Singapore's fiscal position remains strong despite recent lower real returns from GIC and Temasek: Moody's

Moody's Investors Service said in a report on Wednesday that although lower real investment returns were reported from Singapore's two large, government-owned investment entities, it will have a limited impact on the country's fiscal position over the near to medium term.

Moody's conclusion takes into account the two entities' - GIC and Temasek Holdings - expectations of weaker and more volatile performance in the future.

In its newly published reports, Singapore-based investment company Temasek's net portfolio value dropped 9 percent this financial year. In the meantime, sovereign wealth fund GIC generated an annualised real rate of return of 4 percent over the 20-year period that ended March 31 this year, down from 4.9 percent a year ago.

Despite the weaker performances, Moody's says that Singapore will meet its fiscal targets for 2016, based on the conservative nature of the government's fiscal rules - which require it to run a balanced budget over its five-year tenure - and its large stockpile of existing fiscal reserves.

The above analysis is contained in its just-released report titled "Government of Singapore: FAQ on the Fiscal Impact of Lower Returns from Government-Owned Investment Entities."

Moody's says that the one-off fiscal slippages from short-term fall in long-term expected real returns by GIC and Temasek do not have material sovereign credit implications at this time, because Singapore has sufficient fiscal buffers to withstand such deficits over the near to medium term.

However, if low real returns were to persist, such results would weigh on budgetary balances, and limit scope for future fiscal stimulus to boost growth.

While long-term expected real returns from GIC and Temasek, as well as Singapore's central bank, are an important source of revenue to the government's annual budget, the credit rating agency says any fall in contributions will be gradual.

It also added that while growth in Singapore, as in many advanced economies, is slowing, the country's strong institutional, fiscal and external buffers provide significant credit support. In particular, strict rules governing the draw on past reserves from GIC and Temasek suggest that the buffers will most likely be preserved.

The report also contrasts Singapore's position vis-a-vis GIC and Temasek with other highly-rated countries that have sovereign wealth funds that are facing lower returns. Moody's notes that sovereigns with greater exposure to oil-related revenues may face a more rapid erosion in fiscal space. Endit