OCBC: S’pore economy least risky

Source : Straits Times - 17 Oct 2008

SINGAPORE has been rated the best-equipped of more than 50 economies worldwide to overcome a serious economic crisis in an OCBC report prompted by the current global financial meltdown.

Released on Wednesday, the report, which may help Singaporeans sleep easier at night, looked at risk levels and awarded Singapore full marks for its long-term economic fundamentals.

Assessed according to seven indicators of economic health, the Republic received a point in every category to top the list as the least risky of 50 economies and the Euro-zone.

The rankings placed the United States and Britain ominously low. OCBC economist Selena Ling said as both governments take on more debt for bailout packages to save financial institutions, the long-term economic health of both countries would be under severe stress.

The seven indicators fall under three broad categories that the economists believe to be the most important gauges of a country’s ability to survive what they call ’severe economic adversity’.

Ms Ling said that the prospect of this occurring is highly likely, given the global credit crunch and a potential global recession.

The broad categories used to track a country’s economic health are the ability of a country to cushion itself in a downturn, its level of leverage or debt, and its debt to income level.

Countries with large savings rather than debt, access to usable reserves and which run a fiscal surplus generally fared better on the list.

This report, the first of its kind released by the bank, was initiated in view of the global financial meltdown, said Ms Ling.

With countries taking on so much debt to bail out their banks, attention was now being turned to sovereign risk rather than just corporate risk.

Most notably, Iceland is on the verge of bankruptcy because it cannot fund the bailout of its troubled banks.

The traditional sovereign credit ratings may therefore not accurately reflect the stresses the economies are going under, Ms Ling said.

OCBC economists said that Singapore passed all the indicators that are deemed important in determining the medium- to long-term economic fundamentals.

Joining Singapore as being certified low-risk were Scandinavian countries Denmark, Norway and Sweden and also Switzerland.

The surprising results were that South Korea, Russia, Thailand and Venezuela were also considered low-risk, mainly due to passing the cushioning indicator with ‘flying colours’, OCBC’s economists said in the report. This means that these economies have a relatively higher savings to gross domestic product ratio and usable reserves.

South Korea has a single A credit rating from rating agency Standard & Poor’s while Russia and Thailand have a triple B plus rating, and Venezuela, a double B minus rating. The highest rating is triple A.

Iceland was unsurprisingly deemed high-risk, but developed economies like the United States, Britain and the Euro-zone also fell under this category.