A STRONG fiscal position, low debt and a positive growth outlook are behind Singapore's coveted triple-A credit rating, according to Moody's Investors Service.
However, the ratings agency warned in a report yesterday that rising living costs and the impact of economic restructuring are challenging the high score.
It expects Singapore's economy to grow 4 per cent this year - at the upper end of the official forecast range of 2 per cent to 4 per cent. This is on the back of stronger exports as growth strengthens among key trading partners, and robust domestic demand due to public infrastructure projects and wage growth.
But Singapore's medium-term growth potential will be lower than in the past, partly due to challenges from changing demographics and tepid labour productivity growth, Moody's said.
It added that government policies to boost labour productivity and innovation will take time to show tangible results.
A recent International Monetary Fund study found that real wages have grown faster than labour productivity in Singapore, and cautioned against the risks to the country's competitiveness and output growth if wage increases are not matched by productivity gains.
Domestic and political event risks are very low in Singapore, which has shown a high degree of social and political stability since its independence in 1965, the report said. However, "this has not been tested by electoral change".
Still, while domestic politics has become livelier, political stability and social cohesion are not under threat and the Government has responded by increasingly adopting policy measures supportive of low- and middle-income households, added Moody's.
It expects a government Budget surplus of about $1.6 billion in the 2014 fiscal year, equivalent to 0.4 per cent of projected gross domestic product. This is based on the Budget performance over the past decade.
The ratings agency also said maintaining market-friendly and fiscally prudent economic policies would help keep Singapore's ratings at the highest level, while publishing more detailed statistics - such as on the Government's external assets as well as consolidated public sector finances - would enhance transparency.
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