Fitch affirms Singapore's AAA rating; outlook stable

The ratings agency cited strong public sector balance sheet and large fiscal surpluses as some of the bases for the country's sovereign status.

Singapore's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) remains at 'AAA' with Stable Outlook while its Short-Term Foreign Currency IDR is at 'F1+.'

The Country Ceiling is still at 'AAA'.

"Singapore's 'AAA' sovereign status is anchored by its diversified economy and exceptional external and public finances, notably a strong public sector balance sheet and large fiscal surpluses," said Art Woo, Director in Fitch's Asia Sovereign Ratings group.

"The combination of these factors has helped Singapore weather a number of externally-driven shocks over the past two decades."

Singapore's strong public finances and flexible fiscal framework have once again played key roles in cushioning the economy from the negative effects of the 2007-2009 global financial crisis and overall economic volatility.

Fitch noted that while Singapore's GDP growth rate is the most volatile in the 'AAA'-rated peer group, the economy has managed to fully recover from the negative effects of the global financial crisis, with GDP growing 14.5% in 2010 - well above Fitch's 'AAA' peer group median of 2.4%.

With the economy restored to the pink of health, Singapore is moving to tighten both fiscal and monetary policies. For the financial year ending March 2012, the authorities are planning to balance the central government's budget (i.e. 0% of GDP).

The central bank is also targeting an appreciation of the Singapore dollar's nominal effective exchange rate policy band.

Despite the implementation of counter-cyclical economic policies, Fitch noted there are risks that Singapore's authorities still need to guard against.

Housing prices, in particular, have risen sharply over the past two years, despite the introduction of a variety of anti-speculation measures - such as lowering the loan-to-value ratios for housing loans and raising the seller's stamp duty - as a means to stabilize the market.

"Nevertheless, Fitch believes that downside risks associated with any moderate correction in housing prices would be manageable, due to a combination of strong household balance sheets and the banking sector's prudent lending practices," the ratings firm said.

"With respect to the latter, Fitch considers Singapore's banking sector to be amongst the strongest in the universe of Fitch-rated sovereigns and also views that systemic risk is minimal."