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FM HONG KONG
TO DESKBY 111100Z FCO
TELNO 764
OF 110922Z MARCH 91
INFO PRIORITY PEKING, UKREP JLG HONG KONG
f
147214 MDHIAN 7343
HKD PLEASE PASS PERSONAL TO GOVERNOR VISITING.
PADS: THE WAY FORWARD: YOUR TELEGRAM NO. 451.
1. AS REQUESTED, WE HAVE GIVEN FURTHER THOUGHT TO THE DEGREE OF FLEXIBILITY WE MIGHT HAVE ON THE FISCAL RESERVES ALTERNATIVE. IN BRIEF, WE DO NOT BELIEVE IT WOULD BE PRUDENT TO GO BEYOND HKD14 BILLION, BUT THERE WOULD BE A FURTHER DEGREE OF FLEXIBILITY IF WE COULD AGREE TO DISPOSE OF THE LFC FRANCHISE IN ADVANCE OF 1997.
RATIONALE FOR HKD 14 BILLION
2. BASICALLY, WE BELIEVE THE HKD 14 BILLION IS ACHIEVABLE BASED ON THE FOLLOWING MAIN ASSUMPTIONS (SHOULD NOT BE PUT TO THE CHINESE):
(A) HONG KONG GOVERNMENT WILL CONTROL ITS TOTAL EXPENDITURE TO THE LEVEL FORECAST UNDER OPTION 4, SO LEAVING A FISCAL RESERVE BALANCE AT END 1996/97 OF HKD32 BILLION:
(B) A MINIMUM CUSHION OF HKD20 BILLION TO BE SUBTRACTED FOR UNAVOIDABLE REVENUE SHORTFALLS, COST-OVERRUNS, ETC:
(C) THE BALANCE OF HKD12 BILLION, FOR BETTER PRESENTATION WITH THE CHINESE IS INCREASED TO HKD14 BILLION, TO MAKE IT EQUAL TO THE FISCAL RESERVE POSITION AS FORECAST UNDER OPTION 2. THUS TOTAL GOVERNMENT EXPENDITURE UNDER OPTION 4 WILL NEED TO BE CUT BACK ANOTHER HKD2 BILLION OVER THE PERIOD. WHILE NOT EASY, THIS IS PROBABLY MANAGEABLE.
DOWNSIDE RISKS
3. AT THE SAME TIME, WE ARE VERY CONSCIOUS THAT AS WITH ALL SUCH FORECASTS, THE FIGURES ARE SENSITIVE TO CHANGES IN THE ASSUMPTIONS WHICH UNDERLIE THEM. KEY EXAMPLES ARE:
(A) TOTAL GOVERNMENT REVENUE AND EXPENDITURE OVER THE PERIOD 1990/91 TO 1996/97, UNDER OPTION 4, IS FORECAST AT HKD2,300
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