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Research and Presentation on Singapore & its Monetary & Fiscal outlook of 2007 by Management students SPJCM.
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Singapore- Some Facts
Island Nation – With a total area of 704 square kilometers (vs India’s 32,87,590)
Limited Manufacturing Potential
Strong Services Sector – with Travel and Hospitality, Financial Services and Retail and Wholesale trade accounting for a large part of the GDP.
Trading / Trans-shipment Hub –The second largest container port in the world
Monetary Authority of Singapore
MAS has traditionally adopted a Strong Singapore Dollar policy
The result is a) Stable Singapore Dollar
b) Low Inflationc) Low Interest Rated) Confidence in Singapore’s
financial sector. MAS believes that a large depreciation in the
currency to enhance export competitiveness jeopardizes all the above.
Monetary Policies & Currency
HISTORY OF SGD
1845-1939, Singapore used Straits Dollar, which was replaced by Malayan Dollar
1953 – Malay and British Borneo Dollar
Till 1963 – shared common currency with Malaysia
1965 – Monetary union between Singapore, Malaysia and Brunei broke down
SGD is not Pegged
The Singapore dollar, SGD, is under a managed float regime guided by the currency's trade weighted index. The MAS`s long term policy is to manage a “trade weighted appreciation of the currency” to dampen imported inflation and to balance aggregate demand.
INSTRUMENTS TARGET
Interest Rates
Money supply
Exchange rates
Price stability –Inflation
GDP growth
Full Employment
Balance & foreign reserves
Monetary Policy in theory
What Singapore Decided
Ultimate Objective :
Price Stability as the Basis forSustained Economic Growth
Intermediate Target:
Trade-Weighted Exchange Rate
Rationale Behind Exchange Rate Policy
Small Size of Economy & ResourceConstraints
Openness to Trade
Openness to Capital Flows
Elaboration for the Exchange Rate Policy
The high degree of financial openness and sensitivity of capital flows to interest rate differentials makes it difficult to target either money supply or interest rates in Singapore.
Net flows of funds from abroad account for the bulk of changes in domestic money supply. Likewise, domestic interest rates are largely determined by foreign rates and market expectations on the future strength of the Singapore dollar.
Given the small domestic base, any attempt by the MAS to raise or lower the domestic interest rates, or money supply, for any sustained basis would be foiled by a shift of funds into or out of Singapore.
2006-2007 SIBOR
SIBOR : stands for Singapore Interbank Offered Rate and is a daily
reference rate based on the interest rates at which banks offer to
lend unsecured funds to other banks in the Singapore wholesale
money market
The S$ interbank rate (S$ SIBOR) hovered between 3.44 % & 3.55
% in 2005 and has come up to 5.9% in the early 2007. The SIBOR is
expected to stabilize around the current levels 0f 5.7% against
the back drop of a pause in US Fed Funds rate hikes.
LIBOR vs SIBOR
LIBOR : 5.51 %
SIBOR : 5.76%
Source : http://www.mas.gov.sg
RATES
Fixed Deposit Rates : 2.8% to 4.6%
Prime Lending Rates : 5.1 % to 6.1%
Cash Reserve Ratios: 5% to 7.2% (slightly higher)
Singapore Foreign Exchange Reserves
Singapore Foreign Exchange Reserves in Millions (US $)
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
160,000.00
2001 2002 2003 2004 2005 2006
Year
(Source: Monetary Authority of Singapore)
Figures in Million US$
2003 2004 2005 2006
38909 36414.5 47616.5 57660.6
344872.7 418576 474526.4 530409
299696.8 368989.2 417274.4 463919
2003 2004 2005 2006
-30735.7 -12868.4 -31923.3 -33261.5
2003 2004 2005 2006
3601.2 -3077.2 4703.5 2596.6
2003 2004 2005 2006
11774.5 20468.9 20396.7 26995.7
2003 2004 2005 2006
-11774.5 -20468.9 -20396.7 -26995.7Official Reserves (Net)
Net Errors and Ommissions
year
Overall Balance
year
imports
year
Capital Account Balance
year
year
Current Account Balance
exports
BOP Variables
-100000
0
100000
200000
300000
400000
500000
600000
2003 2004 2005 2006
Year
Am
ou
nt
in $
Current Account Balance
Exports
Imports
Capital Account Balance
Overall Balance
Balance of Payments - Analysis
The rising current account position has been associated with an improving official foreign reserves (OFR) position, which increased almost 12-fold since 1980 to reach S$163 billion at end-2003
The increased flows through the financial account balance have largely reflected net outflows from the portfolio and "other investment" accounts, which have typically offset the inflows due to foreign direct investment (FDI)
From the trade perspective, the contraction in gross national expenditure had caused imports to decline, thus boosting the merchandise trade surplus. On balance, these factors have boosted the current account surplus position.
FISCAL POLICIES
Singapore - Fiscal Policy
Singapore’s fiscal policy is Expansionary
The private sector is the engine of growth, and the government's role is to provide a stable and conducive environment for the private sector to thrive
Tax and expenditure policies should be justified on microeconomic grounds and focus on supply-side issues, i.e. incentives for saving, investment and enterprise
Fiscal Policy...
12% 4%
42%
42%
Year 2006
11% 4%
48%
37%
Year 2007
Expenditure Distribution
Source : http://www.mas.gov.sg
Fiscal Policy…
• Objectives of Tax Policy– Revenue Raising – Promotion of Economic and Social Goals
• Principles of Tax Policy– keep tax rates low – tax base broad
• Fy-07 Taxation Highlights- Corporate Income tax reduced- Goods and service tax hiked
Source : http://www.mas.gov.sg
Corporate Tax comparison – with other countries
Source : http://www.mas.gov.sg
Tax rate comparison
Effect of Fiscal Policy-GDP growth
East Asian Currency Crisis
Impact of Asian Currency Crisis
Demand in
Affected
Countries
Plummets
Singapore’s
Brokerage
Firms hurt
Singapore’s
Banks were
Hit
Singapore’s
Exports become
Less
Competitive
Singapore’s
Exports to
Affected
Countries
falls
Asian Currency
Crisis
Impact of Asian Currency Crisis
Impact of Asian Currency Crisis
Monetary Authority of Singapore (MAS) allowed the SGP Dollar to fall against the US Dollar in line with the regional currencies
It allowed the SGP Dollar to fluctuate in a flat and wider target band.
The decision was facilitated by absence of domestic inflation and necessitated by the desire to remain competitive.
Asian Currency Crisis - Singapore’s Response
Asian Currency Crisis - Singapore’s Response
The govt. unveiled a S$ 2 billion off budget package in mid 1998.
Package of incentives
Property Tax Rebates
Rental and Utilities Rebates
Speeding up of Development Projects
Deferring stamp duty on uncompleted projects.
Property Prices began stabilizing in the second half of 1998.
Researched & Presented by students of SPJCM for educational purpose.