Hong Kong’s finance chief Paul Chan Mo-po has warned that belts will have to be tightened as the city is expected to remain in the red next year as economic growth is slowed by outside influences. But Eddie Yue Wai-man, the head of the Hong Kong Monetary Authority (HKMA), said on Sunday he was “cautiously optimistic” about the city ’s economic outlook. Chan, in line with earlier predictions, said that the deficit was expected to be just over HK$100 billion (US$12.8 billion), much higher than the HK$57 billion suggested earlier in the year. “In view of the substantial increase in government expenditure in the past few years and the pressure on public finances in the future, we will inevitably need to consolidate our expenditure and exercise more prudent control,” Chan said. He was speaking as he started public consultation on the 2024-25 budget, which he said was expected to continue to run at a deficit. “Looking forward to next year, the geopolitical situation will remain complex and volatile, which will curb Hong Kong’s economic growth,” Chan said in his Sunday blog. “Income related to the asset market will be difficult to recover quickly, and the chance of having a deficit again next year cannot be ruled out.” Chan, in a separate government statement, said the budget would be unveiled on February 28 and would focus on development to promote stability, the allocation of resources “suitably” to drive economic growth and benefit the public. He said in the blog that the government would continue its freeze on civil service headcount this year and require all bureaus and departments to cut expenditure by 1 per cent in 2024-25 and again in the next financial year. Chan added the authorities would work to boost government revenue and that some of the main initiatives included deepening economic ties with the Middle East and Asean countries and attracting innovation and technology enterprises to the city. “We need to make forward planning for Hong Kong’s long-term and sustainable development, to grow the economic pie together and make it better, ” Chan said in the statement. ‘High uncertainty’ ahead for Hong Kong in coming year, finance chief warns Hong Kong logged three years of deficit over the Covid-19 pandemic. Government expenditure increased by 40 per cent from 2017-18 to 2022-23 as the city splashed the cash to stabilise the economy and cope with the pandemic. Fiscal reserves dropped from HK$1.1 trillion to HK$834 billion over the same period. Government revenue, especially stamp duty from property, stock transactions and land premiums, also dropped compared to estimates made earlier this year, a result blamed on a weak asset market. Yue said he expected the US economy would be cushioned by careful economic management next year and that mainland China had shown signs of recovery. He predicted the US economy would have a “soft landing” – where interest rates were raised by central bank the Federal Reserve just enough to cut inflation without sparking recession – next year. “In the case of a soft landing, it might provide room for the Fed to consider leaving the rates unchanged, or even a rate cut,” he said on a radio programme on Sunday. Yue added that he expected the rate cut to be made no earlier than mid-2024. He said the mainland economy had reached a bottoming-out phase, with a slight rebound recorded in industrial production, retail, and consumer sentiment over the past two months, and that loose monetary policies had shown gradual results. Hong Kong ‘pushing for deeper ties with Middle East, China’ to bring in new capital Yue also hit back at claims circulated on mainland social media that Hong Kong had become the “ruins of an international financial centre”. “Our banking system is still the largest among the international banking centres in Asia and our stock market, despite some cyclical impacts, is also huge in terms of market capitalisation and transaction amount,” Yue said. Although Hong Kong registered its worst market performance for initial public offerings (IPOs) this year, Yue said that was a result of the interest rate hike, which affected the world economy and hit global IPOs and the issuing of bonds. He added there was no evidence of capital outflow because the exchange rate remained stable and the amount of customer deposits had increased, despite a drop in loans. Yue said there were also no signs of an outflow of foreign currency reserves at banks. The city was hit by two major virtual asset investment scams this year, where hundreds of victims lost more than HK$1.6 billion to cryptocurrency exchange platforms Hounax and JPEX. Yue promised to set up a tough regulatory mechanism for virtual assets, which would follow a framework laid down by the Financial Stability Forum. But he emphasised that jurisdictions would need to standardise the framework and work together to close loopholes. Yue added next year’s priorities for the HKMA would include promotion of the internationalisation of renminbi and mBridge, a multi-central bank digital currency project.
Belts will have to be tightened, Hong Kong’s finance chief Paul Chan warns as public consultation on next year’s budget opens
