2009 Index of Economic Freedom

Quick Facts

Population:

• 4.5 million

GDP (PPP):

• $200.5 billion
• 8.2% growth
• 6.4% 5-year compound annual growth
• $44708 per capita

Unemployment:

• 2.1%

Inflation (CPI):

• 2.1%

FDI Inflow:

• $24.2 billion

Singapore's economic freedom score is 87.1, making its economy the 2nd freest in the 2009 Index. Its score remains essentially the same as last year. Singapore is ranked 2nd out of 41 countries in the Asia–Pacific region, and its overall score is significantly higher than the world average.

Singapore's openness to global trade and investment has allowed its small economy to be one of the most competitive and flexible in the world. The Singaporean economy has shown a high degree of resilience, recording solid economic growth rates averaging over 6 percent in recent years. With an efficient business environment that is well maintained, Singapore has long benefited from vibrant entrepreneurial activity.

Singapore is a world leader in most facets of economic freedom. Regulations are straightforward, virtually all commercial operations are performed with transparency and speed, and corruption is almost nonexistent. Both the income and corporate tax rates are competitive, and the overall tax burden is low. Foreign investment is welcome and given equal treatment. There are no tariffs, although non-tariff barriers still limit overall trade freedom. Singapore's legal system is efficient and highly protective of private property. The labor market is highly flexible, facilitating employment and productivity growth.

Background Back to the top

Singapore is a nominally democratic state that has been ruled by the People's Action Party (PAP) since its founding in 1965. Certain rights, such as freedom of assembly and freedom of speech, remain restricted, but the PAP has also embraced economic liberalization and international trade. Singapore is one of the world's most prosperous nations. Its economy is dominated by its services sector, but the country is also a major manufacturer of electronics and chemicals.

Business Freedom 98.3 Back to the top

The overall freedom to conduct a business is strongly protected under Singapore's regulatory environment. Starting a business takes four days, compared to the world average of 38 days. Obtaining a business license takes much less than the world average of 18 procedures and 225 days. Bankruptcy proceedings are easy and straightforward.

Trade Freedom 90.0 Back to the top

Singapore's weighted average tariff rate was 0 percent in 2006. Tariffs are generally low, but import restrictions, services market barriers, import taxes, import licensing, non-transparent regulations, burdensome sanitary and phytosanitary rules, weak enforcement of intellectual property rights, and export incentive programs add to the cost of trade. Ten points were deducted from Singapore's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 91.1 Back to the top

Singapore has low tax rates. The top income tax rate is 20 percent, and the top corporate tax rate is 18 percent, down from 20 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 13.0 percent.

Government Size 93.8 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 14.4 percent of GDP. The state remains involved in the economy through Singapore's many government-linked companies. Plans to list state-owned energy and telecommunications enterprises have stalled in recent years.

Monetary Freedom86.8 Back to the top

Inflation is low, averaging 1.7 percent between 2005 and 2007. The government influences prices through regulation and state-supported enterprises and can impose controls as it deems necessary. Five points were deducted from Singapore's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom80.0 Back to the top

Foreign and domestic businesses are treated equally, and nearly all sectors are open to 100 percent foreign ownership. Exceptions to Singapore's general openness to foreign investment exist in telecommunications, broadcasting, the domestic news media, financial services, legal and other professional services, and property ownership. The government screens investments for incentive eligibility. Government-linked corporations play a dominant role in the economy and may stifle investment. Residents and non-residents may hold foreign exchange accounts. There are no controls or requirements on current transfers, payments, or repatriation of profits. Foreign ownership of certain landed properties is subject to approval, but there are no restrictions on foreign ownership of industrial and commercial real estate.

Financial Freedom50.0 Back to the top

Singapore's financial sector is modern and competitive. Bank consolidations have left the country with three dominant banking groups. One of these three groups is the government-controlled Development Bank of Singapore, which is the largest and is publicly listed. The other two banking groups also have significant government-held minority shares. There were 113 commercial banks in mid-2008, 107 of them foreign. Foreign banks now have greater freedom to open branches and offer services, but the government seeks to maintain the domestic bank share of deposits above 50 percent, and the majority of domestic bank board members must be Singapore citizens and residents. License quotas for full-service foreign banks were eliminated in July 2005, and the quota for U.S. wholesale banks was eliminated in January 2007. Foreign banks are allocated to three categories that specify the services they can provide: full service, wholesale, and offshore. Foreign firms compete aggressively in insurance, fund management, and venture capital. Capital markets are well developed, and the Singapore Exchange is increasing its ties with other Asian exchanges.

Property Rights90.0 Back to the top

The court system is efficient and protects private property. There is no expropriation, and contracts are secure. Singapore has one of Asia's strongest intellectual property rights regimes, and foreign and local entities may establish, operate, and dispose of their own enterprises.

Freedom From Corruption93.0 Back to the top

Corruption is perceived as almost nonexistent. Singapore ranks 4th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The government enforces strong anti-corruption laws. It is a crime for a citizen to bribe a foreign official or any other person, whether within or outside of Singapore.

Labor Freedom98.1 Back to the top

Singapore's highly flexible labor regulations enhance overall employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is not burdensome. Regulations related to the number of work hours are very flexible.