Question

Question 4 In the table given below, Singapore's balance of payments (BoP) comprises: (a) (b) (C) Current account of goods, services & factor income (primary & secondary income balance) Capital & Financial account as DFI & Portfolio Investment Errors & Omissions A+B+C = BOP reflected in E Reserve Assets Official reserves (stock as accumulated over the years) Explain the balance of payments position of Singapore and why traditionally, its trade in services rather than trade in goods dominated its Current Account. Why is this not a problem in policy?

Answer 1

To assess the Balance of Payments of Singapore:

BoP = Current Account + Financial Account + Capital Account

Current Account BoP:

Exports of Goods and Services - Import of Goods and Services + Primary Account Balance +Secondary Account Balance = 188,908.1 - 161,953.4+(-2058.1) +(-3847.7)

= 21,049.5

Financial + Capital Account BoP = 16,744.3

The Balance of Payments is an indicator of the health of the economy or a country , it assess whether the country is importing more than its exports and to measure its production capacity to pay for the output growth.

Here , the BoP of Singapore is reported on a quarterly basis , the BoP of Singapore is positive i.e the country is in excess , exporting more goods and services than its importing , Singapore is able to meet its domestic consumption and moreover is its position allows it to lend loans to other economies and countries since it has a positive BoP . The positive BoP also signifies that the economy of Singapore will create more jobs in the future and hiring will be strong in the coming quarter , however if we look closely we see that the BoP has decreased from the previous quarter .

The Positive Capital and Financial Account Balance suggests that the net inflows into the country in the form of deposits and investments in fixed capital has increased , hence it is not a net creditor nation for this quarter Q2/2017.

The Economy of Singapore is different from other traditional economies as in it is primarily driven by export of financial services . Other drivers of the economy of Singapore are tourism and the Sea-Cargo system , Singapore has the world's busiest Sea-Cargo station . Singapore also manufacturer's technology goods such as electronics , a lack of natural resources in the country makes it unable to compete with other resource rich countries in terms of production of goods and products .For most of the production requirements , Singapore sources raw materials from other countries , reworks on them and exports the final produced good.

Singapore is regarded as the world financial hub and is a major hub for Banking requirements for people all around the world , the central location in the Asia-Pacific region makes it a prime location for international financial destination and a part goes to the government proactive policies which makes it an enabler of world class financial facilitator . The government initiated policies of financial liberation in Singapore and reformed the economy .This motivated foreign entities who were looking for risk-free investment opportunities and Singapore provided them with it . With a total size of more than 2 trillion SGD , the banking industry in Singapore comprises of more than 200 banks, they provide services like corporate and institution banking. Singapore is often regarded as the international debt-arrangement hub of the world , its position as a ingenious asset manager has attracted investments from all around the world and leading consulting companies have been opening up offices in Singapore to take advantage of this situation.

The policy of Singapore is construed in a way to provide high standard of financial regulation and enable a system of well -managed financial system , the establishment of MAS(Monetary Authority of Singapore ) guides the supervision and development of the Financial Sector of Singapore's economy . The government of Singapore has recognised the growing potential of Singapore as a facilitator of financial services and developed an outward looking growth strategy for Singapore in this sector which led to the formation of a - A dedicated financial promoting department and growth of Singapore as an asset management hub.

With the growth of the fin-tech sector , the policy framework has been reevaluated to focus on technical-knowledge and to drive Singapore into a knowledge based economy .