Fiscal vs monetary policy: debt sustainability in Singapore

Purpose As fiscal and monetary policy become essential tools to achieve sustainable debt, developing countries still record high debt levels, but Singapore promotes sustainable debt. This raises our concern to examine whether fiscal or monetary policy promotes debt sustainability in Singapore. Design/methodology/approach Employing the autoregressive distributed lag (ARDL) approach, this study uses annual data for Singapore from 1990 to 2024 to estimate the impact of fiscal and monetary policy on debt sustainability in both the short and long run. Findings The results demonstrate that monetary policy is more efficient in promoting debt sustainability compared to monetary policy in Singapore. Under monetary policy, tax revenue and government expenditure negatively influence debt with a larger magnitude compared to the exchange rate as a tool under monetary policy in the long run. Practical implications Therefore, these findings suggest that Singapore should continue efficient public spending and fiscal discipline as essential tools for lessening debt while managing monetary policy to support stability in macroeconomics. Originality/value Given that Singapore is recognized as having one of the highest debt-to-Gross Domestic Product (GDP) ratios, yet it maintains a low debt risk through a combination of policies, including both monetary and fiscal measures. To the best of the author's knowledge, none of the prior studies investigate the combined impact of monetary and fiscal policy on Singapore's debt. So, this study provides comprehensive empirical evidence on the impact of monetary and fiscal policy on Singapore's debt sustainability.