CHAPTER-1 ECONOMY OF SINGAPORE-OVERVIEW

ECONOMY OF SINGAPORE

It has an open business environment, relatively corruption-free and transparent, stable prices, and one of the highest per-capita gross domestic products (GDP) in the world. Its innovative yet steadfast form of economics that combines economic planning with free market has given it the nickname the Singapore Model. Exports, particularly in electronics and chemicals, and services provide the main source of revenue for the economy, which allows it to purchase natural resources and raw goods which it does not have. 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. Manufacturing and financial business services accounted for 26% and 22%, respectively, of Singapore's gross domestic product in 2000. The electronics industry leads Singapore's manufacturing sector, accounting for 48% of total industrial output, but the government also is prioritizing development of the chemicals and biotechnology industries. TAXATION: Singapore introduced a Goods and Services Tax (GST) with an initial rate of 3% on 1 April 1994, increasing government revenue by S$1.6 billion (US$1b, 800m) and stabilizing government finance. The taxable GST was increased to 4% in 2003, to 5% in 2004, and to 7% in 2007. To maintain its competitive position despite rising wages, the government seeks to promote higher value-added activities in the manufacturing and services sectors. It also has opened, or is in the process of opening, the financial services, telecommunications, and power generation and retailing sectors up to Foreign Service providers and greater competition. The government has also attempted some measures including wage restraint measures and release of unused buildings in an effort to control rising commercial rents with the view to lowering the cost of doing business in Singapore when central business district office rents tripled in 2006.

GROWTH IN GDP OF SINGAPORE:

Gross Domestic Product ($ millions) 2.14 Singapore Dollars 2.20 Singapore Dollars 1.81 Singapore Dollars 1.41 Singapore Dollars 1.72 Singapore Dollars 1.64 Singapore Dollars 1.42 Singapore Dollars 1.37 Singapore Dollars 1.50 Singapore Dollars 1.32 Singapore Dollars Nominal Per Capita GDP (as % of USA) PPP Per Capita GDP (as % of USA)

Year

US Dollar Exchange

1980

25,117

39.65

55

1985

39,036

36.63

63.41

1990

66,778

52.09

74.76

1995

1,19,470

86.14

90.6

2000

1,59,840

66.19

91.48

2005

1,94,360

67.54

103.03

2007

2,24,412

74.61

107.92

2008

2,35,632

73.71

107.27

2009

2,68,900

78.53

108.33

2010

3,09,400

82.13

119.54

4,00,000 3,00,000 2,00,000 1,00,000

0
1980 1985 1990 1995 2000 2005 2007 2008 2009 2010

SINGAPORES FINANCIAL SYSTEM-WHETHER BANK-BASED/MARKET BASED? Total assets under management (DBU & ACU): $1200 billion (data averaged for 12 months) Total assets of DBUs: $785 billion (data averaged for 12 months) Credit to Non-bank Customers: $326 billion (data averaged for 12 months) Stock market capitalisation: $800 billion (data averaged for 12 months) GDP: $303 billion Banks have two units: 1) Domestic banking units (DBU) 2) Asian currency units (ACU) Investment arm of government: TEMASEK HOLDINGS Government ownership of Banks: Out of top 10 banks in Singapore 3 are Domestic and the rest are Foreign Banks. These top Domestic banks are: 1) DBS (Development bank of Singapore) 2) United Overseas Bank 3) OCBC (Overseas Chinese Banking Corporation) Government Holdings in DBUs: 27% stake in DBS( 27% OF $34 BILLION)= 9.18 BILLION STATE OWNERSHIP: 0.014 (closer to that of the market-based financial systems).So effectively there is Low Government stake in Domestic Banking units. INDICATORS OF FINANCIAL STRUCTURE: STRUCTURAL SIZE: Market capitalisation = 2.453= log 2.453= 0.389 Bank credit Low state ownership of domestic banks indicates that Singapore economy is essentially a market-based economy

FINANCIAL SYSTEM OF SINGAPORE:

FINANCIAL INSTITUTIONS

MONETARY AUTHORITY OF SINGAPORE

SOVERIGN FUND OF SINGAPORE

ASSOCIALTION OF BANKS IN SINGAPORE (ABS)

COMMERCIAL BANKS

MERCHANT BANKS TEMASEK HOLDINGS

LOCAL BANKS

FOREIGN BANKS

FOREIGN FULL BANKS

WHOLESALE BANKS

OFFSHORE BANKS

STRUCTURE OF FINANCIAL MARKETS:

FINANCIAL MARKETS

CAPITAL MARKET BONDS MARKET SINGAPORE GOVERNMENT SECURITIES (ISSUED BY MAC ONLY) SINGAPORE EXCHAGE LIMITED (SGX) CORPORAT E BOND MARKET

FOREIGN EXCHANGE MARKET

COMMODITIES MARKET

SIBOR ( SINGAPORE INTERBANK OFFERED RATE) SFEMC ( SINGAPORE FOREIGN EXCHANGE MARKET COMMITTEE)

T-BILLS (1-YR., 2-YR.)

GOVERNMENT BONDS

FINANCIAL INSTRUMENTS TRADED IN THE SINGAPORE MARKETS:

FINANCIAL INSTRUMENTS CENTRAL PROVIDEN T FUND EQUITIES EQUITY INDEX FUTURES/ OPTIONS DIVIDEN D INDEX FUTURES /OPTION S FIXED INCOME SECURITIES CORPORATE BONDS EXCHANG E TRADED FUNDS

INTER EST RATE FUTUR ES

FINANCIAL REGULATIONS:

CORPORATE FUNDRAISING Any public company that desires to have its shares listed on the SGX may apply for a listing either on the SGX Main Board or on Catalist (formerly SGX SESDAQ). The criteria for listing are found in the SGX Listing Manual. FOREIGN EXCHANGE RATE: Though Singapore maintains a freely floating exchange rate due to the high imports and high exports (due to Entrepot), monetary authority still interferes whenever the exchange rate crosses certain limit. So in reality it can be seen as a Managed float or dirty float.

HEDGE FUND REGULATION:

Singapore has stood out from most of the world's other hedge fund centers for its light-touch registration requirements and relatively benign regulatory climate. Managers serving 30 or less sophisticated investors -- as opposed to retail clients -- can operate without having a license from the Monetary Authority of Singapore (MAS) regardless of their total level of assets under management. This has made it one of the easiest jurisdictions for hedge funds to start up in, attracting more than 200 funds over the past decade.

SECURITIES REGULATION:

Once a company is listed, it becomes subject to the jurisdiction of the SGX. Timely disclosure of price-sensitive information is the cornerstone of SGXs regulatory policy. To ensure that such information is released to the market on a timely basis, listed companies are obliged to comply with the SGXs Corporate Disclosure Policy in Chapter 7 and Appendix 7.1 of the of the SGX Listing Manual

KEY ECONOMIC AND FINANCIAL INDICATORS:

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Gross Domestic Product (GDP)

GDP at Current Market Prices

S$m

Q1/11

81,192.7

11.2

78,174.0

8.9

GDP at 2005 Market Prices

S$m

Q1/11

73,323.1

8.3

71,822.3

12.0

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

External Trade

Total Trade @ Current Prices

S$m

Jun/11

82,372.4

5.0

81,605.0

13.5

Total Exports @ Current Prices

S$m

Jun/11

43,516.9

6.2

42,323.6

9.6

Total Imports @ Current Prices

S$m

Jun/11

38,855.5

3.7

39,281.4

18.0

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Manufacturing

Industrial Production Index

(2007=100)

May/11

117.4

-17.5

124.8

-9.5

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Employment & Productivity

Employment

'000

Mar/11

3, 134.2

3.6

3,105.9

3.9

Unemployment (seasonally adjusted) (quarterly)

% of labour Mar/11 force 1.9 2.2 -

Labour Productivity Growth

Q1/11

4.5

7.8

Wages/Earnings (monthly S$ average for the quarter) Q1/11 4,677 8.5 4,474 7.5

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Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Price Index

Consumer Price Index

(2009=100)

May/11

107.4

4.5

106.8

4.5

Domestic Supply Price Index

(2006=100)

May/11

105.5

7.6

108.2

8.0

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Services

Retail Sales Index at Current PricES

(2010=100)

May/11

103.9

10.0

100.1

8.5

Domestic Wholesale Trade Index at Current Prices (2007=100) Q1/11 104.6 8.3 101.9 -2.0

Foreign Wholesale Trade Index at Current Prices (2007=100) Q1/11 118.5 16.8 115.9 17.4

Business Receipts Index

(2008=100)

Q1/11

110.9

8.2

110.8

9.3

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Government Operations

Total Revenue and Grants

S$m

May/11

8,251.5

4,016.1

Expenditure & Net Lending

S$m

May/11

2,965.0

4,692.9

Deficit (-) or Surplus

S$m

May/11

5,286.5

-676.8

Total Financing

S$m

May/11

-5,286.5

676.8

Domestic Financing

S$m

May/11

-5,286.5

676.8

Total Net Borrowing

S$m

May/11

4,734.5

8,500.1

Use of Cash S$m Balances May/11 -10,021.0 -7,823.3 -

Foreign Financing

S$m

May/11

0.0

0.0

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Government Debt

Central Government Debt

S$m

Q1/11

331,163.0

16.4

321,182.3

10.2

External Debt

S$m

Q1/11

Domestic Debt

S$m

Q1/11

331,163.0

16.4

321,182.3

10.2

Registered Stocks & S$m Bonds Q1/11 263,376.3 16.4 253,841.3 10.3

Treasury Bills

S$m

Q1/11

57,900.0

12.0

57,100.0

9.6

Advance Deposits

S$m

Q1/11

9,886.7

53.5

10,241.0

9.5

Domestic Debt (Excluding S$m Advance Deposits) Q1/11 321,276.3 15.6 310,941.3 10.2

1 year maturity or less

S$m

Q1/11

77,015.5

-0.6

80,915.5

10.6

More than 1 year maturity

S$m

Q1/11

244,260.8

21.8

230,025.8

10.1

Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

Financial Statistics

Money Supply (M1)

S$m

May/11

121,643.7

19.4

120,955.8

22.0

Money Supply (M2)

S$m

May/11

422,716.1

10.8

422,475.6

11.0

3-month Interbank Rate

% p.a

Jun/11

0.44

-0.13

0.44

-0.13

3-month US$ SIBOR

% p.a

Jun/11

0.25

-0.29

0.26

-0.28

5-year Govt Bonds Interest Rate

% p.a

Jun/11

0.99

0.23

1.14

0.23

Exchange Rate S$ per US$ S$ per US$ (as at end-month) Jun/11 1.2292 -12.3 1.2328 -12.0

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Most Date of Items Latest Period Recent % Change

1

Previous Period

% Change
2

External Accounts

Balance of Payments

S$m

Q1/11

5,619.5

-73.3

16,476.9

37.5

Imports of goods and S$m services Q1/11 143,489.7 9.5 142,871.4 12.5

Exports of goods and S$m services Q1/11 166,240.7 11.5 164,082.2 11.3

Current Account Balance

S$m

Q1/11

17,679.9

16.6

15,723.2

0.8

Net Receipts from S$m Current Transfers Q1/11 -1,837.8 -1,753.0 -

International Reserves (increase in assets is S$m indicated by a minus [-] sign) Q1/11 -5,619.5 -16,476.9 -

Financial Transactions

S$m

Q1/11

-14,085.9

1,491.2

Official Foreign Reserves

US$m

Jun/11

242,286.9

21.2

239,943.2

21.0

THE IMPACT OF THE CRISIS AND THE GOVERNMENTS RESPONSE

With the onset of the financial crisis, Singapore experienced a severe economic downturn, with GDP contracting by 9.5 percent in the first quarter and 3.3 percent in the second quarter of 2009. This was the sharpest downturn among ASEAN economies, though more recent data point towards a recovery, with GDP growing by 0.6 percent in the third quarter of 2009. Singapore is one of the most important economies in ASEAN, with GDP accounting for 12 percent and trade for 28 percent of the groups total. Its economy is highly integrated with the rest of global economy and as such was more exposed compared to many ASEAN Member States to the slowdown in global demand. Singapore attracts 41 percent of all foreign direct investment (FDI) to ASEAN Member States, and its trade to GDP ratio is around 360 percent, compared with the ASEAN group average of 110 percent.1 Singapores economy has been negatively affected by the reduced global demand for manufacturing exports. The service sectors have also been affected by the sharp contraction in global and regional finance and by the downturns in intra-Asian trade and tourism.

The Singapore economic downturn varied in degree from sector to sector. As can be seen in Figure 2, output in the manufacturing and, particularly, utility sectors declined significantly, while the agriculture sector has been resilient. While the construction sector grew unusually strongly relative to many other countries, the hotel and restaurant sectors have continued to decline into the second quarter of 2009. Within the manufacturing sector, there were also sharp differences between sub-sectors, with textile, apparel, leather product, and wood product hit most strongly, with reductions in output of between 20 to 50 percent. Output declines of this magnitude will have inevitably resulted in job losses and reduced earnings, and individuals who made their living in these sectors may experience significant hardships as a result. In 2008, 19.9 percent of the employed worked in the manufacturing sector, 12.2 percent in construction and 67.3 in the services sector. 1 ASEAN website http://www.aseansec.org/19230.htm.