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Singapore is a wealthy modern cosmopolitan island city-state with a population of 4.45 million. Since independence from Malaysia in 1965, Singapore has transformed into a successful free-market open economy attaining first world developed nation status. Its premiere geographic location has enabled Singapore to be a major shipping centre (merchant marine ships) for Southeast Asia with international trading links. Singapore’s responsible government is encouraging the economy to evolve from an export-based economy towards an entrepreneurial hi-tech ‘information knowledge-based’ economy. Prudent fiscal stewardship resulted by Singapore’s government with a strong policy response to the Asian economic crisis in 1997-98 allowed Singapore to avoid the majority of economic damage that was relatively minimal compared to other regional economies. At present, the majority of Southeast Asian economies are performing relatively well and have rebounded smartly since the 1997-98 regional crash although Singapore is in the midst of challenging times as it has just experienced its worst recession since inception.

POLITICS: Prime Minister Lee Hsieng Loong, former head of the central bank and finance minister took power on August 12, 2004 of the long ruling People’s Action Party (PAP). The political framework is impressive, Singapore is considered to have one of the cleanest, most honest and open governments in the world. This leadership reflects well in their society as Singapore ranks number one in competitiveness and is presently one of Asia’s most wealthiest countries and one of the world’s most prosperous. This is evident as the government is run like a corporation where several ministers earn over $1 million USD/year which reflects in minimal corruption, highly efficient operations and stable economic environment. The government is committed to promoting structural reforms rather than a lower exchange rate to grow the economy.

ECONOMY: known globally as a regional trading & financial centre, highlyadvanced and successful open economy. Singapore is indeed a first class destination to do business as it is home to over 3000 multinational corporations. Buoyant recovery from the 1997 regional currency crisis although the economy fell into recession in year 2001 due to the global IT meltdown but smartly increased spending to counter the recession impact. Real wages are high reflecting in one of the world’s best standard of livings. forecasts steady slow economic growth in the years ahead for Singapore as the economy transforms into more knowledge based industries. Today, the economy is quite sound. The budget is in surplus, no external debt, good net asset position, strong foreign exchange reserves and large capital surpluses.

Major industries for this small island city state consist of electronics manufacturing, banking & financial services, rubber, chemicals, biotechnology, engineering, entrepot trade, oil drilling equipment, etc. Over the medium term, India and China may replace the United States as the leading destination for Singapore exports as both their economies are projected to grow tremendously over the next few years. Ironically, it is the year 2000-01 global IT slump that has had more of an impact on Singapore than the 1997-98 Asian financial currency crisis. Major trading partners include Malaysia, United States, Hong Kong and Japan. The bulk of exports however are destined for the United States although Singapore is actively signing bilateral free-trade agreements with several nations.

Economic Statistics
Total GDP stands at $121 billion USD (2004) with corresponding GDP/capita at $27,800 USD. Real GDP growth during the 1990’s averaged a booming 8 percent up until 1998 when this figure fell to zero. GDP growth rates have year 2005 estimated at 3.9 percent, year 2004 came in at 8.4 percent, 2003 at 1.1 percent, 2002 at 2.2 percent and 2001 contracted by 1.9 percent. Inflation averaged 1.1 percent (1995-01), year 2002 inflation fell 0.4 percent, year 2003 at 0.5 percent, 2004 at 1.7 percent, 2005 projected at 0.7 percent and 2006 is estimated at 1.7 percent. Current account surplus have stayed very large ranging from 16 to 29 percent of GDP from years 2001-04, year 2005 is forecasted at 26 percent Trade surplus came in at $20 billion USD for 2004. Fiscal surplus for 2005 is estimated at 3 percent of GDP, 2004 came in at 6 percent. Public debt is on the higher side at 102 percent of GDP. Unemployment peaked in 2001 at 4.7 percent, year 2004 unemployment at 3.4 percent.

POSITIVE: high savings rate, low interest rates, budget surplus, laws have been implemented to make it easier for foreign firms to participate in domestic banking within Singapore, very little crime, excellent social conditions in terms of health & education. CONCERN: heavy reliance on electronics exports and exports in general, Islamic terrorism threats, net oil & gas importer.

BANKING SYSTEM: the Monetary Authority of Singapore (MAS), the de facto central bank, controls monetary policy through the exchange rate rather than the interest rate. Singapore with its arsenal of $116.3 billion USD equivalent (August 2005) in official reserves to intervene in the currency markets if required. MAS manages using a trade-weighted Singapore dollar within an undislosed bank in relation to movements in the USD and JPY, the Indonesian rupiah is also included in this weighted index. This gives the Singapore dollar flexibility to help absorb shocks as what happened in 1997-98. Reforms since 1997 have increased foreign participation and competition. Singapore’s well managed financial institutions did okay through the 1997-98 Asian currency & banking crash unlike many of its neighbors including Thailand and Indonesia. The overall banking system is very profitable.

REGIONAL ANALYSIS: Terrorism, Malaysia, Indonesia Singapore due to its geographic presence between Muslim Indonesia and Malaysia may indeed get hit by terrorism assaults against Western targets within Singapore. Terrorist attacks in’s view are currently the greatest threat to Singapore’s economy. Another 1997-98 Asian financial crash? Most likely not in the near future, Singapore’s neighbours have restructured and have stronger domestic balance sheets. The political situation in Indonesia is fragmented and thus provides for greater regional instability. The Bali, Indonesia bombing may deter tourists visits to Singapore over the short term.

KNOWLEDGE: the economy is tranforming to knowledge based economies in areas like life sciences, education, semi-conductors (chips) and biotechnology. More recently, a changing of the guard of industries is slowly but clearly taking place. The government is funnelling resources to areas like biotechnology which is a future knowledge growth industry. Other industries like petrochemicals, electronics and low-end light manufacturing industries are migrating to places like China where labor is cheap. Within the Singapore banking industry, large firms are transferring their investment banking operations to nearby Hong Kong. Instead, Singapore will specialize and be a world leader as a major global private banking centre. In next door Malaysia, two notable client defections in the marine shipping business have taken place by leaving Singapore and re-locating to the port of Tanjung Pelepas, Malaysia which opened in 1999. Singapore’s dominance and home to one of the world’s largest ports within the world’s busiest shipping lane of the Straits of Malacca are now realizing greater competition as a transhipment point for goods between Asia and Europe. Singapore is slowly moving toward higher paid knowledge industries whereby wage differentials for lower skilled work will migrate to other regions in Asia. Medical tourism is a new and high wage growth industry for Singapore. The city-state has set a goal of attracting one million foreign patients by year 2012 for its medical services.

ISO symbol ‘SGD’. At time of review on September 22, 2005 the Singapore dollar had an exchange value of 1.678 SGD to 1 US-dollar (USD) and/or 2.051 SGD to the euroland euro (EUR). No foreign exchange controls, the currency follows that of a managed floating exchange rate regime within a trading band against a basket of currencies.

CURRENCY HISTORY: the 1997 Asian financial crisis - Singapore dollar performed much stronger than its neighbors, not as large as impact on the currency exchange valuation. During 1998, the Singapore dollar depreciated by 11.2 percent versus the US-dollar which was one of the smallest currency movements in the region. Throughout the 1990’s, the Singapore dollar has shown stability in comparison to the USD. Historical valuations include: January 1981 at 2.08 SGD to 1 USD, January 1985 at 2.20, January 1988 at 2.02, January 1990 at 1.87, January 1991 at 1.71, year 1993 at 1.61, 1995 at 1.41, January 1997 at 1.40, January 1998 to a then short-term low of 1.75 impacted directly from the regional Asian currency crisis in mid-1997 to early 1998, year 1999 average at 1.69, January 2000 at 1.67, January 2001 at 1.73, November 22, 2002 at 1.76, January 2003 at 1.735, January 2004 at 1.696 and March 2005 at 1.63. By July 10, 2001 with Singapore in the midst of it worst economic recession since independence, the exchange fell to an 11 year low of 1.83 SGD to 1 USD. No history of significant currency crash including 1997-98.

CURRENCY FORECAST: the Singapore dollar is forecasted to modestly appreciate versus the USD and other currencies with year-end 2006 at 1.55 SGD to 1 USD. By using purchasing power parity ‘PPP’, the Singapore dollar is undervalued in relation to the USD with some estimates up to 30 percent. However, it is expected that the SGD will hold relatively steady in relation the euro ‘EUR’. Singapore has massive current account and large reserves that is more than plenty to cover any short-term debt requirement, the surpluses also suggest appreciation is ahead for the SGD against those currencies that it is running a surplus with in order to correct the trade mis-alignment over the long term.

A SGD currency collapse is highly unlikely unless it experiences a major terror strike directly and/or a significant regional currency such as the Japananese yen crashing. However, a drop in the Japanese yen may create regional tension to Asian currencies. For every 10 percent drop in the yen versus the USD, Singapore would have to devalue by 1.5 percent against the USD in order to maintain its stable trade weighted exchange rates. In the long term, Singapore supports the concept of a regional common market for Southeast Asian countries, thus the potential for adopting a regional single currency. More recently, the revaluation of the yuan against the USD will also place appreciation pressures on the SGD and several other Asian currencies. China’s gradual yuan appreciation to the USD will help to further appreciate the SGD. The overall risk factors for Singapore are minimal with the curency outlook being very favorable for the Singapore dollar as the domestic political and economic situation is sound.
UPDATED:September 22, 2005

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