This paper has greatly focused on the economy of Singapore and its growth over the years. The paper has analyzed the financial policies that have seen the country grow into a major world economy. The report begins by examining and explaining how Fiscal policy variables have changed over time. In the report also, the way the government debt has change over time has been outlined. This includes the reasons that led to the changes in the government’s deficit and debts in Singapore. In this report, the factors that led to the rising off Singapore’ deficit have also been discussed lengthily.
How Fiscal policy variables have changed over time
For any organization or government to keep accurate monetary records, financial analysis must always be performed. Through financial analysis, the government and any other business can gain financial data that can help to improve or enhance funds flow. Financial analysis influence fiscal variables significantly either positively or negatively. Fiscal variables represent both expenses and revenues. Changes or variables in fiscal policies are mainly influenced and determined by the revenue and expense variables. Revenue variable are the variations in the government’s collection of revenue while expense variables are the variations in its spending (Shannon, 2010).
Singapore’s government expenditure has changed focus to deliberate on the delivery of indispensable goods and services to the people (Shannon, 2010). The government of Singapore has focused greatly on education, public housing, health care as well as national security (Shannon, 2010). Other than these, there has been a great effort by the government to prepare the country for the global economy. In readiness for the globalized economic blocks that are coming up in various regions of the world, Singapore has been very keen to set up world class infrastructure and services to accommodate such developments.
Over the last three decades, Singapore’s expenditure on development has accounted for a one-third of the total government expenditure (Shannon, 2010). The main source of the government’s income is through taxation. Nonetheless, the government has been able to enhance its economic competitiveness hence attracting foreign investors in the country (Shannon, 2010). In order to manage its financial records, Singapore has been using the fair tax policies and also the government has been exercising prudent expenditure (Shannon, 2010). This has been the force driving the successful economic environment in the country hence enabling the country to compete as a world class investment destination.
The country has maintained a prudent expenditure policy to control the Cost of Goods COG, through government spending. TRGHQ is the money transferred from the government to households. The government of Singapore has directed its fiscal policy to promoting economic growth as opposed to equal distribution of the national wealth. The government has established tree principles that have helped in achieving this goal (Shannon, 2010).
First of all, the government acknowledges the private sector as the primary engine of economic growth. In this case, the government has taken the responsibility to ensure that the business conditions are conducive for the private sector (Shannon, 2010). Secondly, the government tax and expenditure policies are justified considering microeconomic factors as well as supply issues. Producers are given incentives for saving investments and enterprise in the country (Shannon, 2010).
How the government deficit and debt has changed over time
Singapore has had an enviable economic growth over the years despite the fact that the country never had an economic stimulus plan. Unlike the USA and other major economies, Singapore has always maintained a low national debt. The country has a record GDP growth of 15 percent on average even after the slight economic contraction in 2009 (Monetary Authority of Singapore, 2014). Comparing the government deficit between the USA and Singapore, it is clearly seen how the country is succeeding in economic management.
For instance, the entire government consumption of the total GDP in Singapore is 12.5 percent (Monetary Authority of Singapore, 2014). In the USA, the federal deficit amounts to 10.5 percent of the GDP (Monetary Authority of Singapore, 2014). The cumulative government spending of the United States is around 44 percent of the GDP (Monetary Authority of Singapore, 2014).
Since the 1980s Singapore has not borrowed any money from the World Bank to finance its deficit expenditure (Monetary Authority of Singapore, 2014). Actually, the country is one of the few states that have no external debt from any international financial institution. Over time the government has been able to control its external expenditure hence protecting the value of its currency even in the international market. An external debt exposes the local currency to foreign currency liabilities (Monetary Authority of Singapore, 2014). Avoiding borrowing to finance deficit expenditure has greatly helped the country’s economy to stabilize so fast especially from the economic downfall in 2008.
Many argue that the country had a very high debt that can be seen as a fiscally unsustainable. Nonetheless, it is obvious that the critics are looking on the gross debt without considering the countries assets (Monetary Authority of Singapore, 2014). Singapore unlike other economies has never borrow to spent rather the government borrows money to invest (Monetary Authority of Singapore, 2014). This therefore means that the government’s borrowing is always backed by assets which are in excess of the country’s liabilities. Government investments collect more income enough to service the debt costs (Monetary Authority of Singapore, 2014).
Factors leading to the rise in deficit in Singapore
Singapore’s economy is a trade oriented market and it has been ranked among the most open markets in the world alongside Dubai. In addition to this economic milestone, the country is also known for its extremely low levels of corruption (Monetary Authority of Singapore, 2014). Its taxation and business environment has attracted many investors hence boosting its economic growth in an enviable rate. All this factors have enabled the country to gain purchasing power parity. In addition, the country has put in place prudent borrowing policies that have reduced its exposure to external debts. The capability to invest and save is the greatest strength of the Singapore government fiscal policies (Monetary Authority of Singapore, 2014).
Why are interest payments of the government, INTG, growing so rapidly?
The rapid growth in the interest payment of the government is growth rapidly in Singapore. The growth of these interests has been greatly influenced by the stability of the economy (Monetary Authority of Singapore, 2014). The stability of an economy raises its market values and other financial aspects hence the increase in the value of the government’s securities, SGSs (Monetary Authority of Singapore, 2014). Investing in Singapore is secure and the returns are assured. The cost of doing business in the country is equally friendly hence attracting investors from far and wide.
Consequences of the increasing government interests payments
A rise in the interest payments may have negative influence on strength of the local currency. This may cause very high levels of inflation and reduce the value of the country’s currency (Monetary Authority of Singapore, 2014). Consequently, the low value of the currency will also cause adverse implications to the cost of doing business in the country and the cost of money will be higher in the money markets (Monetary Authority of Singapore, 2014).
When the cost of money is high, the level of borrowing reduces and locals will be avoiding loans hence reducing financial trading. All great economies are driven by the money markets therefore it must be in the government’s interest to protect the financial market (Monetary Authority of Singapore, 2014). Taxation is crucial for any economy to thrive and the level of its administration will either create a competitive business environment or not.
Foreign sector variable
The foreign sector variables help the government to analyze financial flow from foreign investors and investments. Foreign financial flow can be classified as imports, IM or exports, EX. Movement of finances from the country is normally through public imports PIM. On the other hand, the money that flows into the country comes through the public export, PEX (Monetary Authority of Singapore, 2014). It is important for the government to monitor and analyze the flow of cast through PIM and PEX in order to identify the loopholes that hinder financial growth.
Singapore has always had a prudent spending policy that restricts the government from using public borrowing to finance national deficit. Always, the government ensures that the public loans are used to invest back in the country’s economy (Monetary Authority of Singapore, 2014). The country has also invested in tourism and telecommunication. The tourism industry helps the country to gain foreign supremacy through exporting cultural exposure to visiting tourists. The country’s historic hospitality industry has attracted many tourists hence making Singapore one of the most important tourist destinations globally (Monetary Authority of Singapore, 2014).
Saving of the foreign sector
Singapore has attracted many global corporations that have heavily invested in the country from the hotel industry to the telecommunication among other industries (Monetary Authority of Singapore, 2014). These companies have heavily invested in the country and they also have put their savings on the monetary institutions in the land. This has greatly influence the financial strength in the economy. With the availability of currency in circulation, there is the advantage of spending. In addition, the money market has been greatly supported by foreign investments in the country (Trading economics.com, 2014).
The foreign sector savings have also helped in the development of banks and financial institutions in the land. Due to the high amount of money being saved, the banks are able to give loans and offer financial support to locals hence supporting local investments. The movement of money n the economy has been enhanced through foreign savings (Trading economics.com, 2014). This has also improved the infrastructure since the government through taxes can be able to supports its development projects. Foreign savings haves actually changed positively since the country has had very stable banking system.
The stability growth pact, SGP, and the SR
The stability growth pact SGP, in Singapore has been on the rise for the last three decades. The country has had great improvements in the growth of its economy (Trading economics.com, 2014). This has been changed by the fiscal policies that have been put in place. Singapore has been one of the emerging economies of the world in a very short period of time due to the stability growth pack strategy. The SGP and the SR are correlated in that they both represent the growth of an economy in terms of financial viability and commercial strength (Trading economics.com, 2014). They both focus on the environment to create and accumulate wealth in business.
The ability to invest in an economy and make desired financial gains is the essence of the two financial growth strategies. Economic growth is greatly affected by the policies that are governing the movement of cash. In economies where the environment does not favor the growth of business and diversified investments, stability is unachievable (Trading economics.com, 2014).
Effects of economic policies
Economic policies affect the country’s growth either positively or negatively depending o the policy. Taxation is one of the most fundamental financial policies that governments use to raise their revenues (Trading economics.com, 2014). The government can choose to raise the taxes and collect more revenue or reduce it to allow citizens to allow businesses to thrive. Increasing taxes makes production cost to increase and this also increases the cost of living. High cost of living is detrimental for any country since the poor will remain poorer and the rich will continue being wealthier (Trading economics.com, 2014).
Economic policies shapes a country’s development growth, the quality of the policies put in place are reflected by the results of its economic influence. Some policies may attract investments and support growth while others may not. The government must always work in the interest of the consumer to ensure that the business environment is protected and competitive (Trading economics.com, 2014).
Consumer demand is greatly determined by their disposable income. Increasing the taxes takes money away from the consumers and leaves them with little disposable income hence reducing their purchasing power. This will directly affect the demand for goods and service hence affecting business in general. Reducing the taxes on the other hand increases the amount of disposable income hence increasing customer’s purchasing power.
On the other hand, high taxes will enable the government to raise enough funds to cater for the fiscal budget. Government services are offered to the entire country and most of these services are for free (Monetary Authority of Singapore, 2014). If the economy has to thrive, the government has to be in opposition to finance its operations such as security and health. Therefore, taxation is important to finance the government’s budget. Services offered by the government are important so taxation is justified.
The paper has also discussed why the interest rates for the government payments are rising rapidly. In addition to the reasons for that, the paper gives the consequences anticipated as a result of the rapid rise in the interest rates. The foreign sector variables have also been discussed and outlined in a very concise manner in this report. And the end of this report, the effects of foreign policies has been outlined in detail to show their impacts. The paper argues that foreign policies are the main incentives for a better business environment.
This report has examined in detail the financial policies that have Singapore to grow so fast beating some of the great economies in some aspect of prudent financial management. The paper has also exposed some of the successful strategies that the country has used to make the steps it has made towards becoming a better economy. This is therefore a comprehensive report showing the fiscal policies exercised by Singapore with prove of their effectiveness and success.
Shannon, K. (2010). Singapore’s Surprise GDP Growth among Highest in the World. Web.
Monetary Authority of Singapore: Monetary Policy. (2014). Web.
Trading economics.com: Singapore Government Debt to GDP. (2014). Web.