Financial Secretary Paul Chan Mo-po speaks at the Lunar New Year Market Open Celebration Ceremony, Jan 26, 2023. (PHOTO / HKSAR GOVERNMENT)

The Hong Kong Special Administrative Region government will dial down its expansionary fiscal policy this year ahead of the city’s projected economic recovery, says Financial Secretary Paul Chan Mo-po.

Writing in his Sunday blog, he said the city’s fiscal policies will shift from being “quite loose” to “relatively balanced” in the 2023-24 Budget to be delivered next month.

The administration has seen less revenue from taxes and other government charges due to the COVID-19 outbreak, while various anti-pandemic programs have cost it more than HK$600 billion ($76.66 billion) in the past three years.

“All these have caused an all-time high fiscal deficit of more than HK$200 billion in the 2020-21 financial year, and the deficit for 2022-23 is also expected to exceed HK$100 billion,” Chan said.

Financial Secretary Paul Chan Mo-po said the enlarged budgets that have gone on for years have led to a sharp drop in financial reserves to about HK$800 billion, representing the administration’s 12-month expenditure

The finance chief said the enlarged budgets that have gone on for years have led to a sharp drop in financial reserves to about HK$800 billion, representing the administration’s 12-month expenditure.

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But, he noted that the increased expenditure has strengthened financial support for residents and small- and medium enterprises through counter-cyclical measures, and has maintained public and market confidence.

“This year’s economic growth is bound to be better than last year’s with the gradual easing of social-distancing curbs, and the resumption of quarantine-free travel between the SAR and the Chinese mainland,” Chan said.

“Thus, it’s necessary and unavoidable for us to adjust fiscal policies,” he said, adding that the biggest challenge for the upcoming budget is the “huge” fiscal deficit. Under such circumstances, some relief measures that have been in place for years may need to be changed, he warned.

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However, the government will review policies on how to help SMEs and vulnerable groups in need. 

“We still need to closely monitor the pace and intensity of economic recovery, especially when market confidence is relatively weak at the beginning of the economic revival,” Chan said.

“The recovery in certain business sectors and residents’ incomes could lag behind, so it’s not appropriate to eliminate all relief packages at one time,” he said. 

Contact the writer at tianyuanzhang@chinadailyhk.com