Question
Ms Tan Su Shan: To ask the Minister for Trade and Industry in view of Singapore's falling current account surplus to GDP ratio in the last three years, what is the Government's position on the decline and whether the declining trend will reverse soon.
Written Reply by Mr Lim Hng Kiang, Minister for Trade and Industry
Singapore’s current account surplus declined from 23.7% of GDP in 2010 to 17.5% in 2012, before picking up to 18.3% in 2013. Despite this moderation, our current account surplus to GDP ratio remained one of the highest in the world.
The fall in the current account surplus between 2010 and 2012 was mainly due to a decline in the trade surplus, as the net exports of goods fell. This was in line with the slowdown in global trade activity. As global and regional trade flows picked up in 2013, Singapore’s trade surplus similarly saw an up-turn.
I would like to specifically address Ms Tan’s underlying concern over tightening domestic liquidity conditions. First, the surplus in the trade and current account balance remains sizeable and continues to be a source of inflow of funds into the domestic economy. This has supported an appreciation of the Singapore dollar. On a trade-weighted basis, our exchange rate has appreciated by around 7% over the last three years. Second, domestic interest rates have remained low over the same period, with the three-month S$SIBOR averaging around 0.4%. This is consistent with the still-low global interest rate environment, and is indicative of continued ample liquidity conditions in Singapore. Third, notwithstanding the low domestic interest rates, we have not seen any unusual flow of capital into and out of Singapore in the recent period.
From a broader medium-term perspective, the current account balance reflects the underlying savings and investment in the economy.1 As Singapore’s population ages, the current account surplus as a percent of GDP is expected to decline gradually. This is because of a slower accumulation of savings, even as investment spending continues to support our economic restructuring efforts and the upgrading of public infrastructure.
Nonetheless, as we transform our economy and continue to build up the competitiveness of our manufacturing and exportable services sectors, the value of our goods and services exports is expected to rise. This will help ensure resilience in our trade balance and current account surplus over the medium term.
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1 The current account is also equal to the difference between the savings and investments in an economy.