Singapore WT/TPR/S/202/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Singapore's economy remains one of the most open, and thus competitive, in the world, in 
terms of international trade and fore ign investment.  Almost all tariffs are set at zero, for example, and 
total merchandise trade is nearly four times GDP.  Inflows of foreign direct investment amounted to 
15.7% of GDP in 2007.  Although its high degree of openness leaves Singapore vulnerable to periodic 
external shocks, the economy's flexibility has enabled it to adjust rapidly to these shocks by constantly 
improving productivity, and thus international competitiveness1, which in turn contributes to 
economic growth and higher living standards.  
2. Since Singapore's previous Trade Policy Review in 2004, annual real GDP growth has 
averaged 7.9%, and GDP per cap ita increased from US$26,198 to US$35,163 in 2007, comparable 
with leading OECD countries.  In the same pe riod, inflation was low, averaging 1.3% annually 
(although inflationary pressures have risen since the second half of 2007 with th e inflation rate hitting 
6.5% in February 2008).  Unemployment fell from 3.4% (in 2004) to 2.1% in 2007.  This strong economic performance is in cons iderable part due to Singapore's sound macroeconomic policies and 
its openness to international trade and foreign investment, which make Singapore dependent on 
external markets for economic growth.  With national savings continuing to exceed domestic 
investment by an average of 21% of GDP (in 2003-07) , Singapore's external indicators remain strong.  
In particular, the counterparts of the excess savings, which have been invested abroad, is persistently 
large current account surpluses, averaging 21% of GDP during 2003-07.  Howe ver, although average 
incomes have risen, the incomes of some people have ri sen faster than those of others;  hence, income 
inequality has widened, as evidenced by the Gini  coefficient, which has been rising and is now 
approaching 0.48, among the highest in Asia.   
3. Singapore's external competitiveness has been test ed by the rise of low-cost economies in the 
region, notably China and India.  To respond to co mpetitive pressures, the authorities have carried out 
structural reforms focused on increasing wage and labour market flexibility, further liberalizing the 
banking, telecom, and utility sectors, enhancing the financial regulatory and supervisory framework, 
and negotiating trade and investment agreements  with major trading partners.  Singapore has 
continued to lower the corporate income tax ra te and provide tax incentives to encourage the 
development of high growth, high value-added sectors. 
(2) R
ECENT ECONOMIC PERFORMANCE  
4. There has been strong economic growth since 2004 after Singapore had adapted to several 
shocks, including the global economic slowdown in 2001, the war in Iraq and the outbreak of Severe 
Acute Respiratory Syndrome (SARS) in 2003, whic h badly affected tourism.  Singapore had negative 
growth in 2001, but growth recovered in 2002 an d 2003 and picked up further in 2004.  Real GDP 
growth in 2004 climbed to 9.0%, reflecting a broa d recovery in both domestic and external demand 
(Table I.1).  In 2005, the economy grew by 7.3%, ma inly attributable to external demand and, in 
                                                      
1 Singapore consistently scores highly in global and regional rankings of factors that determine 
competitiveness.  For example, in the latest Global Competitiveness Index, Singapore ranked 7th (out of 
131 countries and economies) in 2007-08 (5th out of 125 in the previous year) (World Economic Forum, 2008).  
According to the IMD, Singapore is second to the U.S. in the overall competitiveness ranking and is the most cost-competitive place for business, has the most attractive investment incentives in th e world and is ranked first 
in Asia for having the most transparent system (IMD, 2007).  In World Bank (2007) for the second year running 
Singapore tops the rankings on the ease of doing busi ness, ahead of New Zealand, the United States, and 
Hong Kong, China.  See also Chapter III(4)(i)(b). WT/TPR/S/202/Rev.1 Trade Policy Review 
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2006, supported by a favourable  international economic enviro nment and accommodative domestic 
policies, the economy expanded by a robust 8.2%.  For 2007, the economy is estimated to have 
expanded by 7.7%, with growth in  the manufacturing sector estimated to have decelerated, partly due 
to a fall in the output of the biomedical manufacturing cluster.  In 2008, external economic conditions 
are expected to weaken relative to 2007 and the Government expects the economy to grow by 4-6%, 
representing a moderation in growth towa rds the economy's underlying potential rate2, following four 
years of above-trend growth.  
Table I.1 
Selected macroeconom ic indicators, 2003-07  
  2003 2004 2005 2006 2007a 
National accounts  (Percentage change, unle ss otherwise indicated)  
Real GDP (at 2000 market prices) 3.5 9.0 7.3 8.2 7.7 
Consumption 0.9 4.2 4.4 4.8 4.1 
Private consumption 0.9 5.2 3.9 3.3 4.6 
Government consumption 1.0 0.3 6.5 10.7 2.3 
Gross fixed capital formation -3.9 9.5 0.1 13.5 20.2 
Exports of goods and non-factor services 14.0 19.5 12.2 11.0 6.6 
Imports of goods and non-factor services 9.6 22.7 11.1 11.4 6.8 
XGS/GDP (%) (at current market price) 212.5 225.4 238.5 246.2 230.9 
MGS/GDP (%) (at current market price) 185.0 200.1 209.8 216.3 202.0 
Unemployment rate (%) 4.0  3.4 3.1 2.7 2.1 
Productivityb  (Percentage change)  
Labour productivity 4.7 7.0 2.7 1.5 -0.9 
Labour productivity in manufacturing 5.4 9.7 2.9 3.9 -3.2 
Capital productivity 0.6 5.3 4.1 4.1 2.3 
Total factor productivity 2.6 6.1 3.5 2.9 0.9 
Prices and interest rates (Per cent) 
Inflation (CPI, % change) 0.5 1.7 0.5 1.0 2.1 
Three-months fixed deposit rate (period average)c 0.40 0.41 0.56 0.57 0.51 
Prime lending rate (period average)c 5.30 5.30 5.30 5.33 5.33 
Savings deposit rate (period average)c 0.24 0.23 0.26 0.25 0.25 
Money and credit (end period)  (Percentage change)  
Money supply (M2)d 8.1 6.2 6.2 19.4 13.4 
Money supply (M1) 8.1 14.0 4.4 13.4 22.4 
Quasi money 8.0 4.3 6.7 21.0 11.2 
Credit to private sector  5.4 4.4 2.0 4.9 16.9 
Exchange rate      
S$/US$ (annual average) 1.74  1.69  1.66  1.59  1.51 
Real effective exchange rate (% change) 0.5 -0.5 0.8 4.1 1.9 
Nominal effective exchange rate (% change) -6.4 -1.1 -1.3 2.4 1.6 
  (Per cent of GDP, unless otherwise indicated)  
Fiscal policye      
Primary balance -1.9 -0.8 -0.2 0.6 -0.3 
Operating revenue 15.3 15.0 14.2 14.6 14.3 
Tax revenue 13.0 13.0 12.9 13.4 13.3 
Operating expenditure 12.1 11.1 10.8 11.1 11.4 
Development expenditure 5.1 4.7 3.6 2.8 3.1 
Table I.1 (cont'd) 
                                                      
2 Monetary Authority of Singapore (2008). Singapore WT/TPR/S/202/Rev.1 
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  2003 2004 2005 2006 2007a 
Budget balancef -1.1 -0.1 0.7 0.0 -0.3 
Government total debt (end- period) 104.3 101.1 100.3 95.1 96.3 
Domestic debt  104.3 101.1 100.3 95.1 96.3 
Saving and investment       
Gross national savings 39.2  38.4  38.5  41.8  46.8 
Gross domestic investment 16.0  21.7  19.9  20.0  22.6 
Savings-investment gap 23.2  16.7  18.6  21.8  24.3 
External sector      
Current account balance  23.2  16.7  18.6  21.8  24.3 
Net merchandise trade  31.6  28.4  31.0  31.8  30.5 
Merchandise exports 173.5  182.6  194.3  201.4  187.7 
Merchandise imports 141.9  154.2  163.3  169.7  157.2 
Services balance -4.1  -3.1  -2.2  -1.9  -1.6 
Capital account -0.2  -0.2  -0.2  -0.2  -0.2 
Financial account -19.1  -7.8  -10.6  -10.3  -11.4 
Direct investment 9.6  8.3  5.8  9.2  7.3 
Portfolio investment .. -5.0 -2.8 -6.5 -10.3 
Balance of payments 7.3 11.1 10.2 12.4 12.0 
Terms of trade 105.4  103.9  100.8  100.0  .. 
Merchandise exports (% change ) 11.8  19.6  15.0  12.8  4.4 
Merchandise imports (% change) 5.6  23.5  14.5  13.1  3.8 
Service exports (% change) 19.6  25.1  11.5  10.0  8.3 
Service imports (% change) 16.7  21.4  9.4  9.3  7.7 
Gross official reserves (US$ billi on, end-period) 96. 2 112.6 116.2 136.3 162.9 
Total external debt (US$ billion,  end-period) 187. 1 210.5 215.6 270.4 .. 
.. Not available. 
a Estimates. 
b Growth rates expressed in log terms. c Refers to average of end-of-month rates of ten leading banks.   
d M1 includes currency in active circula tion and demand deposits of private sect or;  quasi-money includes fixed deposits, 
Singapore dollar negotiable certificates of de posit held, and savings and other deposits;  M2 is the sum of M1 plus quasi-money . 
e Based on fiscal year.  2003 should read FY2003, starting 1 April to 31 March, etc. 
f Primary balance less special transfers pl us net investment income contribution. 
Source:  Ministry of Trade and Industry, Economic Survey of Singapore, various issues;  Monetary Authority of Singapore,  
Monthly Statistical Bulletin, October 2007  and Macroeconomic Review, October 2006 and 2007 ;  IMF, 
International Fi nancial Statistics ;  and data provided by the authorities of Singapore.    
5. Inflation edged up to a yearly average of 1.7% in 2004, from 0.5% in 2003, partly reflecting a 
jump in the prices of oil-related items (such as electricity and gasoline) as well as above-average 
increases in healthcare and education costs.  Despit e high international energy prices, it slowed to 
0.5% in 2005, due mainly to a fall in car prices th at resulted from a decline in the premiums paid in 
Singapore for vehicle permits.  Consumer price infl ation rose to 2.1% for 2007 with some of the 
increase over 2006 attributed to the one-off impact of  the rise in the GST from 5 to 7% in July 2007.3  
Towards the end of 2007, however, inflation acceler ated rapidly, reflecting both domestic cost 
pressures and rising international prices and, at 6.6%, reached a 26-year high in January 2008.  CPI inflation for 2008 as a whole is forecast by the Govern ment to ease in the second half of the year to 
5%-6%.   
                                                     
 
3 The GST increase is expected to have a one-off im pact of around 0.7% percentage point on the annual 
inflation rate in 2007 and 2008. WT/TPR/S/202/Rev.1 Trade Policy Review 
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6. As the economy gathered momentum in 2004,  labour market conditions improved, with 
unemployment falling from 4% in 2003 to 3.4% in 2004;  the fall continued to 3.1% in 2005 and 2.7% in 2006, reflecting broad-based employment gene ration as well as government efforts to enhance 
labour market flexibility, aided by job redesign and re training.  Unemployment further fell to 2.1% in 
2007, reflecting strong job creation, notably in the services and construction sectors.  As a reflection 
of the tight labour market, nominal wages rose rapidly by 6.2% in 2007, nearly double the rate of 2006. 
7. Singaporeans have generally benef ited from globalization, but some  have benefited more than 
others.  A number of older and less educated work ers remain vulnerable to structural unemployment 
as the economy restructures and manufacturing and services move up the value-added ladder.  
Although all income groups have seen higher income  growth, the disparity in household income has 
widened during the review period, reflecting hi gher wage increases for skilled and knowledge 
workers.
4  The Government has recognized that inco me inequalities may undermine social cohesion 
and has taken steps to address this, through inter alia,  the Workfare Income Supplement for older 
low-wage workers, greater investment in skills upgrading, and enhancing assistance for children from 
lower-income families.   
8. The economy continues to be dominated by services, at around 66% of GDP in 2007, 
followed by manufacturing, with a share of 24% to 26% during the period under review (Table I.2).  
The Government believes that manufacturing should  remain one of the twin engines of growth, 
building on existing competitive strengths to sustai n manufacturing at around a quarter of GDP.  The 
share of employment in the manufacturing sector remains broadly constant at slightly over 20%. 
9. In the previous Trade Policy Review of Singa pore, a longer-term concern was noted about its 
relative costs of production compared with neighb ouring countries, and possibly a slowdown in total 
factor productivity5 (TFP) growth, which appeared to have  set-in during the mid 1990s.  However, 
data provided by the authorities (Table AI.1) sugg est that labour, capital and total factor productivity 
growth held up relatively well during most of the re view period, although there appears to have been a 
marked slowdown in 2007.  Technological progress and innovation are important determinants of 
TFP in the long run, and thus of a country's econo mic progress.  Singapore's development strategy has 
been shifting from emphasizing the use of technology to creating it, by focusing on investments in R&D and innovation.  According to the latest av ailable figures, gross expenditure on R&D (GERD) 
increased from S$3 billion in 2000 to S$4.6 billion in 2005, representing an increase from 1.9% to 
                                                     
 
4 Income inequality is usually measured by a country's Gini coefficient, in which 0 is perfect equality 
(everyone has the same income) and 1 is perfect inequality (i.e. one household takes everything).  According to 
Statistics Singapore (2007), higher-income employed households saw faster income growth, reflecting higher 
wage increases for skilled and knowledge workers.  T hus, the income distribution continued to widen among 
employed households, with the Gini coefficient increasing from 0.468 in 2005 to 0.485 in 2007, making 
Singapore's Gini coefficient relatively high in the Asian region.  However, after adjusting for government 
benefits (e.g. the GST offset package), the Gini coefficient among employed households was reduced to 
0.460 in 2007.   
5 Total factor productivity (TFP) reflects the efficien cy with which factors of  production are used, and 
is thus a key determinant of an economy's performance.  TFP should be distinguished from labour productivity, 
which is the amount of output per employee.  Among the main determinants of improvements in labour 
productivity are changes in the volume of investment and total factor productivity (TFP).  Growing investment contributes to improvements in labour  productivity by increasing the amount of capital that employees have to 
work with.  In the absen ce of accompanying improvement in TFP, however, higher la bour productivity  can only 
be achieved at the expense of lower capital productivity.  One of the most important sources of TFP growth in the long run is technological progress. Singapore WT/TPR/S/202/Rev.1 
 Page 5 
 
 
2.4% of GDP.6  The growth was driven by the private sector, which accounted for about two thirds of 
spending during the period.  A Research, Innovatio n and Enterprise Council, chaired by the Prime 
Minister, has been set up to advise the Government on national research strategies.  
Table I.2 
Basic economic indicators, 2003-07  
  2003 2004 2005 2006 2007a 
Real GDP at market prices (S$ billion, 2000 prices) 168.1  183.3  196.6  212.7  229.1  
Real GDP at market price (US$ billion, 2000 prices) 97.5  106.3  114.1  123.4  132.9  
Current GDP at market price (S$ billion) 162.3  184.5 199.4  217.0  243.2  
Current GDP at market price (US$ billion) 93.2  109.2  119.8  136.6  161.3  
GDP per capita at current market price (S$) 39,440.0  44,282.0  46,738.0  49,301.0  52,994.0  
GDP per capita at current market price (US$) 22,638.0  26,198.0  28,078.0  31,028.0  35,163.0  
 (Annual percentage change) 
GDP by economic activity at 2000 market prices      
Agriculture, fishing and quarrying 1.9 12.7 -1.2 15.5 0.2 
Manufacturing 2.9 13.9 9.5 11.9 5.8 
Utilities 4.6 3.5 3.0 2.7 5.1 
Construction -8.9 -5.5 0.7 3.6 20.3 
Services 4.4 8.1 7.0 7.5 8.1 
Wholesale and retail trade 10.6 17.6 12.1 10.4 7.3 
Transport and storage -0.6 10.7 4.9 4.7 5.1 
Hotels and restaurants -9.9 11.5 6.4 4.8 4.4 
Information and communication 5.6 6.9 5.5 4.6 6.3 
Financial services 10.7 4.4 7.1 10.6 16.9 
Business services 0.6 2.1 4.7 6.9 7.8 
Other 1.5 4.0 4.4 4.7 4.2 
Ownership of dwellings 2.8 2.7 2.7 1.8 1.3 
 (Per cent) 
Share of main sectors in current GDP      
Agriculture, fishing and quarrying 0.1 0.1 0.1 0.1 0.1 
Manufacturing 24.1 26.4 25.9 26.2 24.1 
Utilities 2.0 1.9 1.7 1.6 1.6 
Construction 4.3 3.8 3.7 3.5 3.8 
Services 65.2 64.1 65.2 64.6 65.9 
Wholesale and retail trade 14.1 15.1 17.0 17.0 16.2 
Transport and storage 9.7 10.2 9.9 9.4 9.4 
Hotels and restaurants 1.8 1.8 1.9 1.9 1.9 
Information and communication 4.3 4.0 3.9 3.8 3.6 
Financial services 11.3 10.9 11.0 11.0 12.4 
Business services 12.4 11.3 11.2 11.5 12.5 
Other 11.6 10.9 10.3 10.0 9.8 
Ownership of dwellingsb 4.2 3.7 3.5 4.0 4.6 
Share of sector in total employment  
(as at year-end)      
Manufacturing 19.7 20.2 20.5 20.7 .. 
Construction 11.0 10.3 10.1 10.2 .. 
Table I.2 (cont'd) 
                                                      
6 Statistics Singapore (2007).  According to the same source, with GERD at 2.4% of GDP in 2005, 
Singapore's R&D intensity surpassed the OECD average of 2.3%;  it was on a par with Denmark's (2.4%) and 
lower than Switzerland's (2.9%) and the United States (2 .7%).  According to the authorities, GERD is planned 
to increase to 3% by 2010. WT/TPR/S/202/Rev.1 Trade Policy Review 
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  2003 2004 2005 2006 2007a 
Services 68.6 68.9 68.7 68.4 67.7 
Wholesale and retail trade 15.1 15.1 14.9 14.6 .. 
Hotels and restaurants 5.8 5.8 5.7 5.8 .. 
Transport, storage and communication .. .. .. 10.1 .. 
Financial services .. .. .. 5.1 .. 
Business and real estate services .. .. .. 7.3 .. 
Public administration and education .. .. .. 11.4 .. 
Personal, health and social services .. .. .. 14.0 .. 
Otherc 0.7 0.6 0.7 0.7 .. 
.. Not available. 
a Preliminary. 
b Owner-occupied dwellings refers to the production of housing or accomm odation services by owner-occ upiers for their own final  
consumption.  These services are consider ed by the System of National Accounts to be productive activities even though they are  
not provided through market transactions. 
c Includes agriculture, fishing, mining & quarrying,  utilities, and activities not adequately defined. 
Source: Ministry of Trade and Industry (various issues), Economic Survey of Singapore ;  Ministry of Manpower online 
information.  Viewed at:  http: //www.mom.gov.sg/;  and data provided by  the authorities of Singapore. 
10. Singapore's high savings rate is reflected in its strong external indicators.  National savings 
continue to greatly exceed domestic investment.  The excess (averaging between 17% and 24% of 
GDP during 2003-07) has been invested abroad.  Th is net outflow of capital has resulted in large 
financial account deficits, particularly portfolio investment.  The counterpart of these financial 
account deficits is persistently large current acc ount surpluses (also averaging between 17% and 24% 
of GDP).  The merchandise trad e surplus has remained healthy, reflecting the importance of 
merchandise trade for Singapore, particularly external  demand.  The deficit in the services balance has 
declined by about 40% since 2003.  With curre nt account surpluses exceeding financial account 
deficits during the review period, Singapore has run surpluses in its balance of payments and 
accumulated official reserves, which reached more than US$163 billion in 2007,  equivalent to about 
six months of imports of goods and services. 
11. Given Singapore's import dependence a high level of reserves is necessary:  to maintain 
confidence in Singapore as an international monetary cen tre;  to be able to intervene, when required, 
to fight inflation or improve export competitiveness through the policy of managed floating;  or to act 
as shock absorber against an unexpected outflow of capital.  Another justification for the reserves, 
however, is the need to preserve and increase wealth  for future generations.  The reserves are thus 
viewed as a core part of the nation's wealth, with the Government as custodian in a broader strategy, 
which translates forced savings (through the CPF) and current account surpluses into investment, with 
some of the funds accumulating as foreign assets.  These are controlled by the Government in several forms.  The MAS and the Government of Singapore Investment Corporation (GIC) basically manage 
the foreign exchange reserves;  GIC handles the bul k of the Government's investments while the MAS 
holds reserves to maintain the stability of the Singa pore dollar.  Similarly Temasek Holdings manages 
a diversified global portfolio with the objective of  creating and maximizing sustainable value for its 
shareholder, the Government. 
(3) M
ACROECONOMIC POLICIES  
(i) Monetary and exchange rate policy 
12. There have been no major changes in the moneta ry policy framework since the last Review of 
Singapore in 2004.  The primary objective of Singa pore's monetary policy, which is based on the 
management of a trade-weighted exchange rate  index (TWI) within an undisclosed band, is Singapore WT/TPR/S/202/Rev.1 
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maintaining price stability as a basi s for sustainable growth.  Moneta ry policy consists of managing 
the Singapore dollar, which is pegged to a currency b asket that includes its major trading partners and 
competitors and moves flexibly within a policy band.7  The Monetary Authority of Singapore (MAS) 
does not disclose which currencies it includes in the basket or what weights it assigns to them.  The 
MAS announces semi-annually the level and directi on in which the Singapore dollar will fluctuate 
within the band.  The MAS implements this polic y through direct sales or purchases of the Singapore 
dollar in the foreign exchange market.  Money ma rket operations are used to offset short-term 
fluctuations in banking liquidity.8 
13. The main commercial banks continue (in theory) to  set interest rates, but given the relatively 
free movement of foreign capital, Singapore's interest rates are heavily influenced by foreign interest 
rates and currency expectations.  
14. Amidst tight labour markets, rising inflati onary pressures and robust economic growth, the 
MAS has broadly maintained a tight monetary polic y.  In April 2004, it shifted its stance from zero 
appreciation of the trade-weighted nominal effectiv e exchange rate (NEER) to a modest and gradual 
appreciation, aimed at reducing the risk of importe d inflation.  The Singapore dollar appreciated by 
4.1% against the U.S. currency over the year, supported by stronger capital inflows to the region associated with an improved regional outlook.  In th e context of the strengthening domestic recovery 
and with risks of imported inflation, the MAS mainta ined its monetary policy target of a modest and 
gradual appreciation of the NEER in 2005 and in 2006 to  maintain price stability.  In 2006, the 
Singapore dollar appreciated by 5% against the U.S. dollar, from S$1.66 to S$1.53, its strongest level since 1996.  Although inflation was contained at 1% in 2006, the increase in GST, wage growth and 
strong asset prices lifted inflation to over 2% in 2007 as a whole.  In response to the recent surge in 
inflation, in April 2008, the MAS tightened its mo netary policy, allowing "an upward shift of the 
policy band" and thus a significant appreciation of th e Singapore currency in order to curb the cost of 
imported food and energy;  the Singapore dollar rose to a record high of S$1.36 to the U.S. dollar, thus gaining about 5.3% against the U. S. dollar between January and April 2008.
9  During the same 
period, the Singapore dollar depreciated against the euro and the yen by about 1.4%. 
15. There are no formal exchange controls, except one  primary restriction on lending to financial 
entities for speculative purposes against the Singapore dollar.  This pertains to the extension of 
Singapore dollar credit facilities, where the extension of credit exceeding S$5 million to non-residential financial entities in Singapore dollars must be converted into foreign currency before 
using them to finance activities outside Singapore.  
(ii) Fiscal policy 
16. During the period under review, Singapore's fiscal stance has generally been broadly neutral 
(with the exception of FY2007), i.e. the overall b udget balance has been close to 0% of GDP 
(Table I.3).  The surplus in 2007 is largely due to the better than expected economic upswing (7.7% 
real growth compared with 4.5-6.5% projected at the start of the year) and a surge in the property 
market.  The primary budget position, defined as operating revenue less total expenditure, is a 
measure of the Government's ability to meet its a nnual expenditures through taxes, fees, and charges.  
While this was positive from the late 1980s through to the early 2000s, it has mostly been in deficit in 
recent years, reflecting to some extent the loweri ng of income tax rates and increases in tax relief, 
notably tax incentives, to promote economic activi ty.  Despite the primary budget deficit, the 
                                                     
 
7 Singapore's exchange rate regime is classified by  the IMF as a "managed float" (IMF, 2007, p. 1). 
8 The money market tools used by MAS include foreign exchange swaps, inter-bank 
lending/borrowing, and sales and purchases or repu rchases agreements in government securities. 
9 See "Policy tightening boosts Singapore dollar", Financial Times,  10 April.  Viewed at:  
http://www.ft.com/cms/s/c0fd58c0-06a2-1 1dd-802c-0000779fd2ac,dwp_uuid=08373. WT/TPR/S/202/Rev.1 Trade Policy Review 
Page 8 
 
 
Government has been able to avoid persistent de ficits in the overall budget position by supplementing 
operating revenue with the Net Investment Income  Contribution (NIIC) from reserves accumulated in 
the past.  Under the Constitution, the Government is allowed to use up to 50% of NII for current 
spending needs.  Singapore's reserves therefore prov ide a fiscal buffer that allows the Government to 
enhance competitiveness by lowering taxes and to r espond flexibly via discretionary measures in a 
cyclical downturn.  
Table I.3 
Fiscal balance, 2004-07 
(Per cent) 
 2004 2005 2006 2007a 
 (% of nominal GDP)  
Operating revenue 15.0 14.2 14.6 16.5 
Tax revenue 13.0 12.9 13.4 15.0 
of which     
Income tax 6.3 6.5 6.6 6.7 
Asset taxes 1.1 1.0 1.0 1.1 
Stamp duty 0.4 0.5 0.9 1.6 
GST 1.9 1.9 1.9 2.5 
Non-tax revenue 2.0 1.2 1.1 1.5 
Expenditure 15.8 14.4 13.9 13.8 
Operation  11.1 10.8 11.1 10.9 
Development 4.7 3.6 2.8 2.9 
Primary balance -0.8 -0.2 0.6 2.6 
Less:  special transfers 0.9 0.4 1.7 0.9 
Add:  net investment income  contribution 1.7 1.4 1.0 1.0 
Overall balance -0.1 0.7 0.0 2.7 
a Estimates. 
Source:  Data supplied by the authorities. 
17. The 2004 budget included a comprehensive p ackage of measures to create a "best for 
business" environment to support creativity and ente rprise and attract talent and investment to 
Singapore.  Notably, the Government announced it w ould:  lower the corporate tax rate to 20% (from 
FY2005);  exempt from tax all foreign-sourced income  remitted by Singapore resident individuals to 
encourage them to remit their offshore funds to  Singapore for investment and management;  and 
extend the maximum duration from 10 to 15 years for the pioneer incentive to attract and locate  new 
activities in Singapore.  In the 2005 Budget, the top personal income tax rate was lowered (over 
two years) from 22% to 20% and marginal tax rates for all other income brackets were also reduced.  
18. The 2006 budget included a range of tax a nd other initiatives to support the on-going 
restructuring and upgrading of the economy and co mprehensive measures to help low-wage workers 
to adapt to the global economy.  In 2006, the prim ary operating fiscal balance, boosted by two years 
of strong economic growth, swung into a surplus (of 0.6% of GDP) from a deficit in 2005.  Government operating revenues rose to 13.4% of GDP, driven by higher corporate income tax 
collections, which reflected stronger corporate prof its.  Total government expenditures increased only 
modestly, mainly due to a reduction in developm ent spending with the completion of transport 
infrastructure projects.  Singapore's effective cor porate tax rates are already quite low, but the 
Government has continued to adjust the tax re gime to improve the business climate.  The 2007 
Budget, inter alia,  further reduced corporate income tax from 20% to 18% (effective from 
FY2008/09) and enhanced tax incentives for firms operating in a range of financial services.  
However, to finance the tax changes as well as additi onal social expenditures in the longer term, the 
GST rate was increased from 5% to 7% in July 200 7.  A S$4 billion GST offset package was provided Singapore WT/TPR/S/202/Rev.1 
 Page 9 
 
 
to help Singaporeans adjust to the GST increase, as the additional revenue is expected to be necessary 
only in the longer term.  The Budget was a further st ep in Singapore's efforts to restructure its tax 
system from direct to indirect taxes. 
19. The cut in corporate income tax reflects the G overnment's strategic thrust to enact policies 
that can maintain the heavily export-oriented econom y's competitiveness in the face of globalization.  
The Government is concerned about lower rates of co rporate tax in other countries and territories, for 
example in Hong Kong, China where profits are taxed at 17.5%.  The rise in the CPF contribution rate 
(to 14.5% from 13%) in the 2007 Budg et underlines the difficult balancing act the Government faces.  
Mindful of the competition from Hong Kong, China and elsewhere, the Govern ment is anxious to 
reduce costs for business.  The lowering of corporat e income tax intensifies the burden of finding 
revenue from other sources, to the tune of S$800 million a year, according to government estimates.  
Increasing employer payments to citizens' CPF accounts was introduced to offset, directly or 
indirectly, the impact of the two-percentage point increase in GST, which itself is the cornerstone of 
the Government's plans to make up for the reve nue forgone from the corporate sector.  Regarding 
alternative sources of revenue, the openness of the ec onomy (with virtually all tariffs at zero) limits 
the extra customs revenue that could be raised d espite the very large volumes of trade Singapore 
conducts.  
20. The 2007 Budget also maps out how government revenues would be restructured to build 
capabilities for the future, strengthen social se curity and boost competitiveness.  The essential 
elements are:  reducing direct taxes;  helping SMEs  and start-ups through an increase in the partial tax 
exemption threshold;  rationalizing indirect ta xes (including removal of the broad-based cess10, and 
reduction in road tax for cars and motorcycles);  and raising additional revenues through increasing 
the GST to 7%.  Currently under study are proposal s to amend the Constitution to increase investment 
income (NII)11, to enable Singapore to make improvements in competitiveness and longer-term 
investments in infrastructure and R&D. 
21. Expanding the revenue base is essential to meet the future development and social security 
spending needs, which are set to increase as the population ages.12  According to the Ministerial  
Committee on Ageing13, Singapore has one of the world's fastest ageing populations:  by 2030 one in 
five residents will be 65 or above, up from one in twelve in 2007 and by 2050, Singapore is projected 
to be the fourth oldest country in the world.  Currently, public spending is at about 15% of GDP, 
which is relatively low, and far below the levels of  most developed economies.  The GST hike in the 
2007 Budget will provide, according to the Government , about S$1.5 billion in  additional revenue a 
year, although the Government will also spend a bout S$4 billion over five years on a GST offset 
package, including cash rebates, to soften the impact on Singaporeans, in particular the poor.  Support 
for low-income households, through retraining and targ eted social programmes, has become a priority 
                                                      
10 The cess was reduced to zero with effect from 1 July 2007.  Prior to the reduction, it was levied at 
1% on all cessable items sold by tourist hotels, tourist food establishments, and tourist public houses (including 
rooms or suites occupied each day in every gazetted tourist hotel subject to a minimum charge of S$1/day and 
all charges for sale of food & drink).   
11 Net investment income or NII refers to the di vidends, interest, and other income received from 
investing government reserves, as well as interest received from loans, afte r deducting expenses associated with 
investing and managing the reserves.  The Government is allowed to use up to 50% of NII earned from past reserves for current spending needs.  The Government is studying how the definition of NII could be broadened 
to include capital gains as part of the total retu rns earned from the investment of reserves.   
12 Singaporean citizens account for around 72% of the total population of 4.48 million (in 2006), down 
from 86% in 1990, which reflects substantial inflows of foreign workers.  The influx of (relatively young) 
immigrants is slowing the speed of the ageing of the population, but it has not reversed the trend, which the 
Government is tackling through, inter alia,  changes in pensions and housing policies. 
13 Ministry of Community Development, Youth and Sports (2008). WT/TPR/S/202/Rev.1 Trade Policy Review 
Page 10 
 
 
of fiscal policy.  A permanent income supplem ent scheme has been in troduced for low-wage 
workers – the Workfare Income Supplement (WIS) – under which eligible (older) workers will make 
smaller contributions to the CPF and will recei ve income supplements from the Government. 
(iii) National wage policy 
22. Wages are regulated on the basis of recommendations to the Government by the National 
Wage Council (NWC).14  The NWC's annual recommendations depend on reviews of wage trends in 
relation to economic performance and projections.  During years of strong growth, the NWC has 
recommended wage increases and additional bonuses a nd in times of adversity, it has recommended 
reductions in wages to help companies remain vi able and preserve jobs.  The Government supported 
the NWC's 2007/08 recommendations that companies grant wage increases to workers for the good 
corporate and economic performance achieved, but no ted that wage increases should continue to lag 
behind labour productivity growth over the long term to be sustainable.15  The Government also noted 
that that a fall in labour productivity growth, from 2.8% in 2005 to -0.9% in 2007 as more people 
were pulled into employment, caused the growth in  real wages to outpace labour productivity for the 
second successive year.  However, annual growth  in labour productivity between 2003 and 2006 still 
outpaced the increase in real basi c wages (3.4% and 3.1% respectivel y), though the gap has narrowed 
during the period under review, according to the Ministry of Manpower.   
(4) STRUCTURAL POLICIES  
23. During the period under review, Singapore has continued to undertake a range of structural 
reforms in response to challenges posed by accelerated globalization and increased competition.  The 
reforms, as recommended by the Economic Revi ew Committee (ERC) in 2003, were aimed at 
addressing the immediate problem of competitivene ss as well as the longer-run challenge of moving 
into high-value-added industries.  The ERC, inter alia,  suggested that Singapore lower direct taxation 
and raise the GST, promote the growth of the servi ce sector, reform its compulsory Central Provident 
Fund savings scheme, divest non-strategic GLCs, foster greater labour market flexibility, and 
strengthen job training programmes.  
24. To address the ERC's recommendations on lowering costs, the Government has lowered the 
corporate tax rate progressively, to 18% in 2008  (possibly reducing the value of certain tax 
incentives).  The Government will continue to keep ta xes low to attract invest ment, reward enterprise, 
and attract talent, and considers that the major taxe s are at about the right levels, following the tax 
restructuring over the last five years.16  Additional aggressive tax cuts are unlikely given both the 
significant cuts to corporate and personal income ta x rates since 2004, and the diminishing returns to 
lowering tax rates further, against a background of needing to support low-income groups and a 
rapidly aging population.  Instead, supply-side reforms might need to put more emphasis on 
investment in education, research and development, and public services.    
25. The longer-run challenge of moving Singapore into higher-value-added manufacturing and 
services is being addressed principally through in vestment in infrastructur e, incentives to attract 
investment in the targeted areas, and through further regulatory reform.17  The ERC also emphasized 
the need to promote entrepreneurship in Singapor e and to build a more vibrant business environment 
                                                      
14 Ministry of Manpower online information.  Viewed at:  http://www.mom.gov.sg/publish/momportal/ 
en/press_room/press_releases/2007/20070523-national.html. 
15 Government statement.  Viewed at: http://www.k brisingapura.com/singapore_highlight/wages_2.pdf. 
16 Ministry of Finance (2006).   
17 Singapore has developed infrastructure to support its biotechnology industry, and the industrial parks 
cater to special needs of targeted industries.  Many of Singapore's incentives relate to R&D-related industries or services. Singapore WT/TPR/S/202/Rev.1 
 Page 11 
 
 
that encourages the growth of enterprise start-ups.  In this context, a new Minister in charge 
entrepreneurship has been appointed to oversee the development of entrepreneurship in Singapore.  
For services, in particular, it was felt that Singapore has "not been as aggressive and proactive" as in 
manufacturing, and therefore steps had to be taken to rectify this imbalance.18 
26. The Government has also built upon the regulat ory reform undertaken in several services 
sectors (telecommunications, electricity, and gas) and raised or removed foreign investment limits (for 
example in telecommunications, financial services, elect ricity).  Some steps have been taken to curtail 
the role of GLCs, which operate in many sectors;  some enterprises have b een privatized during the 
period under review, although it is still not clear what market share they represent in the many sectors in which they operate.  Moreover, after long  eschewing an over-arching competition law, the 
Government enacted such a law in 2005.   
(5) D
EVELOPMENTS IN TRADE  
27. Singapore's openness to trade and investment has alwa ys been a key factor in its development.  
Since 2003, total trade in goods and services has ac counted on average for about four times GDP, 
increasing from 397% in 2003 to 433% in 2007.  Gr owth in merchandise exports and imports was 
exceptional in 2004 (at 20.5% and 23.6%, respectively), then slowed to around 13% per year up to 
2006;  the moderating trend in me rchandise exports has been in lin e with weaker demand in the 
world's electronics market.  Singapore's merchandise e xports include a large volume of entrepôt trade, 
encouraged by Singapore's location and develope d port facilities.  Re-exports accounted for an 
average of 46.3% of total exports between 2003 and 2006.   
(i) Composition of merchandise trade  
28. Singapore continues to export mainly manufactured products;  office machines and 
telecommunication equipment remain the main domestic  exports despite an 8 pe rcentage point decline 
between 2003 and 2006 (Chart I.1).  Manufactured goods accounted for roughly 73% of imports in 
2006 (down from nearly 80% in 2003).  Singapo re remains dependent on exports of electronics 
(around one third of domestic exports in 2006).  O il products (excluding crud e bunkers) accounted for 
20% of domestic exports in 2006, th eir share boosted by higher world oil prices.  Chemicals are also 
an important domestic export, with  17.4% of the total.  The relia nce on electronic products may still 
be a cause for concern as Singapore is vulnerable to downturns in global demand for electronics (as 
was the case in 2001-02) and intensifying competiti on between regional producers (demonstrated by 
the shift in disk-drive production offshore).  Howe ver, the economy is now more diversified following 
on-going efforts to restructure it (with electronics accounting for a smaller share of the manufacturing sector, i.e. 28% in 2007 down from 44% in 2000) and to move up the value chain.  Thus, for example, although commodity disk-drive production has sh ifted offshore, Singapore has moved into the 
production of high-end server drives and hard-disk media.   
29. As in the case of exports, manufactured impor ts consisted mainly of office machines and 
telecommunication equipment;  other important import s are aircraft, crude oil and petroleum products, 
food and beverages, chemicals, motor vehicles, iron a nd steel and textile years and fabrics.  Entrepôt 
trade remains a major income-gener ating activity, accounting for 47.3% of Singapore's total exports in 
2006, up from 45.9% in 2003, supported by the tre nd towards regional production networks and 
booming regional demand, in particular from Chin a.  In 2006, re-exports also consisted of 
manufactured goods, again mainly office m achines and telecommunication equipment. 
                                                     
 
18 Economic Review Committee (2003), p. 154.  Th e ERC report states that many of Singapore's 
service industries are not yet world class, citing as a main reason the belief that Singapore has not been 
sufficiently proactive and aggressive in developing the service sector. WT/TPR/S/202/Rev.1 Trade Policy Review 
Page 12 
 
 
Chart I.1
Product composition of merchandise trade, 2003 and 2006
2003 2006
Imports
Source :Data provided by the authorities of Singapore.Per cent
Domestic exports
Re-exportsTotal:  US$136.2 billion Total:  US$238.5 billion
Total:  US$86.4 billion Total:  US$143.1 billion
Total:  US$73.5 billion Total:  US$128.5 billionChemicals 
      6.5
Office machines & 
telecom. equipment
38.2Other manuf.
9.6Agriculture
4.0Other
semi-manuf.  
5.0
Other electrical 
machinery  6.2Transport 
equipment
5.9Other  2.7Fuels 
 13.4Non-electrical machinery  
8.6
Manufacturing
79.9Chemicals
     6.0
Office machines & 
telecom. equipment
35.7Fuels
19.7
Other manuf.
7.8Agriculture  2.9Other 
semi-manuf.
4.9
Other electrical 
machinery   5.3Transport
 equipment
5.2Other  4.0Non-electrical 
machinery 
8.4
Manufacturing
73.4
Office machines 
& telecom. equipment  
41.3Other manuf.
9.1Chemicals
16.7
Other 5.3Fuels
13.7
Other electrical
 machinery   4.5Non-electrical machinery
4.7Other primary 
products 
 2.3
Manufacturing
78.6Other semi-manuf.
2.2
Non-electrical 
machinery  5.1
Office machines
 & telecom. equip.   
33.3Chemicals
17.4
Other manufactures
8.0Fuels
20.1
Other electrical 
machinery   4.4Other 
7.0Manufacturing
70.6Other primary 
products
   2.4
Other semi-manuf.  
2.3
Chemicals 
5.5Office machines & 
telecommunication 
equipment  
52.5 Primary prod. 
6.9
Other manuf. 
9.9Other semi-manuf.
  3.3
Other electrical 
machinery   6.8Other  1.6Non-electrical 
machinery
9.0
Transport
 equipment
4.5Manufacturing
91.5Chemicals
 4.7Office machines & 
telecommunication 
equipment
  54.7
Other manuf. 
 6.9Other semi-manuf.
             3.6
Other electrical
 machinery
5.7Non-electrical 
machinery
8.1
Other  2.2Primary products
9.6
Transport equipment
4.5Manufacturing
88.2
 Singapore WT/TPR/S/202/Rev.1 
 Page 13 
 
 
Chart I.2
Direction of merchandise trade, 2003 and 2006
2003 2006
Imports
Source :UNSD Comtrade database;  and data provided by the authorities of Singapore.Other 
4.2
EC25
12.4
Malaysia
15.8Japan
11.3Per cent
Domestic exports
Re-exportsChina
8.1Other Asia
15.9
Chinese Taipei 
 4.7United States
12.5
Indonesia
6.2
Chinese Taipei
6.4
Japan
8.3EC25
11.4
China
11.4Other Asia
    16.7
Indonesia
7.8United States
14.3
EC25
15.7
China
6.7
Japan
7.2Chinese
Taipei  4.1Other Asia
19.4Other
8.8United States
11.5
EC25
14.4Other 
7.6
Japan 
6.0China
8.7
Thailand 
4.7United States
9.3
EC25
9.4
Indonesia
12.3China
6.0
Korea, Rep.of 
 4.9Malaysia
16.5United States
8.2
EC25
7.5
China   
11.0Other Asia
15.6Other
5.5
Japan  
4.7Indonesia
11.6Total:  US$136.2 billion Total:  US$238.5 billion
Total:  US$86.4 billion Total: US$143.1 billion
Total:  US$73.5 billion Total:  US$128.5 billionIndonesia
6.1United States
13.1Other
3.8
Australia
4.7
Hong Kong, China
9.5
Other
5.1
Japan  
4.9Asia
62.0Middle East
8.2
Asia
76.2Asia
78.9Asia
65.3Asia
62.4Asia
62.1Middle East
10.2
Malaysia
13.1
Hong Kong, China  
9.1Indonesia
7.0Other Asia  
17.6
Malaysia 
9.9Malaysia
10.0
Korea,  Rep. of  
4.1
Hong Kong, China
8.9Malaysia
19.3
Hong Kong, China
10.7Other Asia  
15.4
Thailand
4.5
 WT/TPR/S/202/Rev.1 Trade Policy Review 
Page 14 
 
 
(ii) Direction of merchandise trade  
30. In 2006, Singapore's main market for domestic exports was the EC (14.4%), followed by the 
United States (11.5%) and Malaysia (10%).  Ho wever, domestic exports to the European and 
American regions have declined as a share of the to tal since 2003 (Chart I.2).  The authorities attribute 
this partly to an increase in domestic exports to  China and other Asian countries.  The East-Asian 
countries as a group remained Singapore's main market.  Large deficits continue to be recorded in 
trade with Japan:  exports of foodstuffs and some manufacturing components are outweighed by 
import flows of finished consumer products and machinery.  Elsewhere  in Asia, a substantial surplus 
was achieved in 2006 in trade with Hong Kong, Chin a with a large proportion of Singapore's exports 
going on to China.  Taken together, domestic e xports and re-exports to China and Hong Kong, China 
now account for around one fifth of the tota l, making them the largest export market. 
31. Major import sources in 2006 included Malaysia  (13.1%), the United States (12.7%), the 
EC (11.3%), and Japan (8.3%).  The share of As ian countries in total imports remained almost 
unchanged during 2003-06, at over 60%.  
(iii) Composition of trade in services 
32. During the period under review, Singapore has been  a net importer of services.  The services 
deficit has been on a broadly declining trend in recent years and stood at S$3.9 billion in 2007.  
Royalties and travel services have remained substan tially in deficit, and have more than offset 
surpluses recorded elsewhere (such as on financial and trade-related services).  Growth in services 
trade has slowed during the period.  Singapore is a major supplier of services (e.g. seaport and airport 
services, and trading services), but it is facing compet ition from other service suppliers in the region.  
In terms of GDP, services exports have been gr owing, from 38.9% in 2003 to 43.2% in 2007.  
Consistent with Singapore's role as a transport hub and centre for international trade, transportation 
remains the most important service export.  The shar es of financial services and travel in total services 
exports have also increased since 2003.  In 2007, services imports were dominated by transportation, 
travel and royalties (Table I.4). 
Table I.4 
Trade in services, 2003-07 
(S$ million and per cent)  
  2003 2004 2005 2006 2007 
Services balance -6,599.6 -5,641.6 -4,477.7 -4,198.5 -3,928.5 
Export of services 63,200.3 79,069.0 88,156.3 97,012.8 105,108.5 
of which in %      
Transportation 36.8 36.0 35.7 34.4 33.2 
Travel 10.4 11.2 11.2 11.8 12.4 
Construction 1.2 1.4 1.0 1.0 1.1 
Communication 1.1 1.1 1.1 1.2 1.4 
Computer & information 1.1 1.1 1.0 1.8 1.8 
Insurance 3.4 2.8 2.3 2.6 2.8 
Financial 5.1 5.2 5.8 6.8 8.7 
Other businessa 39.6 39.5 40.3 38.8 37.1 
Royalties 0.5 1. 1 1.2 1.0 1.0 
Social 0.4 0.4 0.3 0.3 0.3 
Government 0.3 0.2 0.2 0.2 0.2 
Table I.4 (cont'd)  Singapore WT/TPR/S/202/Rev.1 
 Page 15 
 
 
  2003 2004 2005 2006 2007 
Import of services 69,799.9 84,710.6 92,634.0 101,211.3 109,037.0 
of which in %      
Transportation 32.6 35.5 36.5 34.7 34.4 
Travel 20.6 18.3 18.0 17.2 16.3 
Construction 0.4 0.6 0.4 0.3 0.3 
Communication 1.8 1.5 1.6 1.6 1.8 
Computer & information 0.8 0.6 0.7 1.1 1.1 
Insurance 4.5 4.4 4.6 4.5 4.5 
Financial 1.3 1.3 1.3 1.8 2.1 
Other businessa 20.6 21.0 19.4 24.1 25.0 
Royalties 16.6 15. 8 16.7 13.9 13.7 
Social 0.6 0.5 0.5 0.4 0.4 
Government 0.3 0.4 0.3 0.3 0.3 
a Other business services consist mainly of tr ade-related and business management services. 
Source:  Data provided by the authorities of Singapore. 
(6) DEVELOPMENTS IN FOREIGN DIRECT INVESTMENT (FDI)   
33. Singapore has traditionally been a major recipient of FDI, third in the region after China and 
Hong Kong, China.  It seems set to remain an attr active destination for foreign investors, with its 
business environment still one of the most attractive in the world.  It seems that FDI inflows will also 
be enhanced by the increasing number of bilateral fre e-trade agreements that Singapore is negotiating.  
34. Inflows of FDI increased from S$20.3 billion in 2 003 to S$38.2 billion in 2007 (Table AI.2).  
Net FDI as a share of GDP also increased, from 12.5% in 2003 to 15.7% in 2007.  The EC is the major single investor, followed by Japan and ASE AN.  European investment in Singapore has more 
than tripled since 2003 and Japan's investment has al so increased substantially.  The stock of inward 
investment was estimated at S$346 billion in 2006 of which 44% from Europe;  followed by the United States, Japan, Malaysia, and Chinese Taip ei which, together, accounted for around 31%.  
Investments originating in Asian countries as a gr oup have increased substantially (Table AI.3). 
35. Flows of inward FDI have been mainly in services, which accounted for over 71% in 2007;  
the trade/commerce sector accounted for 27% (Table AI.4).  In 2007, about 29% of inward FDI went 
into the manufacturing sector, largely into electronic products and components, and chemicals and chemical product industries.  FDI has become more diversified, with wholesale and retail trade, hotels 
and restaurants, transport and storage, info rmation and communications, and professional and 
administrative services accounting for a bigger share of investment.  As Singapore becomes an increasingly high-cost location, it is aiming to attr act FDI by building on its high-quality physical and 
social infrastructure;  petroleum, electronics manuf acturing, pharmaceuticals, and life sciences are the 
prime magnets for investment, but the Government ha s also liberalized the financial and legal sectors 
as well as power and telecommunications, in an effo rt to encourage the growth of the new economy 
and turn the city into a financial hub. 
36. The Government has also encouraged firms to invest outside Singapore:  total outward FDI 
stock reached S$210 billion in 2006 (Table AI.5).  Investment abroad has b een mainly in financial 
services (51%) followed by manufacturing (23%).  Singa pore invests mainly in the region, with Asian 
countries absorbing some 51%.  The major recipients  in 2006 were China (13%), Malaysia (8%), and 
Indonesia (7%).   WT/TPR/S/202/Rev.1 Trade Policy Review 
Page 16 
 
 
(7) OUTLOOK  
37. The Government expects that during 2008 external economic conditions will weaken 
compared to 2007.  In view of the weaker economic conditions, the Government forecasts the 
Singapore economy to grow by between 4% and 6% in 2008.19  While the economy is expected to 
moderate, inflationary pressures stemming from exte rnal sources such as higher commodity prices as 
well as domestic conditions including a tight labour  market and higher wages and rental costs are 
expected to push inflation up to 5%-6% for 2008 as a whole.20  No fundamental changes to monetary 
policy are expected, with the policy stance re maining supportive of economic growth while 
containing inflationary pressures and ensuring price stability over the medium term.  The recent 
appreciation of the NEER of the Singapore dolla r could dampen exports and erode short-term 
competitiveness, unless this can be offset by impr oved productivity whose growth has been falling 
recently.  However, the authorities consider that th e stronger exchange rate will help rein-in cost 
pressures at the industry level as derived demand for factor resources in the economy eases, thereby 
moderating inflationary pressures in the economy.  At the same time, the increasing value of the 
Singapore dollar may well attract more overseas funds  as Singapore enhances its role as a leading 
global centre for private banking.   
38. In the medium term, the Government is likely to continue to focus on maintaining Singapore's 
appeal as a destination for FDI.  As part of this  effort, it has reduced the corporate tax rate and 
continues to offer tax incentives in industries that it is trying to nurture, such as semiconductors, IT, 
biomedical science, and services;  Singapore is also seeking free-trade agreements with its main trading and investment partners.  Through negotiati on of these agreements, the authorities believe that 
Singapore has tapped into regional and global manufactur ing, trade, and financial networks that have 
helped boost growth, diversify its sources, and reduce vulnerability to dow nswings in the global 
electronics market.  However, closer links with the r est of the region, amplified by Singapore's growth 
as a regional financial centre, may have increased its exposure to other risks, including interruptions 
in the regional production chain, financial w eaknesses in regional economies, and economic or 
political instability in countries where Singapore has made significant investments.  
39. In the longer term, as a city-state of 4.5 milli on people, which is heavily dependent on trade in 
goods and services, Singapore needs to rely more on domestic consumption as a source of growth.  
This would help balance fluctuations in external demand and thus reduce its vulnerability to external 
shocks, which Singapore has tried to mitigate by diversification across markets and sectors.  The 
Government is also planning for a significan t increase in population over the long term and has 
revised upwards its population forecast to 6.5 milli on, to be achieved partly through increased 
immigration.   
 
                                                     
 
19 Ministry of Trade and Industry (2008).  If the United States undergoes a mild recession in the first 
half of 2008 and growth in the Asian region moderates but  remains healthy, Singapore's GDP growth is likely to 
be in the upper half of the forecast ra nge.  If the United States  slips into a more severe recession, the region will 
be more significantly affected.  Ac cording to the MAS Monetary Policy Statement of 10 April 2008, Singapore's 
GDP growth will ease to 4-6% in 2008 (Monetary Authority of Singapore, 2008). 
20 Since the monetary policy review in October 2007, the Singapore dollar Nominal Effective 
Exchange Rate (S$NEER) has been fluctuating in the upper half of the policy band.  In the April 2008 monetary 
policy review, MAS re-centred the exchange rate polic y band at the prevailing level of the S$NEER, while 
continuing with the policy of a modest and gradual appreciation of the S$NEER policy band in the period ahead.    Singapore WT/TPR/S/202/Rev.1 
 Page 17 
 
 
40. Among the social challenges facing Singapore, the demographic trends of falling fertility 
rates and rising life expectancy are resulting in a ra pidly ageing population, which could contribute to 
an eventual fall in Singaporeans' overall propensit y to save insofar as a growing number of retirees 
rely increasingly on their savings (rather than income ) to finance consumption.  The Government has 
been helping Singaporeans to prepare financially for retirement through long-term and continuing 
reforms in policies pertaining to employment, tr aining, retirement savings, housing and health.