequality and the physical limits of a city state, the authorities have re-engineered the country’s growth model to boost productivity while reducing reliance on foreign workers. The restructuring entails lower steady state growth and a shift in the functional distribution of income toward labor. Incentives provided for firms to increase productivity-enhancing investments and for Singaporeans to upgrade their skills should help ensure a successful transition. But slower potential growth and a lower share of profits in income could affect those investments, and gains in productivity could be realized only slowly. Flexibility in the application of foreign worker policies and continued review of incentives are warranted. The authorities are recalibrating fiscal policies with associated inter?and intra- generational impacts in order to proactively deal with Singapore’s rapid population aging, enhance inclusiveness and reduce inequality, while remaining true to the principles of individual responsibility and sound public finances.
Read more
Loading...

Additional Information

Publisher
International Monetary Fund
Read more
Published on
Jul 24, 2015
Read more
Pages
87
Read more
ISBN
9781513537412
Read more
Read more
Best For
Read more
Language
English
Read more
Genres
Business & Economics / International / Economics
Business & Economics / Money & Monetary Policy
Political Science / Public Policy / Economic Policy
Read more
Content Protection
This content is DRM protected.
Read more

Reading information

Smartphones and Tablets

Install the Google Play Books app for Android and iPad/iPhone. It syncs automatically with your account and allows you to read online or offline wherever you are.

Laptops and Computers

You can read books purchased on Google Play using your computer's web browser.

eReaders and other devices

To read on e-ink devices like the Sony eReader or Barnes & Noble Nook, you'll need to download a file and transfer it to your device. Please follow the detailed Help center instructions to transfer the files to supported eReaders.
In 1971, President Nixon imposed national price controls and took the United States off the gold standard, an extreme measure intended to end an ongoing currency war that had destroyed faith in the U.S. dollar. Today we are engaged in a new currency war, and this time the consequences will be far worse than those that confronted Nixon.

 

Currency wars are one of the most destructive and feared outcomes in international economics. At best, they offer the sorry spectacle of countries' stealing growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession, retaliation, and sometimes actual violence. Left unchecked, the next currency war could lead to a crisis worse than the panic of 2008.

Currency wars have happened before-twice in the last century alone-and they always end badly. Time and again, paper currencies have collapsed, assets have been frozen, gold has been confiscated, and capital controls have been imposed. And the next crash is overdue. Recent headlines about the debasement of the dollar, bailouts in Greece and Ireland, and Chinese currency manipulation are all indicators of the growing conflict.

As James Rickards argues in Currency Wars, this is more than just a concern for economists and investors. The United States is facing serious threats to its national security, from clandestine gold purchases by China to the hidden agendas of sovereign wealth funds. Greater than any single threat is the very real danger of the collapse of the dollar itself.

Baffling to many observers is the rank failure of economists to foresee or prevent the economic catastrophes of recent years. Not only have their theories failed to prevent calamity, they are making the currency wars worse. The U. S. Federal Reserve has engaged in the greatest gamble in the history of finance, a sustained effort to stimulate the economy by printing money on a trillion-dollar scale. Its solutions present hidden new dangers while resolving none of the current dilemmas.

While the outcome of the new currency war is not yet certain, some version of the worst-case scenario is almost inevitable if U.S. and world economic leaders fail to learn from the mistakes of their predecessors. Rickards untangles the web of failed paradigms, wishful thinking, and arrogance driving current public policy and points the way toward a more informed and effective course of action.




From the Hardcover edition.
KEY ISSUES Abenomics has lifted Japan out of the doldrums and needs to be reinforced to accomplish the desired “once in a lifetime” economic regime shift. Building on initial positive results, policies now need to embark on a sustained effort to meet the unprecedented challenges Japan is facing: ending an entrenched deflationary mindset, raising growth, restoring fiscal and debt sustainability, and maintaining financial stability in the face of adverse demographics. Japan should be at the vanguard of structural reform. More vigorous efforts to raise labor supply and deregulate domestic markets, backed by further endeavors to raise wages and investment and designed to boost confidence and raise domestic demand, will be essential to lift growth, facilitate fiscal consolidation, and unburden monetary policy. A credible medium-term fiscal consolidation plan is needed to remove uncertainty about the direction of policies that may be holding back domestic demand. The overarching goal should be to put debt on a downward path, through gradual but steady consolidation that does not derail growth and inflation momentum. It should be based on prudent economic assumptions and on concrete structural revenue and expenditure measures identified upfront. More explicit monetary guidance would enhance inflation dynamics. Actual and expected inflation remain well below the Bank of Japan’s (BoJ’s) inflation target and monetary policy transmission remains weak. The BoJ needs to stand ready to undertake further easing and should provide stronger guidance to markets through enhanced communication. Absent deeper structural reforms, even with further easing, reaching two- percent inflation in a stable manner is likely to take longer than envisaged, suggesting that the BoJ should put greater emphasis on achieving the inflation target in a stable manner rather than within a specific time frame. The financial sector should be a greater catalyst for growth, and guard against risks from unconventional policies. The soundness of the financial system allows more risk taking and consolidation, while remaining resilient to the likely higher volatility of asset prices, exchange rates and interest rates, and lower liquidity in the JGB market as quantitative easing proceeds. While the 2014 external position was assessed to be broadly aligned with fundamentals, subsequent developments and incomplete policies raise the risk of negative spillovers. With the depreciation of the yen relative to its mid-2014 level, further monetary easing without bolder structural reforms and a credible medium-term fiscal consolidation plan could lead to sluggish domestic demand and overreliance on yen depreciation to pursue domestic policy objectives.
©2018 GoogleSite Terms of ServicePrivacyDevelopersArtistsAbout Google|Location: United StatesLanguage: English (United States)
By purchasing this item, you are transacting with Google Payments and agreeing to the Google Payments Terms of Service and Privacy Notice.