Can Singapore retain its successful economy
Around 50 years ago it was hard to imagine that Singapore could ever be called the ‘Asian tiger’ owing to its strong economic growth. The world has witnessed the rise and rise of the Singaporean economy ever since it received independence on 9th August, 1965. Lee Kwan Yew, the first Prime Minister of Singapore, is credit with transforming Singapore from a third world nation to a first world nation. Under his leadership, he reduced unemployment, worked towards increasing the standard of living of the people and implemented a mass public housing programme. Apart from being a successful political leader, he was also a business disruptor. The economic success of Singapore was a result of the smart business strategies of the administration.
From the time of independence Singapore invested heavily in economic growth. The Economic Development Board was setup by Goh Keng Swee. It actively worked towards promoting the manufacturing sector in Singapore. Many industrial estates mushroomed at this time. And political leaders went to different parts of the world to attract foreign investments. Once the internal and external security forces were established, foreign investors had renewed faith in the Singaporean economy. The education system also contributed to the Singapore economy by producing competent workforce upon graduation. The growth of the manufacturing sector, service sector and the increase in foreign investments led to rapid growth of the Singaporean economy.
The question financial leaders are asking is – Can Singapore retain its successful economy?
Challenges for the Singapore Economy:
Owing to certain external and domestic factors, the Singapore economy has seen slow growth. The general global cyclical downturn has resulted in a slump in oil prices. This in turn has affected the rig-building and oil industries in Singapore. To add to that demand from China has reduced as they move towards self-sufficiency. On the trade front, the Singapore economy is recuperating from the effects of Brexit and the US presidential election. The trickle down effect of these factors has impacted the labour market as well. With these issues in hand the Home affairs and Law Minister said that the Singapore economy has to deal with these four challenges:
Balancing financial prudence with higher social spending
Extensive spending at the government level can pose a challenge owing to the slowdown in the overall growth rate of the economy. Earlier people had a tendency to save a lot, giving them to opportunity to tap into the income generated from investments. Higher social spending was possible earlier but at present this needs to be curbed. The government cannot go all out incurring extremely high expenditure, which is more the amount it collects. In case, we don’t practice financial prudence at this juncture. Then the younger generation will have to bear the brunt of paying higher taxes to clear the debt.
An aging population
One of the key challenges that Singapore faces is that it has one of the fastest aging populations in the world. And with rising healthcare expenses, this aging population will have a negative effect on the economy. This in turn will result in fewer young people in the defence force. This will also lead to reduced local workforce. As older people retire and lesser people enter the workforce. This smaller base of economically active citizens will have to pay higher taxes to make up for the lack of people in the workforce. Singaporeans will then start looking for opportunities in other countries to avoid paying high taxes.
Competition of other countries
Singapore is facing cut throat competition from other Asian countries like China, and Japan. Singapore faces both regional and global competition with other countries trying to take away the foreign investments Singapore is attracting. With other countries aiming for self-sufficiency, Singapore will lose out in many trade opportunities in the manufacturing and the service industry. The port of Singapore was at one point the major port in Asia. Currently, facing tough competition from other regions, like Indonesia and China. Kuala Lumpur and Hong Kong is trying to be the next financial hub in Asia, and Thailand trying to overtake Singapore as Asia’s largest air hub. Singapore cannot afford to take its economic position for granted.
2017 saw global uncertainties rock the economic world and this has not left Singapore unscate. The election of Donald Trump and decision of the United Kingdom to leave the European Union has created uncertainty in the global economy. This has translated into a drop in the investment and trade in Singapore.
Amidst all these challenges, whether Singapore will retain its successful economy is something only time will tell. The year 2017 has seen an improvement in the overall GDP growth in comparison to the previous two years. Mr Edward Lee, from the Standard Chartered Bank, stated that 2017 “is shaping up to be a good year for the Singapore economy”. He also stated, “Much of the export growth this year has been driven by China. We have the view of a possible pullback in 2018 because China over-boosted. It is growth this year given it being an important political year. We think it may focus more on deleveraging in the quarters ahead”.
If Singapore manages to hold on to its current growth rate there is a high chance that it will still continue to be known as the Asian Tiger.
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