Singapore is well-positioned to weather global trade shocks: Moody's

Its economic, fiscal and financial buffers often surpass those of AAA-rated peers.

Moody's said in a report that its outlook for Singapore's Aaa rating is stable as it expects the government's prudent policies and sound financial position to support the sovereign credit profile.

The credit rating agency adds that while it does not expect real GDP growth to return to levels seen in the last decade, it also expects the volatility of growth to be significantly lower than before and more consistent with other Aaa-rated economies.

Here's more from Moody's:

Singapore's structural strengths offset near-term cyclical risks and provide some cushion to address structural challenges, supporting the Aaa rating.

Singapore is exposed to the prolonged slowdown in global trade. Risks to the global economic outlook and prospects for global trade continue to betilted to the downside. At the same time, Singapore faces structural challenges faced by other high-income economies in an aging population, compounded by the continued restriction on foreign worker inflows as the government continues to pursue its drive to transition the country to a higher-productivity, knowledge-based economy.

While economic growth has likely stepped down on a sustained basis and is converging towards the Aaa median, this also reflects the ongoing maturation of an economy that already has the highest GDP per capita in the Asia-Pacific, one of the highest in the world and well above Aaa-median levels.

Singapore's fiscal buffers have not been affected by the downturn in growth and continue to be more robust than those of other Aaa-rated peers. These buffers include ongoing budget surpluses that contribute to growing fiscal reserves, which in turn further enhance the government's financial position. Singapore's sovereign wealth funds transfer a portion of their long-term returns to the government through the net investment returns framework, contributing to ongoing revenues.

While the government does not publish an estimate of the stock of its fiscal reserves, we estimate that assets managed by the Government of Singapore Investment Corporation, the Monetary Authority of Singapore, and Temasek Holdings (Private) Limited (Aaa stable) are substantial and far exceed the level of public indebtedness. These buffers provide a financial cushion against sudden shocks, giving scope for countercyclical policy.

As a highly open economy that is dependent on both merchandise trade and cross-border financial intermediation, Singapore is exposed to global financial shocks. However, its current account surplus is the highest among Aaa-rated countries—at around 20% of GDP—reflecting both Singapore's high level of saving and the income generated from its large overseas assets. The current account surplus provides an ample buffer against capital flow volatility.

The sustained strength of the balance of payments is also reflected in the central bank's large foreign currency reserves and the country's large net international investment position, which at over 200% of GDP is one of the highest in our rated universe. In turn, vast foreign currency reserves contribute to the effectiveness and sustainability of Singapore's exchange-rated based monetary policy.

Together with high income levels, Singapore's large net asset position in the household sector also imparts resilience to an environment of slowing growth, tightening global financial conditions, and volatile capital flows. While household debt has risen by more than nine percentage points to around 75% of GDP in 2015, household assets are six times the size of its liabilities, providing a substantial buffer against rising interest rates and the ongoing softening in residential real estate prices.

Finally, large and globally diversified financial assets provide cushion against sector specific shocks, partly offsetting the economy's small size relative to some other Aaa-rated sovereigns.