The city-state Singapore has a very elevate debt/ GDP, 112% but has still the highest rating that a country can achive, AAA. In contrast for what the IFM say, that when the rapport between the GDP and the debt is over the 100%, that’s not very good.
This is true but there are exceptions like the Singapore rating, but now let’s see why.
What is a rating?
Like the Singapore rating, this a a sequence of letter that defind the total estiamte probability that a country will go in deafult. Further, there are different agency that give ratigs but just three are the most important, and the one on which the most investitor and country focus:
The ratings are given by different agency but generally there are the three most important for these type of analysis which influence most the world:
On different part of the year, they pubblic documen with the position of the country, (likewise the rating of Singapore) or too a society in a determinated scale that you can see in this picture below.
What is debt and how is releted to the Singapore rating?
Every year, almost every countries in the world needs to do debt to pay it’s expenses. Likewise Singapore. For instance, pensions, investments, paying past debts, anything. So, they emit debt, they ask people to give them a total amount of money and in exchange they will give them the money borrowed plus interest.
For example, there is Italy that needs some money for pay pensions, it goes to you and say “hey, I give you $ 100 plus interest (percentage of the total amount of money borrowed”. Consequently, you say yes to Italy and you will receive your $ 100 (if Italy don’t default) and plus a percentage of the total money borrowed.
This percentage depend on the ratings of the three agency. Because they say how high is the probability that the country won’t be able to pay back it’s debt. So, more probability equal to more money in interest but it is riskier. Due to the highr probability that the country will defualt. So, in conclusion, if the Singapore rating is the highest grade, then it’s possibility of default are ery low.
Why Singapore rating has a triple A?
The reasons of the Singapore rating this are multiple, the first is it has a very high grow (2-3%). This is contributed by the fact that the city-state is a very great place to create or conduct a society.
The second grounds is that there is a law which prevented the country from making deficits. This means that the governament is bound to have a balanced budget at the end of their mandate.
Another reason to the rating of Singapore is that the Malaysian state have a very high surplus and their pubblic company are well organized such as Singapore Airlines. Moreover Singapore is among the 11 states to own a triple A.
Country which have the triple-A rating
Why we are on the lows since 2003
The maximum number of country with an AAA grade, was between 2004 and 2009. for instance the countries with the triple-A were 16. One of the main causes of this decreasewas the 2008 economic crisis. Homewere, the rating of Singapore seems like to tay there and don’t change for a while.
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