How did the Singapore’s Government manage their economy?

How can a small and independent Nation became one of the world largest exporter?

SINGAPORE'S FOREIGN POLICY

A large part of Singapore’s success in the international arena is attributable to a foreign policy of being a friend to all states, while also prioritizing its own

national interests. As Singaporean Foreign Affairs Minister Vivian Balakrishnan has stated:

“The ultimate objectives of our foreign policy are first to protect our independence and sovereignty, and second, to expand opportunities for all Singaporeans to

overcome our geographic limits. The existential challenge is how we achieve this.”

Followed by:

 As a small state, Singapore has no illusions about the state of our region or the world.

 Singapore must always maintain a credible and deterrent military defense as the fundamental underpinning for an effective foreign policy;

 Singapore must promote and work for good relations with our immediate neighbors in all spheres;

 Singapore stands by its friends who have stood with it in times of need;

 Singapore is fully committed to the Association of Southeast Asian nations (ASEAN);

 Singapore will work to maintain a secure and peaceful environment in and around Southeast Asia, especially the Asia Pacific region;

 Singapore will continue to work for the maintenance of a free and open multilateral trading system;

 Singapore is ready to trade with any state for mutual benefit and maintain an open market economy;

 Singapore will support and be active in international organizations such as the United Nations (UN).

Singapore occupies an area smaller than New York City, but Prime Minister Lee Hsien Loong has declared that while this is a small country, it has a strong

international reputation that allows it to participate globally. In the Indo-Pacific region, Singapore is a key economic hub, with foreign direct investment standing

at 19.65% of Gross Domestic Product (GDP).

Singapore has been one of the great success stories of South East Asia. The country started with very little money or resources just a few decades ago and had

built one of the best global cities today. Their success story is not similar to that of China or Hong Kong. The differences are remarkable.

The world has seen a polarized debate regarding economic models. Some believe in capitalism whereas others believe in socialism. There seems to be no third

alternative to “the market” or “the plan”. However, Singapore is proof that a third model does exist. It is a city where capitalism and socialism have coexisted,

and the result has been economic prosperity.

What is So Special about Singapore?

The stupendous success of the Singapore model can simply be referred to as being astonishing. Singapore has close to 1% of the population of China. The GDP of

Singapore is about 11% of China! Singapore has one of the lowest inflation rates in the world. The inflation has averaged close to 1.9% whereas the global

average is close to 3.5%. This small city state possesses one of the world’s largest export sectors. This hugely successful export sector has ensured that Singapore

has the 10th largest foreign reserves in the world! Singapore is a preferred destination for multinationals. This is because of the strong anti-corruption laws that

have been put in place. The result is that Singapore has the busiest port in the entire world.

Singapore is home to over 3000 MNC’s from across the world and these MNC’s account for over two-thirds of the exports generated by Singapore. The economy

is one of the strongest in the region. The 1997 crisis which spread like wildfire amongst Asian economies could not do much damage to the economy of

Singapore.

Free Market Principles

The economy of Singapore has followed free market principles in some parts of their economy.

 Labor Market: Singapore has traditionally followed an open door policy for immigrant workers. About 35.8% of the labor force in Singapore is made up of

foreigners. Singapore wanted to create an atmosphere wherein the best, and the brightest from across the globe were welcome into their economy. That

is exactly what has happened. A significant portion of the success can be attributed to the contributions of immigrant workers.

 Bureaucrats Held Accountable: Singapore is the only country in the world where bureaucrats have a variable pay. This variable pay is affected by the

health of the economy. For instance, during the 2008 crisis when the economy went down, Singapore’s bureaucrats lost money. It is amazing how much

regulation bureaucrats can eradicate when they are motivated to do so.

 Low Tax Rates: Singapore has one of the lowest tax rates in the world. The corporations are taxed at 17%, and the households are taxed at 20%. This is

the reason why all the MNC’s have flocked to Singapore. The end result has been that Singapore residents have high paying jobs and also the government

earns much more money via indirect taxes.

 Low Government Spending: Singapore government has one of the lowest rates of government spending. The government meddling in the GDP is kept

below 20%. If the spending goes above 20%, cuts are implemented. These cuts reduce the expenditure.

Socialistic Principles

Surprisingly some part of Singapore’s economy is also based on Socialistic principles.

 Public Housing: Singapore has one of the world’s most successful public housing projects. About 90% of the population of Singapore owns a house. These

houses have been provided to them in government approved projects at government approved rates. The government of Singapore has also taken

measures to prevent racial concentration. They have ensured that there is a mix of different races in every neighborhood. It is strange that a country with a

capitalistic outlook towards trade has an entirely socialistic outlook towards housing. With regards to public housing, Singapore is almost like a welfare

state. However, the good thing is that it has worked and Singapore has one of the best housing systems in the entire world.

 Public Healthcare: Just like the housing system, the public health system in Singapore is also heavily subsidized. Most of the healthcare expenses are taken

care of by the government. Singapore does have private hospitals and nursing homes. However, they are mainly funded by taxpayer money. Also,

Singapore forces its citizens to save a part of their income in the “Medisave” accounts. Employers are also supposed to contribute to these savings. Like

housing, Singapore’s health care system is also well renowned across the world.

Fiscal Policy

Singapore practices a prudent fiscal policy, which complements the monetary policy in promoting sustained economic growth without inflation. Fiscal rules

require a balanced budget over the term of the Government.

The key reasons for Singapore’s successful fiscal policy are prudent expenditure programmes and fair tax policies.

Prudent Expenditure

The main focus of the Government's expenditure is on delivering essential public goods and services to Singaporeans.

Key areas of expenditure are on:

 Education, public housing, health care and national security.

 Building and maintaining world-class economic infrastructure and services.

Development expenditure has accounted for around one-third of government expenditure on average over the last three decades.

Fair Tax Policies

Taxes provide the main source of funding for the government. At the same time, Singapore's tax policies aim to make its economy more competitive and attract

foreign investments to Singapore.

Principles of Fiscal Policy

Singapore’s fiscal policy is directed primarily at promoting long-term economic growth, rather than at cyclical adjustment or distributing income.

Therefore, the Singapore Government adopts the following principles to meet its objective:

 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.

 The counter-cyclical role of fiscal policy is limited, due to high import leakages.

Budget Surpluses

Singapore has enjoyed consistent budget surpluses over the years. Its high savings rate allows it to achieve one of the highest investment rates in the world

without having to incur foreign debt.

High domestic savings have also provided Singapore with ample foreign reserves. This has boosted investor confidence and provided a buffer against adverse

economic shocks.

Monetary Policy

Monetary policy in Singapore is centred on the exchange rate. In the small and open Singapore economy, the exchange rate is the more effective tool for

maintaining price stability.

The MAS' primary goal is to ensure price stability and maintain confidence in the Singapore dollar (S$).

How the Sing Dollar is Managed

MAS (Monetary Authority of Singapore) manages the Sing Dollar exchange rate against a trade-weighted basket of currencies of Singapore's major trading

partners and competitors.

The composition of this basket is reviewed and revised periodically to take into account changes in Singapore's trade patterns.

This trade-weighted exchange rate is maintained broadly within an undisclosed target band. It is allowed to appreciate or depreciate depending on factors such

as the level of world inflation and domestic price pressures.

MAS may also intervene in the foreign exchange market to prevent the S$ exchange rate from fluctuating too much.

Policy Reviews

Monetary policy is reviewed every 6 months to ensure that it is consistent with economic and market conditions. This ensures low inflation and economic

growth over the medium term.

Money Market Operations

MAS' monetary policy focuses on controlling the exchange rate, rather than interest rates.

As such, MAS conducts money market operations mainly to ensure that the banking system has enough liquidity to meet banks' demand for reserve and

settlement balances.

Opportunities for the Future

Despite the challenging global environment, there are many opportunities for Singapore. These include:

 Strong market potential in many Asian markets and other emerging markets.
  Well positioned to tap into several growth sectors. For example, the rise of the middle-class and urbanisation in Asia will increase demand for finance,

hub services, logistics, as well as urban solutions.

 Opportunities in the digital economy to transform industries and raise productivity in sectors like advanced manufacturing.

MAS' ITM for the financial sector aims to support Asia’s development with plans to develop Singapore in the following areas:

 Asian centre for capital raising and enterprise financing.

 Full service Asian infrastructure financing hub.

 Leading centre for Asian fixed income.

 Global capital for Asian insurance and risk transfer.

To transform the financial sector, the ITM will also will facilitate innovation in the financial sector and encourage the adoption of technology for increasing

efficiency and creating opportunity.

Sources:

https://www.mas.gov.sg/bonds-and-bills/investing-in-singapore-government-securities/Singapores-Economy

https://www.mfa.gov.sg/overseas-mission/dubai/about-singapore/foreign-policy

https://www.futuredirections.org.au/publication/economic-foreign-policy-and-security-challenges-for-singapore/

https://www.managementstudyguide.com/singapore-growth-model.htm

The summary of my Investigation:

The government of Singapore gives full attention to their economy, Human resources and their welcoming attitude towards International investors.

Singapore also believes to both capitalism and socialism: Singapore is proof that a third model does exist. It is a city where capitalism and socialism have
coexisted, and the result has been economic prosperity.

Their law against corruption was effective that it mainly affects their economy, after 1965 independent, Singapore lift their own nation out of poverty.

Their government did the most smartest move to counter poverty by lowering tax rate, making education more accessible and affordable and because of their
Public housing policy the 90% of Singapore’s resident owns a house .

The public health system in Singapore is also heavily subsidized. Most of the healthcare expenses are taken care of by the government.

Singapore forces its citizens to save a part of their income in the “Medisave” accounts. Employers are also supposed to contribute to these savings. Like housing,
Singapore’s health care system is also well renowned across the world.

Their health care is more friendly than the other countries health care and lastly Singapore’s tax policy aim to make its economy more competitive and attract
foreign investments to Singapore. Singapore residents have high paying jobs and also the government earns much more money via indirect taxes.

Singapore government has one of the lowest rates of government spending. The government meddling in the GDP is kept below 20%. If the spending goes above
20%, cuts are implemented. These cuts reduce the expenditure.

Second summary:

Base on my understanding Singapore’s Government really care about their Nation. They actively enforces their Anti-corruption laws-Property rights are
determined and reinforced effectively, Singapore is rank 12 in the world Justice’s projects 2020 rule of law index and is considered as one of the world least
corrupt Government.

Singapore also takes good care of their human resources from Singaporean local resident to Immigrant workers, Singapore ‘s residents have high paying jobs,
easy access to health care, Educations are affordable and public housing, 90% of Singapore’s residents owns a house. Singapore also believes to both capitalism
and socialism: Singapore is proof that a third model does exist. It is a city where capitalism and socialism have coexisted, and the result has been economic
prosperity. Singapore’s Government is open to investors around the world which makes their Nation one of the world’s largest export sectors.