Healthy Balance of Payment

Introduction
The balance of payment is a record of international monetary transactions between
a countrys residents and the rest of the world. Singapore is a country that is
dependent on international trade. Hence it is important to maintain a healthy
balance of payment because it has a direct impact on economic growth. Also, a
healthy balance of payment means that the country is accumulating foreign
exchange reserves. In times of need, these reserves can be used to finance
purchase of imports as well as maintaining the strength of the Singapore Dollar.
Singapore hopes to achieve a healthy balance of payment .The country takes this
objective a step further as it not only hopes to achieve balance-of-payment
equilibrium but also to achieve balance of payment surplus. To continue to enjoy its
continued high rate of economic growth, it is pivotal that Singapore continues to
attract FDIs and that its exports continue to grow it. This is because Singapore is a
small and open economy and it cannot support its economy by simply relying on its
domestic industry. Over-reliance on government injections is also not sustainable in
the long run.
One of the most important items in the balance of payment is the current account
balance. Since Singapore traditionally has a surplus in its current account balance, it
is often referred to as a current account surplus .Trends in the current account
balance of Singapore is an important aspect of Singapores international and
domestic stability. By stability we mean the ability of Singapore to achieve and
maintain the following goals
1. Exports to finance the purchase of imports
2. Exports to service its foreign debt (which is not a major component, since
Singapore does not borrow large sums of money)
3. Stability of the Singapore Dollar
After establishing Singapore as a preferred destination for manufacturing firms, the
Singapore economy has continue on a steady growth of all its industries, thus
attracting many multinational companies to invest in its industries. Hence Singapore
has managed a current account surplus. Traditionally, Singapore has exported
enough to pay for both its imports and foreign debt. Singapore also does not rely on
borrowing from foreign funds to finance consumption, as Singapore can afford to
pay for its expenditure based on its foreign reserves.

Current Policies
Supply-side policies
Supply-side policies that the government puts in place to cause an increase in the
countrys long-run aggregate supply by increasing government expenditure and/or
decreasing tax rates. How such policies are relevant to improving Singapores

competitiveness is that such policies strive to make Singaporeans more efficient

workers and move the economy towards more high-end manufacturing and
knowledge-based industries. This ensures that the countrys products and services
are of higher quality compared to those of its trading partners, hence attracting
more investors into the economy. Furthermore, the ability to implement such
policies is also a clear indicator to investors that Singapore has sound economic
policies, good governance and a politically stable environment.\

Infrastructural developments
In order to become a world-class exporting destination, a country must have both
the facilities and the knowledge to do so. Hence, the government in recent years
has built up more research facilities like One-North as well as introduced a new
financial district in Marina Bay so that financial firms, especially those in banking
can enter into a new area and enjoy low set-up costs since the buildings are all built
with the support of the government. The government has also continually
encouraged joint ventures with local universities and research firms, like A*Star by
funding and supporting their research projects.

Education and re-training

The government has many schemes to support lifelong learning as well as skills
upgrading. Such schemes all service to make Singapore workers more
knowledgeable and economically mobile if they are displaced due to a financial
crisis. All these policies aim to improve the countrys workforce, as Singapore funds
education in primary, secondary and even tertiary institutions heavily so that
Singapore residents are able to afford education no matter what economic
background they come from.

Low tax rates

Corporate tax rates in Singapore dropped from 26% in 1997 to 17% in 2010.
Singapore also has one of the lowest income tax rates which is capped at 20%
among other First World countries. This incentivises workers to work harder and
earn more money as well as accumulate more savings, since they can use more of
their earnings. These low tax rates encourage not only companies to invest in
Singapore but also attract foreign talents in Singapore to contribute to the economy.

Conclusion
The Singapore government has always ensured that Singapore remains competitive
in a changing economic environment. The policies that the country has adopted will
further improve Singapores current account balance. The government is also
constantly monitoring the economic climate so that they can constantly make
amendments to attract more firms into the economy.