Published: 17:06, December 7, 2020 | Updated: 08:56, June 5, 2023
HK economy 'poised to recover if global conditions improve'
By Oswald Chan

HONG KONG - Financial Secretary Paul Chan Mo-po said the government must consider long-term financial affordability before gradually raising spending so that expenditure is in line with revenue to comply with the Basic Law.

He made this statement to the Legislative Council’s Panel on Financial Affairs on Monday.

Overall economic downside risks are not alleviated but the city’s battered economy may recover in the second half of next year at the earliest ...

Paul Chan Mo-po, Financial secretary, Hong Kong

“Overall economic downside risks are not alleviated but the city’s battered economy may recover in the second half of next year at the earliest. Since Hong Kong adopts the pegged currency exchange rate system, the authority cannot adopt active monetary policy. Therefore, austere fiscal policy will not be the option for the government so that we expect (the) government budget deficit will linger,” Chan cautioned.

Hong Kong’s economy is expected to bounce back next year, subject to an array of external and internal factors, in case of ongoing economic improvements worldwide, Chan said.

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He said the government will not launch another round of the Employment Support Scheme, rather it will mull targeted measures to support the most battered business sectors due to the pandemic and government departments will contact the relevant sectors to gauge their financial needs.

The government has already allocated more than HK$300 billion (US$38.7 billion) to shore up the beleaguered economy roiled by the novel coronavirus outbreak, accounting for 11 percent of the city’s GDP. The administration now forecasts the budget deficit will soar from the original HK$139.1 billion to a record high of over HK$300 billion.

Fiscal reserves have dwindled to HK$800 billion, equivalent to 13-14 months of government expenditure, the same level as during the SARS outbreak in 2003, Chan said.

“The Hong Kong dollar is stable recently and is trading at the strong side of the convertibility, underscoring (that) investors are confident of Hong Kong’s financial market,” he added.

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Chan said that Hong Kong saw a capital inflow of US$50 billion starting in April, the city’s equity market raised HK$249 billion in new funds in the first 10 months for a 66 percent hike year-on-year, and the city’s total bank deposits increased 7.7 percent year-on-year.

The government had contacted overseas companies and financial institutions to promote the city’s financial services industry in the last 18 months. The Hong Kong Monetary Authority and Securities and Futures Commission will join the promotion program.

The government will not withdraw market-cooling measures from the property sector as it is still resilient, according to Chan. Current home prices are 100 percent higher than in 2010 when the measures were launched. Despite Hong Kong's economy registering negative growth in the last five quarters, home prices edged down less than 3 percent in that period.