Singapore topped global economic ranking:OCBC

A fiscally strong country, Singapore passed with flying colors all the indicators of a healthy economy.

In a study conducted by OCBC, they gave an informed overview on how the global economies stand given the below 7 selected indicators, and classifying each economy into a so-called low-, medium-, and high-risk economies. The indicators include: Savings/GDP ratio; Usable reserves; Fiscal performance; Domestic credit to the private sector & NFPEs - nominal GDP growth rate; Net debt/GDP; Financial sector contingent liability/GDP; and, Interest payments on general government debt/GDP. 

OCBC explained, the first 3 indicators are grouped under their cushioning category, the next 2 indicators fall into the leverage category, and the final 2 indicators come under the liability category. Both Singapore and Russia passed all the indicators that are deemed important in determining the medium- to long-term economic fundamentals in an event of severe global adversity. Switzerland and Taiwan managed to gain a low-risk rating, despite losing a single point to either the leverage or liability category, while Norway passed all indicators except the usable reserves. The surprising low-risk status of emerging economies like Russia, Indonesia, Thailand, Argentina, and Philippines are mainly due to the fact that they pass the cushioning test with flying color, scoring 3 out of 3 indicators. These economies are associated with owning a relatively higher savings/GDP ratio, usable reserves as well as strong fiscal performance, implying that they are comparatively less leveraged and have somewhat less liability to external party. Countries who scored 5 points in the low risk category are generally more leveraged vis-à-vis other low-risk countries.

Countries classified as medium-risk are those with a reasonably high savings/GDP ratio and usable reserves but are still running a budget deficit. Developed economies like Hong Kong, Denmark, Canada and Austria have high financial sector contingent liability and interest payment on generalgovernment debt. Oil exporting economies like Saudi Arabia has significantly lower Net Debt/GDP ratio vis-à-vis all other economies. Some emerging economies like Czech Republic and South Africa have relatively less internal ability to cushion a global economic downturn but they are less leveraged and have significantly lower liabilities vis-à-vis other countries. Other emerging economies like Brazil and Turkey are highly leveraged with poor internal ability to cushion a global economic downturn.

The high-risk economies (with the exception of India, Israel and Hungary) shared common characteristics of having less internal ability to cushion a global economic downturn. Portugal, Italy, Ireland, Greece and Spain (PIIGS) as well as Developed economies like the US, UK, and France scored 0 out of 3 cushion indicators. These economies can be classified as so-called “borrower” economies which may be more vulnerable in an event of a global downturn. India, Israel and Hungary scored 2 out of 3 of the cushioning indicators but they are highly-leveraged and significantly-indebted vis-à-vis other countries.

OCBC concluded, Singapore remains the best-ranked country among the selected economies for the indicators that are deemed important in determining their medium- to long-term fundamental economic health. The result poses little surprise to us: fiscally strong countries, many of which are found in Asia and include the likes of Indonesia, Taiwan, Thailand, China and South Korea fall into the low-risk category. In contrast, peripheral Europe countries which are currently facing sovereign fiscal stress like Portugal, Ireland, Italy, Greece and Spain are also understandably found in the high risk section.

In addition, OCBC factored in the recent energy price hikes and estimated the fuel subsidy bill in six Asian countries namely: China, India, Indonesia, Malaysia, Thailand and Vietnam. It is likely that these six countries’ domestic fuel subsidy bill may balloon should energy prices continue to climb or remain elevated due to MENA political unrest and possibly Japan’s nuclear crisis (which may deter countries from contemplating a shift from fossil fuel to nuclear power generation in the nearterm). As such, although China, Indonesia, Thailand, Malaysia and Vietnam are found in the low- and medium-risk category (with the exception of India who already falls into the high-risk category), a scenario of persistently elevated energy prices could see their fiscal outlook deteriorate more than expected.