Singapore’s fiscal position to be unhurt from GIC’s, Temasek’s low returns

Conservative spending rules will safeguard it.

Despite the lower real returns of state-run investment entities GIC and Temasek Holdings due to exposure to equities, Singapore's fiscal position is foreseen to endure only a limited impact over the near to medium term.

According to Moody's Investors Service report, Singapore has on its arsenal buffers that would help it brave deficits at this time.

"Over the near to medium term, conservative spending rules, a large stockpile of existing fiscal reserves, and features of Singapore’s fiscal framework that work to safeguard them will limit the negative credit impact on the sovereign," Moody's said.

With this, the agency noted that the slip in returns from the two government-owned entities would unlikely to impact the country's budgeted fiscal balances over the next year.

"Long-term expected real returns from both entities and the Monetary Authority of Singapore (MAS), are an important source of revenue to the government's annual budget. However, the fall in contributions will be gradual," Moody's explained.

"We assume that the government will meet its fiscal targets for the year. The conservative nature of the government's fiscal rules, which require it to run a balanced budget over its five-year tenure, is an important factor," the agency added.

However, if low real returns were to linger, it would weigh on the budgetary balances and limit scope for future fiscal stimulus to boost growth.

"We would view lower returns as credit negative if they resulted in persistent fiscal deficits, creation of debt, or an erosion of accumulated reserves — all of which would mark a departure from historical trends," Moody's stressed.