FISCAL CONSOLIDATION PATH RECOGNISED

The International Monetary Fund (IMF) recognised Hong Kong's position as an international financial centre and fiscal consolidation path in its concluding statement released today.

The IMF Staff Mission published its assessment on the concluding statement after the completion of the 2024 Article IV Consultation with the Hong Kong Special Administrative Region.

The mission noted that Hong Kong's economy is on a path of gradual recovery, albeit facing multiple headwinds. It reaffirmed Hong Kong's status and function as an international financial centre and recognised that Hong Kong's financial system remains resilient, supported by robust institutional frameworks, ample room for policy buffers, and smooth functioning of the Linked Exchange Rate System.

The mission considered that the direction and path of the Hong Kong SAR Government's gradual medium-term fiscal consolidation is appropriate given the current economic conditions.

It also expected fiscal space to remain abundant, and projected that the fiscal deficit will narrow further, with the support of new revenue measures, the effects of expenditure control, and the winding down of pandemic-­related expenditure.

Welcoming the mission's recognition of Hong Kong's steady economic recovery and reaffirmation of the resilience of the city's financial system, Financial Secretary Paul Chan said the Hong Kong SAR Government will continue to reinforce and enhance Hong Kong's position as an international financial centre, and give full play to the unique function of connecting with both the Mainland and the world under the “one country, two systems” arrangement.

He said: “I also appreciate the mission's recognition of our gradual approach to fiscal consolidation. In the face of the uncertain external political and economic environment, and the ongoing structural adjustments taking place in Hong Kong's economy, we will identify new revenue sources while managing expenditure growth, with a strategy focused on the latter, with a view to restoring fiscal balance in the next few years.”

As regards controlling expenditure, Mr Chan said the Hong Kong SAR Government will manage the growth of recurrent expenditures to gradually narrow the fiscal gap.

On seeking new revenue sources, the Hong Kong SAR Government will maintain Hong Kong's competitive advantage of a simple and low tax system and take into account the actual situation in society to prevent undermining the momentum of economic recovery, while adhering to the affordable users pay principle thereby minimising the impact on ordinary members of the public.

The mission also projected Hong Kong's real gross domestic product to grow by 2.7% in both 2024 and 2025.

It recognised the Hong Kong SAR Government's efforts in developing new sources of growth, including by promoting the Guangdong-Hong Kong-Macao Greater Bay Area initiative, increasing investment, and attracting foreign talent and businesses in high-value industries to Hong Kong.

Additionally, the mission recognised that it is appropriate for the Hong Kong SAR Government to cancel all demand-side management measures for residential properties.

The mission also noted that the Hong Kong SAR Government and financial regulators have made significant strides in developing a dynamic green and sustainable finance landscape, and advancing the development of a sustainable finance hub could enhance Hong Kong's competitiveness as an international financial centre.

Monetary Authority Chief Executive Eddie Yue also welcomed the mission's recognition of Hong Kong’s robust regulatory framework and significant buffers to safeguard financial stability amid a changing environment.

The mission visited Hong Kong from November 11 to 22 last year, with discussions held with Hong Kong SAR Government officials, financial regulators and private sector representatives. The relevant full report will be discussed by the IMF Executive Board this month.

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