Singapore is recognized as the country with the largest external debt in Southeast Asia, and even ranks 4th globally.
Singapore's foreign debt to GDP ratio is 167.9%, while Brunei has the lowest foreign debt to GDP ratio at only 2.3%.
According to the IMF, the safe limit for the foreign debt ratio is 60% of GDP. Therefore, Singapore has a high level of debt.
For a country, a very high level of debt can make it difficult to repay. But is Singapore experiencing this?
In fact, the country is still able to maintain a balanced budget.
According to Singapore's official government website, although Singapore's gross debt to GDP ratio appears very high, it does not take into account the significant asset position that Singapore has.
The Singapore government has strong finances as its assets far exceed its net debt. This is reflected in the investment income earned on reserves, which the government can use for spending through the Net Investment Return Contribution.
The strong financial balance sheet has also led to Singapore being rated AAA by three leading credit rating agencies (S&P, Moody's and Fitch). Countries with this rating are considered to have the best ability to repay their debts to investors. As a result, investors tend to view investments in the debt of AAA-rated countries as safe and low-risk.
The Singapore government also does not borrow for day-to-day expenses. Instead, it issues debt for specific long-term purposes.
These factors explain why Singapore has not experienced a financial default despite its high level of debt.
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