I N D E X

1)

Introduction......2

2)

Economic History....4

3)

Sectors....10

4)

Trade, Investments and Aid...15

5)

Singapore Workforce.................17

6)

Employment and Poverty..19

7)

Public Finance...20

8)

Monetary& Fiscal Policy..................22

9)

Balance of Payment...30

10)

International Relations...34

11)

Economic Story of Singapore....39

12)

Current Scenario....44

13)

Conclusion.....49

14)

Bibliography......................................................51

INTRODUCTION

Singapore, officially the Republic of Singapore, is a sovereign citystate and island country in Southeast Asia. It lies off the southern tip of the Malay
Peninsula and is 137 kilometers (85 miles) north of the equator. The country's
territory consists of the lozenge-shaped main island, commonly referred to as
Singapore Island in English and PulauUjong in Malay, and more than 60
significantly smaller islets.Singapore is separated from Peninsular Malaysia by the
Straits of Johor to the north, and from Indonesia's Riau Islands by the Singapore
Strait to the south. The country is highly urbanized, and little of the original
vegetation remains. The country's territory has consistently expanded through land
reclamation.
Singapore is one of the world's major commercial hubs, with the
fourth-biggest financial centre and one of the five busiest ports. Its globalised and
diversified economy depends heavily on trade, especially manufacturing, which
represented 26 percent of Singapore's GDP in 2005. In terms of purchasing power
parity, Singapore has the third-highest per capita income in the world but one of
the world's highest income inequalities. It places highly in international rankings
with regard to education, healthcare, and economic competitiveness. Just over five
million people live in Singapore, of which approximately two million are foreignborn. While Singapore is diverse, ethnic Asians predominate: 75 percent of the
population is Chinese, with significant minorities of Malays, Indians, and
Eurasians. There are four official languages, English, Malay, Mandarin, and Tamil,
and the country promotes multiculturalism through a range of official policies.

Singapore is a unitary multiparty parliamentary republic, with a

Westminster system of unicameral parliamentary government. The People's Action
Party has won every election since self-government began in 1959. The dominance
of the PAP, coupled with a low level of press freedom and suppressed civil
liberties and political rights, has led to Singapore being classified as a semiauthoritarian regime. One of the five founding members of the Association of
South East Asian Nations (ASEAN), Singapore is also the host of the AsiaPacific Economic Cooperation (APEC) Secretariat, and a member of the East
Asia Summit, the Non-Aligned Movement, and the Commonwealth. Singapore's
rapid development has given it significant influence in global affairs, leading some
analysts to identify it as a middle power.

ECONOMIC HISTORY
I Pre-Independence Economy

Before independence in 1965, Singapore was the capital of the British

Straits Settlements, a Crown Colony. It was also the main British naval base in
East Asia. Because it was the main British naval base in the region and held the
Singapore Naval Base, the largest dry dock of its time, Singapore was commonly
described in the press as the 'Gibraltar of the East'. The opening of the Suez Canal
in 1869 caused a major increase in trade between Europe and Asia, helping
Singapore become a major world trade center, and turning the Port of Singapore
into one of the largest and busiest ports in the world. Prior to 1965, Singapore had
a GDP per capita of $511, then the third-highest in East Asia. After independence,
the combination of foreign direct investment and a state-led drive for
industrialization, based on plans by GohKengSwee and Albert Winsemius, started
the expansion of the country's economy.

II Post-IndependenceEconomy

Upon independence from Malaysia in 1965, Singapore faced a small

domestic market, and high levels of unemployment and poverty. 70 percent of
Singapore's households lived in badly overcrowded conditions, and a third of its
people squatted in slums on the city fringes. Unemployment averaged 14 percent,
GDP per capita was US$516, and half of the population was illiterate.
4

In response, the Singapore government established the Economic

Development Board to spearhead an investment drive, and make Singapore an
attractive destination for foreign investment. FDI inflows increased greatly over
the following decades, and by 2001 foreign companies accounted for 75% of
manufactured output and 85% of manufactured exports. Meanwhile, Singapore's
savings and investment rates rose among the highest levels in the world, while
household consumption and wage shares of GDP fell among the lowest. As a result
of this investment drive, Singapore's capital stock increased 33 times by 1992, a
tenfold increase in the capital-labor ratio. Living standards steadily rose, with more
families moving from a lower-income status to middle-income security with
increased household incomes. During a National Day Rally speech in 1987, Lee
Kuan-Yew claimed that (based on the home ownership criterion) 80% of
Singaporeans could now be considered to be members of the middle-class.
However, much unlike the economic policies of Greece and the rest of Europe,
Singapore followed a policy of individualizing the social safety net. This led to
higher than average savings rate and a very sustainable economy on the long run.
Without a burdensome welfare state or its likeliness, Singapore has developed a
very self-reliant and skilled workforce well versed for a global economy.
Singapore's economic strategy produced real growth averaging 8.0%
from 1960 to 1999. The economy picked up in 1999 after the regional financial
crisis, with a growth rate of 5.4%, followed by 9.9% for 2000. However, the
economic slowdown in the United States, Japan and the European Union, as well
as the worldwide electronics slump, had reduced the estimated economic growth in
2001 to a negative 2.0%.
The economy expanded by 2.2% the following year and by 1.1% in
2003 when Singapore was affected by the SARS outbreak. Subsequently, a major
5

turnaround occurred in 2004 allowed it to make a significant recovery of 8.3%

growth in Singapore, although the actual growth fell short of the target growth for
the year more than half with only 2.5%. In 2005, economic growth was 6.4%; and
in 2006, 7.9%.

III Modern Day Economy

Since 2004, Singapore's annual real GDP growth has averaged 7.9%
and GDP per capita increased from US$26,198 to US$35,163 in 2007,
underpinned by sound macroeconomic policies. Inflation has beenlow for the most
part, averaging 1.3% annually; inflationary pressures, however, have risen since
the second half of 2007, reflecting both domestic cost pressures and rising
international prices, with the inflation rate hitting over 6% by early 2008. In res
ponse, the Monetary Authority of Singapore (MAS) tightened its monetary
policy, allowing a significant appreciation of the Singapore currency in order to
curb the cost of imported food and energy. Unemployment fell from 3.4% in 2004
to2.1% in 2007, reflecting broad-based employment generation. National saving
continued to exceed domestic investment by an average of 21% of GDP during the
period under review, and the counterparts of the excess saving, which has been
invested abroad, are persistently large current account surpluses. Singapore's
official reserves reached nearly US$163 billion in 2007,equivalent to about six
months of imports of goods and services.

As of 8 June 2013, Singapore's unemployment rate is around 1.9%

and the country's economy has a lowered growth rate, with a rate of 1.8% on a
quarter-by-quarter basiscompared to 14.8% in 2010.
The Port of Singapore is one of the worlds five busiest, with the
skyline of Singapore in the background. Today, Singapore has a highly developed
market economy, based historically on extended entrept trade. Along with Hong
Kong, South Korea, and Taiwan, Singapore is one of the original Four Asian
Tigers.
The Singaporean economy is known as one of the freest, most
innovative, most competitive, and most business-friendly. The 2013 Index of
Economic Freedom ranks Singapore as the second freest economy in the world,
behind Hong Kong. According to the Corruption Perceptions Index, Singapore is
consistently ranked as one of the least corrupt countries in the world, along with
New Zealand and the Scandinavian countries.
Singapore is the 14th largest exporter and the 15th largest importer in
the world. The country has the highest trade-to-GDP ratio in the world at 407.9
percent, signifying the importance of trade to its economy. The country is currently
the only Asian country to receive AAA credit ratings from all three major credit
rating agencies: Standard & Poor's, Moody's, and Fitch.
Singapore attracts a large amount of foreign investment as a result of
its location, corruption-free environment, skilled workforce, low tax rates and
advanced infrastructure. There are more than 7,000 multinational corporations
from the United States, Japan, and Europe in Singapore. There are also
approximately 1,500 companies from China and a similar number from India.
Foreign firms are found in almost all sectors of the country's economy.
7

Singapore is also the second-largest foreign investor in India. Roughly

44 percent of the Singaporean workforce is made up of non-Singaporeans. Over
ten free-trade agreements have been signed with other countries and regions.
Despite market freedom, Singapore's government operations have a significant
stake in the economy, contributing 22% of the GDP.
Singapore also possesses the world's eleventh largest foreign reserves,
and has one of the highest net international investment positions per capita. The
currency of Singapore is the Singapore dollar, issued by the Monetary Authority of
Singapore. It is interchangeable with the Brunei dollar.
In recent years, the country has been identified as an increasingly
popular tax haven for the wealthy due to the low tax rate on personal income and
tax exemptions on foreign-based income and capital gains. Australian millionaire
retailer Brett Blundy, with an estimated personal wealth worth AU$835 million,
and multi-billionaire Facebook co-founder Eduardo Saverin are two examples of
wealthy individuals who have settled in Singapore (Blundy in 2013 and Saverin in
2012). Singapore ranked fifth on the Tax Justice Network's 2013 Financial Secrecy
Index of the world's top tax havens, scoring narrowly ahead of the United States.
Singapore is a world leader in several economic areas: The country is
the world's fourth leading financial centre, the world's second largest casino
gambling market, one of the world's top three oil-refining centers, the world's
largest oil-rig producer, and a major hub for ship repair services. The port is one of
the five busiest ports in the world. The World Bank has named Singapore as the
easiest place in the world to do business, and ranks Singapore the world's top
logistics hub. It is also the world's fourth largest foreign-exchange trading centre
after London, New York City and Tokyo.
8

IVEconomic Trends

This is a chart of trend of gross domestic product of Singapore at

market prices estimated by the International Monetary Fund.

Gross Domestic
Year
Product
($ millions)

2005

194,360

2007

224,412

2008

235,632

2009

268,900

2010

309,400

2011

270,020

2013

US Dollar
Exchange

1.64 Singapore
Dollars
1.42 Singapore
Dollars
1.37 Singapore
Dollars
1.50 Singapore
Dollars
1.32 Singapore
Dollars
1.29 Singapore
Dollars
1.25 Singapore
Dollars

PPP per
Nominal per
capita GDP
capita GDP
(as % of
(as % of USA)
USA)
67.54

103.03

74.61

107.92

73.71

107.27

78.53

108.33

82.13

119.54

SECTORS

I Overview

1960 - Share of GDP

Manufacturing
11%
Others
28%

Commerce
33%

Construction
3%

Transport&
Communication
14%

Financial
Services
4%

Business
Services
7%

10

2005 - Share of GDP

Others
16%
Construction
4%
Manufacturing
27%

Transport&
Communication
12%

Financial
Services
11%

Commerce
17%
Business
Services
13%

11

II Manufacturing Sector

Manufacturing sector is one of the key growth drivers of Singapores

economy, accounting for more than a quarter of Singapores Gross Domestic
Product (GDP) and more than half of our exports. Its share of GDP has grown
from 11% in 1960 to 27% in 2005. Total output in the manufacturing sector grew
by about 7.7% per annum in the past 15 years. The performance of the
manufacturing sector showed a rising trend during this period except 1998 and
2001. The contraction of manufacturing output in 1998 was largely due to the
shutdown of firms during the economic crisis, whereas the downturn in 2001 was
attributed to sluggish global demand, particularly in electronics products. Output of
the major manufacturing clusters also demonstrated a general upward trend over
the past 15 years. Specifically in 2005, growths were recorded in the clusters of
biomedical manufacturing (20%), chemicals (12%), transport engineering (9%),
electronics (8%), precision engineering (6%), and general manufacturing industries
(1%). Overall, the manufacturing sector registered an increase of 13% in output in
2005.
Singapores manufacturing evolved over the past 40 years from a
labour-intensive to a researchand knowledgebased sector. With manufacturing
moving up the value chain, complemented by robust supporting industries, the
sector is expected to continue its growth trend in the next decade.

Investments in manufacturing have been exceptionally strong in

recent years. The manufacturing sector attracted S$16.1 billion of investment
commitments in 2007, nearly twice the S$8.3 billion committed in 2004. These
were mainly in the chemicals and electronics clusters. The stock of direct
12

Investment abroad by Singapore-based companies rose from S$197 billion in 2005

to S$210 billion in 2006.

III Trading Sector

Singapore is the 14th largest exporter and the 15th largest importer in
theworld. Historically, international trade has strongly influenced the economy.
According to the WTO, Singapore has the highest trade to GDP ratio in the world
at 407.9 percent. Due to its geostrategic location and developed port facilities, a
large volume of Singapore's merchandise exports involve entrept trade with 47
percent of exports consisting of re-exports.As a strong advocate of free trade,
Singapore has relatively few trade barriers. Trade partners with Most Favored
Nation (MFN) have zero tariff rates applied to their products apart from six lines
for alcoholic beverages. There is however some import restrictions based mainly
on environmental, health, and public security concerns.

Due to its relatively small domestic market, Singaporestrade policy is

often aligned with that of external agencies. In the international arena, Singapores
principal priority lies with the WTO and the Doha Development Agenda.
Singapores Import and Export Indicators and Statistics at a Glance
(2010) : 1. Total value of exports: US$351.2 billion - machinery and
equipment

(including

electronics),

consumer

goods,

pharmaceuticals and other chemicals, mineral fuels

13

2. Total value of imports: US$310.4 billion - machinery and

equipment, mineral fuels, chemicals, foodstuffs, consumer goods

IV. Tourism

Tourism in Singapore is a major industry and contributor to the

Singaporean economy, attracting 13,171,303 tourists in 2011, over twice
Singapore's total population. It is also environmentally friendly, and maintains
natural and heritage conservation programs.Tourism also forms a large part of the
economy, and 10.2 million tourists visited the country in 2007. Tourism receipts
were estimated to reach S$18.8 billion in 2010, a growth of 49% compared to
2009.

14

TRADE, INVESTMENT & AID

Singapore's total trade in 2000 amounted to S$373 billion, an increase
of 21% from 1999. Despite its small size, Singapore is currently the fifteenthlargest trading partner of the United States. In 2000, Singapore's imports totaled
$135 billion, and exports totaled $138 billion. Malaysia was Singapore's main
import source, as well as its largest export market, absorbing 18% of Singapore's
exports, with the United States close behind.
Re-exports accounted for 43% of Singapore's total sales to other
countries in 2000. Singapore's principal exports are petroleum products,
food/beverages,

chemicals,

textile/garments,

electronic

components,

telecommunication apparatus, and transport equipment. Singapore's main imports

are aircraft, crude oil and petroleum products, electronic components, radio and
television receivers/parts, motor vehicles, chemicals, food/beverages, iron/steel,
and textile yarns/fabrics.
Trade in Singapore has benefited from the extensive network of trade
agreements Singapore has passed. According to Healy Consultants, Singapore has
free trade access to the entirety of the ASEAN network, with import duty reduced
when dealing with Indonesia, Malaysia, the Philippines, Thailand, Brunei, Burma,
Cambodia, Laos and Vietnam.
The Singapore Economic Development Board (EDB) continues to
attract investment funds on a large-scale for the country despite the city's relatively

15

high-cost operating environment. The US leads in foreign investment, accounting

for 40% of new commitments to the manufacturing sector in 2000. As of 1999,
cumulative investment for manufacturing and services by American companies in
Singapore reached approximately $20 billion (total assets). The bulk of US
investment is in electronics manufacturing, oil refining and storage, and the
chemical industry. More than 1,500 US firms operate in Singapore.
Singapore's largely corruption-free government, skilled workforce,
and advanced and efficient infrastructure have attracted investments from more
than 3,000 multinational corporations (MNCs) from the United States, Japan, and
Europe. Foreign firms are found in almost all sectors of the economy. MNCs
account for more than two-thirds of manufacturing output and direct export sales,
although certain services sectors remain dominated by government-linked
corporations.
The government also has encouraged firms to invest outside
Singapore, with the country's total direct investments abroad reaching $39 billion
by the end of 1998. The People's Republic of China was the top destination,
accounting for 14% of total overseas investments, followed by Malaysia (10%),
Hong Kong (8.9%), Indonesia (8.0%) and US (4.0%). The rapidly growing
economy of India, especially the high technology sector, is becoming an expanding
source of foreign investment for Singapore. The United States provides no bilateral
aid to Singapore, but the US appears keen to improve bilateral trade and signed the
US-Singapore Free Trade Agreement. Singapore corporate tax is 17 per cent.

16

SINGAPORE WORKFORCE
In 2000, Singapore had a workforce of about 2.2 million. The country
has the largest proficiency of English language speakers in Asia, making it an
attractive place for multinational corporations. The National Trades Union
Congress (NTUC), the sole trade union federation which has a symbiotic
relationship with the ruling party, comprises almost 99% of total organized labour.
Government policy and pro-activity rather than labour legislation controls general
labour and trade union matters.
The Employment Act offers little protection to white-collar workers
due to an income threshold. The Industrial Arbitration Court handles labourmanagement disputes that cannot be resolved informally through the Ministry of
Manpower. The Singapore Government has stressed the importance of cooperation between unions, management and government (tripartism), as well as the
early resolution of disputes. There has been only one strike in the past 15 years.
Singapore has enjoyed virtually full employment for long periods of
time. Amid an economic slump, the unemployment rate rose to 4.0% by the end of
2001, from 2.4% early in the year. Unemployment has since declined and as of
2012 the unemployment rate stands at 1.9%.
In 2000, there were about 600,000 foreign workers in Singapore,
constituting 27% of the total work force. As a result, wages are relatively
suppressed or do not rise for all workers. To have some controls, the government
imposes a foreign worker levy payable by employers for low end workers like
domestic help and construction workers. In 2012, the Ministry of Trade and
17

Industry (MTI) reported that Singapore should continue to fine-tune the calibration
of its inflow of foreigners as the country continues to face an ageing population
and a shrinking workforce. Singapore Parliament accepted the recommendations
by its Economic Strategies Committee (ESC) for the optimal ratio of the level of
immigration and foreign manpower for both high and low skilled workers. The
Government recognizes that the current overall foreign workforce should
complement the local resident workforce and not replace the Singaporean Core
concept, and helps companies greatly as they raise productivity through business
restructuring and workforce retraining; raise resident labor force participation rate.

18

EMPLOYMENT & POVERTY

Singapore has the world's highest percentage of millionaires, with one

out of every six households having at least one million US dollars in disposable
wealth (excluding property, businesses, and luxury goods, which if included would
increase the number of millionaires, as property in Singapore is among the worlds
most expensive). Singapore does not have a minimum wage, believing that it
would lower its competitiveness. It also has one of the highest income inequality
levels among developed countries, coming in just behind Hong Kong and in front
of the United States.
Acute poverty is rare in Singapore. The government has rejected the
idea of a generous welfare system, stating that each generation must earn and save
enough for its entire life cycle. There are, however, numerous means-tested
assistance programs provided by the Ministry of Community Development, Youth
and Sports. Some of the programs include providing between SGD 400 to SGD
1000 per month to needy households, free medical care at government hospitals,
money for children's school fees, rental of studio apartments and training grants for
courses.

19

PUBLIC FINANCE
Government spending in Singapore has risen since the start of the
global financial crisis, from around 15% of GDP in 2008 to 17% in 2012. The
government's total expenditure as a percentage of GDP ranks among the lowest
internationally and allows for a competitive tax regime. The government has no
foreign debt and consistent budget surpluses. Singapore government debt is issued
for investment purposes, and not for fiscal needs.
Personal income taxes in Singapore range from 0% to 20% for
incomes above S$320,000. There are no capital gains or inheritance taxes in
Singapore. Singapore's corporate tax rate is 17% with exemptions and incentives
for smaller businesses. Singapore has a single-tier corporate income tax system,
which means there is no double-taxation for shareholders.
Singapore introduced Goods and Services Tax (GST) with an initial
rate of 3% on 1 April 1994, increasing government's revenue by S$1.6 billion
(US$1b, 800m) and establishing government finances. The taxable GST was
increased to 4% in 2003, to 5% in 2004, and to 7% in 2007.
The Singapore government owns two investment companies, GIC
Private Limited and Temasek Holdings, which manage Singapore's reserves. Both
operate as commercial investment holding companies independently of the
Singapore government, but Prime Minister Lee HsienLoong and his wife Ho Ching
serve as chairman and CEO of these corporations respectively. While GIC invests
abroad, Temasek holds 31% of its portfolio in Singapore, holding majority stakes
in several of the nation's largest companies, such as Singapore Airlines, SingTel,
20

ST Engineering and MediaCorp. As of 2014, Temasek holds S$69 billion of assets

in Singapore, accounting for 7% of the total capitalization of Singapore-listed
companies.
In 2012, an economics professor, Dr.(PhD) Christopher Balding,
based in China began scrutinizing and criticizing the Government of Singapore
Investment Corporation and Temasek Holdings on its alleged accounting and
auditing of public finances.
In April 2013, the country was recognized as an increasingly popular
tax haven for the wealthy due to the low tax rate on personal income, a full tax
exemption on income that is generated outside of Singapore and 69 double taxation
treaties that can minimize both withholding tax and capital gains tax.

21

MONETARY POLICY
The Monetary Authority of Singapore is Singapore's central bank and
financial regulatory authority. It administers the various statutes pertaining to
money, banking, insurance, securities and the financial sector in general, as well as
currency issuance. The MAS has been given powers to act as a banker to and
financial agent of the Government. It has also been entrusted to promote monetary
stability, and credit and exchange policies conducive to the growth of the
economy.
Unlike many other central banks such as Federal Reserve System or
Bank of England, MAS does not regulate the monetary system via interest rates to
influence the liquidity in the system. Instead, it chooses to do it via the foreign
exchange mechanism. It does so by intervening in the SGD market.
Singapore is among the top ten most sophisticated financial markets in
the world. Over the years, MAS liberalized its rules and regulations on the
financial market enabling it to capture an increasing proportion of worlds financial
transactions. Except for prudent regulation of the banking and financial system and
money market operations for maintaining liquidity in the financial systemthe MAS
does not engage in controlling the interest rates or the money supply. The main
monetary policy instrument that the MAS use is the exchange rateto control
imported inflation.

Interest rates in Singapore closely follow the US rates and the money
supply fluctuates in response to demand. With the tightening of the US monetary
policy in 2006 the 3-month US$ SIBOR rose steadily to reach 5.36% by the end of
22

the year. The domestic 3-month interbank rate followed this trend closely and
settled to 3.44% by the end of the year. The longer term interest rates also followed
a similar trend; the benchmark 10-year Singapore Government Securities (SGS)
rate settled to 3.04 by the end of 2006. The retail interest rates, on the other hand,
remained very stable with the average prime lending rate at 5.33% and the deposit
rates below 1%. With 1% price inflation, the real interest rates on deposits were
negative.

Singapore maintains diplomatic relations with 186 countries although

it does not maintain a high commission or embassy in many of those countries. It is
a member of the United Nations, the Commonwealth, ASEAN and the NonAligned Movement.
Due to obvious geographical reasons, relations with Malaysia and
Indonesia are most important. Historical baggage, including the traumatic
separation from Malaysia, and Konfrontasi with Indonesia, have caused a siege
mentality of sorts. Singapore enjoys good relations with the United Kingdom
which shares ties in the Five Power Defense Arrangements (FPDA) along with
Malaysia, Australia and New Zealand. Good relations are also maintained with the
United States; the US is perceived as a stabilizing force in the region to
counterbalance the regional powers.

23

FISCAL POLICY
The pivotal role the public sector has played in Singapores
transformation is well acknowledged. Despite such heavy involvements, based on
the philosophy of fiscal prudence, the Singapore Government has kept both
government revenue and expenditure at relatively low levels (around 15% of GDP)
and yet generated healthy and persistent budget surpluses. On the revenue side,
however, the Government has adopted an unconventional accounting method by
excluding two items, receipts from the sale of land and capital goods and the net
investment income generated by investing government reserves. Only up to 50% of
the latter is included in the budget. If these items are taken into account, the actual
budget surplus would bemuch larger than the reported one.Although the reported
surplus has varied from2 to 8 percent of GDP over 1990-2005 the adjusted surplus
remained positive and varied from 3 to 19 percent of GDP. These surpluses have
yielded a robust fiscal position for Singapore with total public assets standing at
$437 billion by the end of March 2005.

I. Tax Policy
In general, the fiscal measures have been pro-business. The corporate
tax rate has come down steadily from 40% prior to 1986 to 20% in 2005. Faced
with competitive pressures from economies like Hong Kong where the corporate
tax rate as of 2007 was 17.5% and other emerging economies with even lower
rates, the Singapore Government announced a further reduction of its corporate tax
rate to 18% to be effective from the fiscal year 2008. Business firms also receive
24

many other incentives such as investment tax credits, accelerated depreciation

allowances and firm specific benefits that would reduce their tax burden
substantially.

The Government also reduced the personal marginal income tax rate
steadily over the years to enhance work effort. The highest marginal income tax
rate in 1980 was 55% for assessed income exceeding S$600,000. In 2007 this was
20% for assessed income exceeding S$320,000. The income-share weighted
average marginal income tax rate has come down from about 10% in 1980 to about
6% by 2007. Effectively, an average Singapore worker pays very little income tax
compared to the OECD counterparts. Obviously this blurs the picture since there
are many other tax and non-tax charges including the goods and services tax (GST)
that would add up to a much higher effective tax rate. Moreover, Singapore does
not have a social welfare network similar to that of many OECD countries and
only recently has the Government come to address this issue openly.

Corporate income tax constituted the largest revenue item in 2006

accounting for 27.5% of the total revenue followedby personal income tax
with15.6% and GST with 13.0%. The remaining 43.8% was generated from other
tax and non-tax charges. On the personal income tax side, there are rebates and
deductions, the largest deduction being the CPF contributions. Moreover, only
about a third of the labor force pays income taxes. Therefore, to offset the
reduction in income tax revenue resulting from reduced corporate and personal
income tax rates the Governmenthas been raising the GST from time to time. The
GST was introduced in April 1994 and the initial rate was 3%. Then it went up to
4% and 5%. In July 2007 the GST rate went up from 5% to 7%. Eventually the
GST may come to prominence as a major source of government revenue.
25

Among other revenue items, two are somewhat unique to Singapore.

One is the foreign worker levy that the Government uses to regulate the inflow of
low-skilled foreign workers and thereby the market wage rate. The employer has to
pay the levy to the government when they employ low-skilled workers. The other
revenue item is motor vehicle taxes that the Government uses to regulate the
vehicle population in Singapore.

II Expenditure Policy

On the expenditure side government consumption expenditure

constitute about 10% of GDP and investment expenditure about 4%, most of which
goes to infrastructure developments. Given the high savings and import leakages
the multiplier effect of government expenditure in Singapore is extremely low.
Nevertheless the Government uses infrastructure spending and off-budget
packages as counter-cyclical measures. Obviously infrastructure spending entails
more long-run beneficial effects that are not easily measured.

Among the key expenditure items in Singapore lies defense

expenditure. In 2006 defense expenditure accounted for 33% ofthe total
expenditure (thesingle largest expenditure item) and about 5% of GDP. Although
some quarters in Singapore consider such high spending on defense as a waste the
Governments position is that it is a premium that needs to be paid to sustain
Singapores progress; security cannot be taken for granted. What was
conspicuously absent in Singapore budget accounts was (welfare) transfers. The
Singapore Government has been averse toa welfare state from the beginning. The
26

Government considers that welfare paymentsnot only drain fiscalresources but also
erode work ethics and create an entitlement mentality. The basic philosophy of the
Government has been to provide equal opportunity for every individual to enhance
his/her human capital and become self-reliant. Individual welfare is left to
himself/herself and to the family and the community. Government subsidies are
designed essentially along this line. Public education is almost free upto the
university level. Public housing is provided at highly subsidized rates. Healthcare
is basically a co-pay system but it is also subsidized for low income groups;
subsidies in public hospitals range from 80% in class C wards to 20% in class B1
wards. Beyond thisthere has hardly been any social welfare until recently.

III Central Provident Fund & Social Security

With the exception of a state-funded pension scheme for some civil
servants, the mandatory savings in the CPF is the only formal social security
scheme that Singapore has in place at present. The CPF is essentially a retirement
fund that can be withdrawn, subject to maintaining a minimum sum, by members
upon reaching age 55 or at death or on permanent disability or on leaving
Singapore. The contribution rate was at a peak prior to 1986 at 50%; 25% from the
employer and 25% from the employee. With changing economic circumstance the
Government varied these rates and in 2006 the employers rate was 13% and the
employees rate was 20%. The Government raised the employers rate to 14.5% in
July 2007 and implemented a tired system for low income workers to allow them
to take a larger take-home pay.

27

For healthcare financing the Government in 1984 added on a

compulsory Medisave account which draws a pre-specified percentage from CPF
contributions. The account has a minimum sum and a ceiling that have variedover
time. The Government later added on two other features for healthcare financing,
Medishield (a low cost insurance scheme for catastrophic illnesses) and a
Medifund (a health endowment fund for the poor). Together these are known as the
3M system. The Medishield is implemented on an opt-out basis. For higher income
groups the Government introduced a Medishield Plus scheme on an opt-in basis.
For the elderly who may need long-term care the Government introduced an
Eldershiled scheme. By and large healthcare in Singapore is a private
responsibility. The Government claims that it incorporates the best features of the
American insurance model and the UK taxation model.

The CPF now consists of three accounts, ordinary, special, and

medisave. The special account is meant for retirement and as mentioned above the
medisave account is for medical expenses. Over the years the Government
liberalized the usage of the CPF funds in the ordinary account for other purposes
such as for house mortgages and some approved investments. The adequacy, rather
the non-adequacy, of CPF for retirement and healthcare is a hotly debated topic in
Singapore. Some have argued that the CPF is a mortgage finance scheme and not a
pension scheme. The money locked-up in an illiquid house is not available for
retirement and the discretionary savings among low income groups are virtually
zero.

To help the low income Singaporeans who are mostly older workers
the Government in 2006 introduced, instead of welfare, a workfare bonus
scheme. Instead of an unemployment allowance an individual receives the
28

workfare allowance only if he/she makes an earning. In the 2007 Budget the
Government expanded the workfare scheme under the Workfare Income
Supplement (WIS) program and introduced it more as a permanent feature. These
transfers (somewhat similar to the US earned income tax credit scheme) depend on
age, income level and whether or not the recipient had an employment at least for
three months withinthe six month period prior to the claim. Again to save more for
retirement most of the workfare transfers are made to the individuals CPF
account; the Government in 2007 set the cash to CPF ratio at 1:2.5. Although the
WIS was a welcome move, settingaside too much in the CPF was seen as not
much help for the poor who are struggling with their daily subsistence. The
Governments stand on this is to set aside more funds to help these people upgrade
their skills and improve their earning capacity. At present, there are some
proposals that are being discussed to address old-age social security and healthcare
in Singapore.

29

BALANCE OF PAYMENT
The balance of payments (BOP) is the statistical record of economic
transactions between domestic residents (households, firms and governments) and
foreigners. There are two sides to these external accounts namely the current
account balance (CAB) and the capital and financial account balance (KAB).

I. Current Account Balance

Singapore experienced persistent current account deficits from 1965

to 1984, averaging 10% ofGNI, financed by large capital flows mainly in the form
of foreign direct investment. The large deficits over the two decades were not a
cause of concern for policymakers, as they represented the burgeoning investment
needs of an industrializing economy and were financed through long-term equity
inflows.Since 1988, however, the current account has recorded surpluses, which
averaged 12% of GNI in the pre-crisis period of 1988-1997. Since 1998, the size of
the current account surpluses has risen to an average of 21% of GNI.

II. Capital & Financial Account Balance

The overall capital and financial account balance (KAB) in Singapore
comprises the capital account balance and the financial account balance. The
former consists of capital transfers (which include migrants'transfers, debt
forgiveness, etc.) and the acquisition and disposal of non-produced and non30

financial assets (e.g. patents and copyrights). The capital account balance has
consistently recorded a small negative balance, and its contribution to the overall
KAB has been relatively small in Singapore (averaging 0.2% of GDP since 1993).
The KAB has therefore beendominated by flows fromthe financial account.
Comprising the financial account is the direct investment account, portfolio
investment account, as well as "other investment" account, which represents
financial flows intermediated through the banking system (e.g. trade credit, loans
and advances, currency and deposits).

As noted earlier, the excess of national saving over investment in

Singapore has allowed more resources to be deployed overseas to acquire foreign
assets. The government has been investing public sector surpluses abroad, and has
also encouraged private entities to develop an external wing overseas, i.e. longterm investment abroad which will over time generate a steady source of foreign
incomefor the country. This strategy has been reflected in a shift of Singapores
financial account position from a surplus to a deficit since 1993. The net export of
capital has been dominated by huge outflows of portfolio investment, particularly
net purchases by residents (including the government) of overseas equities and to a
smaller extent, debt securities. Nevertheless, net FDI has remained positive despite
the surge in outward direct investment by Singapore-based companies since 1993,
as Singapore continued to attract large inflows of FDI to finance a substantial part
of domestic investment (especially inmanufacturing). Such aunique arrangement,
in which the bulk of domestic saving is invested abroad while a substantial
proportion of domestic investment is financed by FDI, has served the Singapore
economy well over the years.

31

Net outflows from the capital and financial account have increased
since the Asian crisis, and at a more rapid rate than the expansion in the current
account balance during that period. The capital and financial account deficit has
risen from around 7% of GNI over the pre-crisisperiod of 1993-97, to an average
of 15% over the period 1998-2002, in line with the increase in the current account
surplus. More recently, the capital and financial account deficit has surged to 28%
of GNI in 2003, largely reflecting a sharp increase in outflows from the other
investment account. In particular, net outflows from the "other sectors" and
official category within the other investment account amounted to S$35 billion
in 2003, compared with S$9.1 billion in the previous year.

III. Overall Balance of Payment

Under a managed exchange rate system, any mismatch between both

sides of the external accounts (i.e. current and capital/financial transactions) is
known as the overall balance of payments (BOP). (That is, CAB + KAB = BOP.)
This overall balance of payments is measured by changes in the value of official
reserve assets, or MAS holdings of foreign currency assets. Foreign exchange
intervention operations and swap operations by the MAS facilitate the conversion
into Singapores official foreign reserves (OFR).

With current account surpluses exceeding capital and financial

account deficits, Singapores overall BOP has been positive for almost every year
since 1966 (with the exception of 2001), thus allowing for a build-up of foreign
reserves. Nevertheless, we observe that the overall BOP surplus has shrunk in the
32

post-crisis period, reflecting larger capital outflows rom the capital and financial
account in recent years, which have offset a greater part of the inflows from the
current account.

In line with the rise in the current account surplus over the years,the
size of the overall BOP surplus hasincreased from an average of 6.6% of GNI in
the 1980s to around 10% of GNI between 1990-97. Since then, however, it has
fallen to around 3.3% of GNI in the post-crisis period of 1998-2002. More
recently, the overall BOP has risen to 7.5%(or S$11.8 billion) in 2003, largely
reflecting the surge in the current account surplus due to the strong export-led
recovery.

In 2003, the BOP surplus surged to S$11.8 billion, reflecting a sharp

rise in the current account surplus, which was underpinned by a turnaround in the
external environment and strong export recovery. The improved domestic
economic outlook in the second half of 2003, coupled with the general weakness in
the US$, exerted strong upward pressure on the S$.

33

INTERNATIONAL RELATIONS
Singapore maintains diplomatic relations with 186 countries although
it does not maintain a high commission or embassy in many of those countries. It is
a member of the United Nations, the Commonwealth, ASEAN and the NonAligned Movement. Due to obvious geographical reasons, relations with Malaysia
and Indonesia are most important. Historical baggage, including the traumatic
separation from Malaysia, and Konfrontasi with Indonesia, have caused a siege
mentality of sorts. Singapore enjoys good relations with the United Kingdom
which shares ties in the Five Power Defense Arrangements (FPDA) along with
Malaysia, Australia and New Zealand. Good relations are also maintained with the
United States; the US is perceived as a stabilizing force in the region to
counterbalance the regional powers.
Singapore supports the concept of Southeast Asian regionalism and
plays an active role in the Association of Southeast Asian Nations (ASEAN), of
which Singapore is a founding member. Singapore is also a member of the AsiaPacific Economic Cooperation (APEC) forum which has its Secretariat in
Singapore.
As part of its role in the United Nations, Singapore held a rotational
seat on the UN Security Council from 2001 to 2002. It participated in UN
peacekeeping/observer missions in Kuwait, Angola, Kenya, Cambodia and Timor
Leste.

34

I. Foreign Policy

Singapore's leaders are realists; they perceive a Hobbesian world

where might makes right. The resultant siege mentality is due to Singapore's
geographical weaknesses, mistrust of Malaysia and Indonesia due to historical
baggage, and from how it stands out as a "little red dot in a sea of green", as thenPresident Habibie of Indonesia put it.
Singapore's first foreign minister was S. Rajaratnam, and the country's
foreign policy still bears his imprimatur. Rajaratnam originally framed Singapore's
foreign policy, taking into account "the jungle of international politics", and was
wary of foreign policy "on the basis of permanent enemies." In 1966, S.
Rajaratnam saw Singapore's challenge as ensuring its sustained survival, peace,
and prosperity in a region suffering from mutual jealousies, internal violence,
economic disintegration and great power conflicts.
In accordance with this worldview, Singapore's foreign policy is
aimed at maintaining friendly relations with all countries, especially Malaysia,
Indonesia, and ASEAN, and ensuring that its actions do not exacerbate its
neighbors' insecurities. In 1972, Rajaratnam envisioned the world being
Singapore's hinterland integration into the world economy would ameliorate
Singapore's inherent lack of natural resources. Thus, Rajaratnam believed that
maintaining a balance of power, rather than becoming a de facto vassal of some
larger power, would provide Singapore with freedom to pursue an independent
foreign policy. The interest in the Great Powers in Singapore would also deter the
interference of regional powers.

35

II. Trade Policy

Singapore's trade policy objective is to promote a free, open, and

stable multilateral trading system. Without a sizeable domestic market, Singapore
is by necessity outward oriented. In 2007, the trade to GDP ratio was 348%, the
highest in the world. It is in Singapore's vital interest to advance the global trade
and investment liberalization agenda and ensure a strong rules-based multilateral
trading system. Singapore has benefited from the certainty and stability of the
rules-based multilateral trading regime provided by the WTO which has brought
greater predictability and security to the conduct of trade among nations. Singapore
believes that the success of the global trading system depends on simultaneous
efforts to pursue the maximum possible extent of liberalisation on the multilateral,
regional and bilateral fronts.

Singapore believes that regional and bilateral trade liberalization

efforts could be useful building blocks for multilateralism. The role that trade has
played in driving Asia's economic development is evident. ASEAN's overall trade
for instance more than tripled from about US$430 billion in 1993 to US$1.4
trillion in 2006 , in just over a decade. ASEAN is pursuing several economic
integration initiatives to further enhance and facilitate trade in the region and with
the world, and Singapore plays a key role in driving the process.

On the bilateral front, Singapore has signed FTAs with New Zealand,
Japan, the European Free Trade Association, Australia,the United States, Korea,
India, Jordan, Panama, and a four-party agreement with Chile, New Zealand, and
Brunei. Discussions are ongoing with China, Canada, Pakistan, and Ukraine.
36

Singapore recently concluded FTA negotiations with the Gulf Cooperation Council
in January 2008 and with Peru in September 2007. Both agreements are
undergoing checks bythe respective legal counsels and would be signedwithin the
year. Singapore views its bilateral FTAs as a critical complement to the efforts at
the multilateral level. We have painstakingly ensured that Singapore's FTAs are
comprehensive, WTO-consistent and in many aspects, WTO-plus. They are
comprehensive in that they cover all aspects of trade, including Goods, Services
and Investment. They are WTO-consistent in that elements in the FTAs are based
on, and are not in conflict with, WTO rules. They are WTO-plus in that they go
beyond existing WTO obligations to achieve a freer and more predictable trading
environment. Singapore's bilateral agreements have set the stage for broader trade
agreements.The FTAs with Japan and Korea for instance have set the platform for
ASEAN to negotiate the ASEAN-Japan Comprehensive Economic Partnership
(AJCEP) and ASEAN-Korea Free Trade Agreement (AKFTA). Moreover, the
high-standard, comprehensive agreements can catalyze further trade liberalization
by binding domestic reforms, and eventually regionalizing or multilateralzing
those liberalization measures.

Singapore is increasingly looking to establish economic relationships

with emerging markets beyond the region, such as China, India, and the Middle
East. For instance, Singapore has established economic zones such as the
Singapore-India Economic Zone, and business networking platforms such as the
Saudi-Singapore Economic Cities.

37

ECONOMIC STORY OF SINGAPORE

Since its independence in 1965, here is how the economy of

Singapore grew from decade to decade : -

I. The 60s
With a GNP per capita of less than US$320, Singapore was a thirdworld nation with poor infrastructure and limited capital. Low-end commerce was
the mainstay of the economy and the handful of industries that existed produced
only for domestic consumption, leaving no room for direct foreign investment.
To create job opportunities following the massive unemployment and labour
unrest, an environment conducive to industrial development had to be formed, thus
leading to the birth of the Jurong Industrial Estate the first of many such estates
onthe island.It was during this exciting period of growth that the Singapore
Economic Development Board (EDB) was established with a budget of $100
million to take on the challenge of convincing foreign investors that the country
was a good place for business.These two developments marked the start of
Singapores industrialisationprogramme that began with factories producing
garments, textiles, toys, wood products and hair wigs. Along with these labourintensive industries were capital and technology-intensive projects from companies
such as Shell Eastern Petroleum and the National Iron and Steel Mills.The success
of this programme over time meant new issues had to be tackled, namely the lack
of raw resources that once came from Malaysia and rapidly growing local demand.
Singapores solution then was to develop its export-oriented industries, as EDB

38

opened its first overseas centres in Hong Kong and New York to be better placed
to woo foreign investors.

II.The 70s

By this decade, industrial development was surging ahead as EDB

marketed Singapore to be a quick operations start-up location where factories were
built in advance of demand and a highly skilled workforce was readily available.
Manufacturing evolved to become more sophisticated and included
computer parts, peripherals, software packages and silicon wafers. This in turn led
to new investments particularly in the electronics sector and product
diversification, which greatly enhanced export performance in spite of a global
recession. MNCs began R&D activities in Singapore as an extension of their
already successful manufacturing operations; demonstrating their long-term
confidence.To push Singapores agenda as a business hub, more EDB offices were
set up in Europe, USA and Asia. During this period, Texas Instruments rolled out a
production line in just 50 days after committing $6 million to make
semiconductors and integrated circuits for export to world markets. This major
investment, which EDB secured in under six months, heralded the start of
Singapores electronics industry.
To balance the opening of new EDB overseas centres in Zurich, Paris,
Osaka and Houston between 1971 and 1976, a Manpower and Training Unit was
established locally to focus on industrial training.

The OverseasTraining

Programme and Joint Government Training Centres with Tata of India, Philips of
Holland and Rollei of Germany were also drawn up to place young Singaporean
39

workers in apprenticeship programmes for the exchange of knowledge and skills.

This unique partnership approach to workforce training was the first of its kind and
a significant step forward in Singapores investment promotion programme.

Although the world recession in 1975 slowed progress slightly, the citys economy
remained nimble and flexible as EDB pushed for more industrial projects and
manufacturing eventually became the largest sector in the economy surpassing
trade.

III. The 80s

The 1980s saw EDB co-establishing institutions of technology with
Japan, Germany and France to meet the specialised manpower needs of hightechnology industries. Coupled with the Skills Development Fund, these places of
learning provided Singaporeans with the right kind of training for specialised jobs
in the electronics and engineering sectors.At the same time, the Science Park was
set up next to the National University of Singapore to stimulate R&D activities by
the private sector while the Robot Leasing Scheme was established to offer lowcost financing and technical consultancy to manufacturers who wanted to automate
their operations.
Eventually, due to the governments adoption of a high-wage policy
to accelerate the move away from labour-intensive industries and the attraction to
high-technology industries, wage bills swelled as the world slipped into an
economicslowdown and Singapore slid into a recession.An Economic Committee,
led by then Minister for Trade and Industry Mr. Lee HsienLoong, then took a long
hard look at what was needed to restore Singapores competitiveness
40

consequently recommending the introduction of a flexi-wage system where pay

hikes would be relative to a companys profitability. Another call the Committee
made was for EDB to promote all aspects of economic activity.With the new goal
of positioning Singapore as a Total Business Centre, EDB set out to attract
international service corporations in the financial, educational, lifestyle, medical,
IT and software sectors; identifying PC, printed circuit board and disc drive
manufacture as important sunrise industries.By working hard to attract investors to
these areas, Singapores and Southeast Asias first silicon wafer manufacture
plant opened in the early 1980s, followed by Apple Computers in 1981 and one
for disc drives in 1982.As the promotion of local enterprises also became
increasingly important, EDB then set up the Small Enterprise Bureau in 1986 to
shape a range of assistance schemes that helped facilitate the growth of these
companies.

IV. The 90s

The 1990s saw companies moving up the value chain and intensifying
their use of technology while the service sector became the engine for growth.
EDB shifted its focus from manufacturing to strengthen the new key industries,
namely chemicals, electronics and engineering. It also began leveraging its
leadership in these industries to develop biomedical sciences; an area that included
the pharmaceutical biotechnology and medical technology sectors.This helped
Singapores economic structure become more diversified and balanced, resulting in
the city hosting a wide range of businesses particularly in higher value-added
activities. It also started welcoming talent from around the world to augment the

41

local skill pool and subsequently, become a hub of skilled manpower and
headquarters for decision-making.

V. The Milleneum
In 2006, the government set aside more than $13 billion to promote
R&D over the next five years as part of its goal to increase gross expenditure on
R&D (GERD) from 2.25 per cent to 3 per cent of gross domestic product (GDP)
within that period.
The National Research Foundation was set up in the same year to
develop, coordinate and implement national research and innovation strategies
under the national R&D agenda. To date, most of the R&D activity has been
focused on environmental and water technology, biomedical sciences and
interactive and digital media.To further facilitate Singapore becoming an
information-led economy, a strong Intellectual Property (IP) protection and
enforcement environment was put in place - resulting in the citys ranking as the
first in Asia for IP protection today.Based on this foundation built over the years,
Singapore has put in place a strong and established network of public and private
sector R&D centres which currently work closely together with companies to
commercialise new technologies, processes and products.

42

CURRENT SCENARIO

As of 2014, the economic situation of Singapore is as below : -

I. Overall Performance
The economy expanded by 4.9 per cent compared to the same period
last year. The main drivers of economic growth were the manufacturing, wholesale
& retail trade, finance & insurance and business services sectors. Employment
grew by 24,900. The consumer price index increased by 1 per cent compared to a
year ago.
All sectors registered positive growth. The manufacturing sector
expanded by 9.8 per cent compared to the same quarter last year, while the
construction sector grew by 6.7 per cent. Both the finance & insurance and
wholesale & retail trade sectors grew by 5.4 per cent. The main drivers of
economic growth in the first quarter were the manufacturing, wholesale & retail
trade, finance & insurance and business services sector. Together, they accounted
for about 80 per cent of overall economic growth.

II. Employment and Productivity

Total employment rose by 24,900in the first quarter, lower than the
gains of 40,600 in the preceding quarter. It was also lower than the increase of
28,900 in thefirst quarter of 2013. Services added 21,900 workers, slightly up from
the gains of 21,100 in the first quarter of 2013.Employment in the construction
sector increased by 4,000, lower than the increase of 8,400 in the same quarter a

43

year ago. Lastly, manufacturing shed 1,200 workers in the first quarter, comparable
to the reduction a year ago.

The seasonally-adjusted overall unemployment rate rose from 1.8

percent in December 2013 to 2.1 per cent in March 2014. The seasonallyadjusted
resident and Singapore citizen unemployment rates increased by 0.2 percentagepoints to 2.9 per cent and 3.0 per cent respectively.

An estimated 59,300 residents, including 52,300 Singapore citizens,

were unemployed in March 2014. The seasonally-adjusted figures were 62,500 for
residents and 55,700 for citizens.

Labour productivity grew by 0.9 per cent in the first quarter compared
to the same period a year ago. This is the highest quarterly growth rate since the
third quarter of 2011. The manufacturing (8.8 per cent), wholesale & retail trade
(2.6 per cent) and finance & insurance (2.6 per cent) sectors registered the highest
productivity growth rates. The sectors with the sharpest declines in productivity
were accommodation & food services (-3.5 per cent) and information &
communications (-3.2 per cent).

III. Trade and Balance of Payment

Total trade in nominal terms was expanded by 7.2 percent in the first
quarter. In volume terms, total trade rose by 7.9 per cent, following the 3.9 per cent
increase in the previous quarter. Total exports rose by 7.6 per cent after the 6.0 per
cent increase in the previous quarter. Domestic exports expanded by 3.3 per cent,
while re-exports registered a 13 per cent increase. Within domestic exports, oil
44

domestic exports increased by 10 per cent, while non-oil domestic exports declined
by 1.0 per cent. The decline in non-oil domestic exports was largely due to a fall in
electronic domestic exports. Total imports increased by 6.8 per cent, driven by an
increase in both oil and non-oil imports. Within non-oil imports, non-electronic
imports rose by 6.4 per cent while electronic imports increased by 1.6 per cent. Oil
imports rose by 12 per cent.

The overall balance of payments recorded a smaller surplus of $0.4

billion in the first quarter, compared with $7.7 billion in the preceding period.This
was due to a larger net deficit in the capital and financial account, and a slightly
smaller current account surplus.

The current account surplus continued to narrow for the third

consecutive quarterto $16 billion in the first quarter, a $0.5 billion reduction from
the previous quarter. This was mainly due to a decline in the goods surplus, which
outweighed the smaller net deficit in the primary income balance. The secondary
income balance and the services balance were largely unchanged. The goods
balance registered a smaller surplus of $21 billion in the first quarter compared
with $23 billion in the previous quarter, as the fall in exports exceeded that of
imports.At the same time, the primary income deficit more than halved to $1.5
billion. This was due to a faster increase in income receipts compared to income
payments. Meanwhile, the deficit in the secondary income balance remained stable
at $2.2 billion. The services account was largely unchanged from the preceding
quarter, as services exports and imports fell by a similar magnitude. The decrease
in net receipts for financial services along with the increase in net payments for
other business services was largely counterbalanced by a fall in net payments for
travel services.
45

The capital and financial account recorded a larger net outflow of $15
billion in the first quarter, from $10 billion in the previous quarter. This was
underpinned by a reversal from a net inflow to a net outflow position in the other
investment account. In comparison, net direct investment inflows increased while
net portfolio investment outflows fell. However, the combined lift they provided to
net inflows was not sufficient to offset the reduction in the other investment
account. The reversal from net inflows to net outflows in the other investment
account was due to a sharp fall in net inflows to the domestic banking sector
(deposit-taking corporations).

Net outflows of portfolio investment declined, reflecting a step-up in

foreign purchases of securities issued by domestic banks and a reduction in the
purchase of overseas securities by domestic banks. Meanwhile, net inflows of
direct investment rose by $4.0 billion to reach $15 billion in the first quarter. This
was mainly due to an increase in foreign direct investment into Singapore, while
residents direct investment overseas remained largely stable.

IV. Conclusion
The Singapore economy grew by 4.9 per cent on a year-on-year basis
in the first quarter, similar to the rate of growth achieved in the previous quarter.
On a quarter-on-quarter seasonally-adjusted annualized basis, the economy grew
by 2.3 per cent, moderatingfrom the 6.9 per cent growth in the preceding quarter.

The global economic outlook is expected to improve modestly in the

coming months, led by a sustained recovery in the US and Eurozone economies. In
46

the US, the economy is expectedto post modest growth in 2014, supported by
rising private consumption expenditure and a recovery in business investments.
The Eurozone economy is expected to return to growth this year, on the back of a
reduced pace of fiscal tightening and an accommodative monetary policy. InAsia,
Chinas growth is expected to moderate slightly in 2014 as the government
continues with credit tightening measures and reforms to re-balance the economy.
The ASEAN economies are likely to remainresilient, supported by robust domestic
demand.

Nonetheless, uncertainties in the global macroeconomic environment

remain. In the US, there are uncertainties over the pace at which the Federal
Reserve will exit from its accommodative monetary policy. If the pace of monetary
policy normalization increases unexpectedly, financial markets may react
adversely and business sentiments in the US may also be dampened. In China,
there is a risk that policy moves to rein in credit growth may lead to unintended
consequences, such as a sharper-than-expected economic slowdown, if they are not
well calibrated.

Against this backdrop, the Singapore economy is expected to grow at

a modest pace in 2014. In tandem with the gradual improvement in the global
economy, externally-oriented sectors such as manufacturing and wholesale trade
are likely to provide support togrowth. Domestically-oriented sectors such as
business services are also expected to remain stable. However, continuing tightness
in the labour market is expected to weigh on growth in some labour-intensive
sectors. Taking these factors into consideration, the 2014 growth forecast for the
Singapore economy is maintained at 2.0 to 4.0 per cent.

47

CONCLUSION
A wonder created out of a tear drop is an apt way to describe
what Singapore is today compared to what it was just over forty years ago in 1965
when Singapore was thrown out of the Malaysian Federation.
Today, Singapore is an ultra industrialized society and entrept trade
continues to play a central role in its economy. The Port of Singapore is now the
world's busiest transshipment port , surpassing Hong Kong and Rotterdam.
Singapore's tourism industry is also thriving, attracting over 10
million visitors annually. The country's medical tourism and culinary tourism
industries have also become quite marketable, thanks to its mosaic of cultural
heritage and advance medical technology.
Banking has grown significantly in recent years and many assets
formerly held in Switzerland have been moved to Singapore due to new taxes
imposed by the Swiss. The biotech industry is burgeoning, with drug makers such
as GlaxoSmithKline, Pflizer, and Merck & Co. all establishing plants here, and oil
refining continues to play a huge role in the economy.
Despite its small size, Singapore is now the fifteenth largest trading
partner of the United States. The country has established strong trade agreements
with several countries in South America, Europe, and Asia, as well. There are
currently over 3,000 multinational corporations operating in the country,
accounting for more than two-thirds of its manufacturing output and direct export
sales.

48

With a total land area of just 433 square miles and a small labor force
of 3 million people, Singapore is able to produce a GDP that exceeds $300 billion
dollars annually, higher than three-quarters of the world. Life expectancy is at an
average of 83.75 years, making it the third highest globally. The corruption
minimal and so is the crime. It is considered to be one of the best places to live on
earth, if you don't mind the strict rules.
Singapore's economic model of sacrificing freedom for business is
highly controversial and heavily debated. But regardless of philosophy, its
effectiveness is certainly undeniable.

49

BIBLIOGRAPHY

http://www.wikipedia.org/wiki/Singapore
http://http://www.singstat.gov.sg/
http://www.heritage.org/index/country/singapore
http://www.sgs.gov.sg/The-SGS-Market/The-Singapore-Economy.aspx
http://geography.about.com/od/economic-geography/a/SingaporeEconomic-Development.htm
http://www.internations.org/singapore-expats/guide/16061-economyfinance/the-economy-of-singapore-16045
http://www.economywatch.com/world_economy/singapore/?page=full
http://www.mas.gov.sg/monetary-policy-and-economics/the-singaporeeconomy.aspx
http://www.mas.gov.sg/monetary-policy-and-economics/the-singaporeeconomy/recent-economic-developments-in-singapore.aspx
http://en.wikipedia.org/wiki/Economy_of_Singapore

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