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minimum by encouraging private sector participation where this makes financial sense. This strategy is founded on Hong Kong's successful experience in funding projects like the container terminals and various major tunnels, wholly or partly from the private sector.
7. Private sector participation not only reduces the requirement for public funds, it also introduces the commercial disciplines and effi- ciencies of the private sector. The exact mix of public and private sec- tor funding will emerge gradually as refined cost estimates, revenue pro- jections and financial analyses of the various projects become avail- able in the coming months. This mix must ensure that we obtain the best overall results for Hong Kong in the longer term. I am confident that the original estimate that some 40% to 60% of the package of proj. ects included in the total Port and Airport Development Strategy can be financed by the private sector remains true.
8. Another key part of our strat- egy is that we fully recognise the continuing importance of prudent management of public finances. This continues to be based on the target of keeping overall public expendi- ture growth over a period broadlyin line with the growth of GDP. The decision to build a new airport has not caused this strategy to be changed But we must recognize that inevita- bly capital expenditure will peak during the three or four years lead- ing up to the actual opening of the airport, and this would cause a temporary departure from our guide- lines.
9. Some have argued that the airport programme is crowding out other desirable projects, and have tended to blame all tightening of control on public sector expendi- ture on the airport programme. This view is misguided for two principal reasons. First, even without a deci- sion to build the new airport, lower growth in the economy and a high level of inflation would in any event require us to contain the increase in
public expenditure more tightly.
10. Secondly, we must distinguish between recurrent and capital cx- penditure. The prime need, even without the decision to build the airport, is to keep recurrent expen- diture growth to a reasonable level. This means controlling the size of the civil service, and increasing pro- ductivity. To providem little reas- surance I should add that it will nevertheless still be possible to make some provision for new or improved services, partly by carrying out some existing activities more cost-effec- tively.
11.
On the capital expenditure front it is, of course, true that we are giving priority to airport core proj- ects, and that we will have to be particularly prudent over new pro- grammes with significant capital ex- penditure implications. But it is important to keep this in perspec- tive. We have allowed for commit- ments in other areas too, such as education, social services, the envi- ronment, water supply and new town, development. Capital expenditure on non-airport programme aras is projected to be a massive $140 bil- lion at 1990 prices in the period up to 1997.
12.
What does all this mean for our public finances over the next six to seven years? Clearly we will, as capital expenditure builds up and peaks over this period, face a few years of budgetary deficits. This is to be expected, and is precisely one of the reasons why we have built up such considerable reserves. Draw- ing on these reserves to pay for in- frastructural investments which will allow the continued growth of our economy and the continued pros- perity of Hong Kong is to some extent inevitable.
13.
But there is another option that we will need to consider fur. ther, and that is borrowing. Bor- rowing by statutory corporations such as the Mass Transit Railway Corpo- ration is already a well-established way of funding, and clearly one of the methods that the Airport Au-
thority is likely to use. Also, we must not lose sight of the possibil- ity of judicious borrowing by the Hong Kong Government itself, a well-tried method elsewhere for financing major capital projects and smoothing public sector cashflow.
14. Our longer term economic growth can only be secured by en- suring that our physical infrastruc ture remains adequate to facilitate the efficient movement of people and goods in and out of Hong Kong. This is crucial to maintaining our position as a major finance, trade and services centre for the Asia Pacific region. The new airport is an im- portant part of that infrastructure. Kai Tak is expected to reach satura. tion as early as 1993. Thereafter, growth will be constrained because of limited capacity, and this could have an impact on our economic growth.
15.
We have spoken of economic disbenefits. There are two kinds of economic disbenefits flowing from not meeting air transport demand. There are the quantifiable economic disbenefits arising from trips fore- gone by visitors and foregone air cargo movements. Airlines and various airport services as well as travel agents, hotels, restaurants, and shopping businesses will be directly affected. In addition, there are also the wider unquantifiable economic disbenefits arising from lost busi. ness opportunities in the manufac- turing, trading and service sectors generally, and from the damage to Hong Kong's image as an interna- tional commercial and financial centre. Unless we take action, these intangible economic disbenefits could be substantial Elsewhere in the world, investments in physical infrastructure generate substantial new business opportunities. Trans- lated into financial terms, the bene- fits flowing to the community would far exceed the cost of the new air- port project.
16. The Hong Kong Government remains convinced that it is in our longer term interest to make this investment. Indeed, I am convinced