HONG KONG: FUTURE FINANCIAL RISKS
1. The most serious risk is the prospect of deterioration of government finances, particularly in relation to the financial pledges that have been made for 1997 in the Airport MOU. The prospect for government finance is dependent upon the condition of the economy,
government revenue collection and the extent to which government spending rises beyond forecasts.
This paper assesses the effects on government finances of slower GDP growth, decline in land revenues, cost overruns and higher equity calls. In many areas there is insufficient information to assess the financial effects of these risks.
Government Finances
2.
The 1992/93 budget contained a lot of good news. The fiscal position in 1991/92 was much better than anticipated, economic growth has picked up and a baseline forecast of government finances to 1997 showed a much more comfortable reserve cushion than previous forecasts. The detailed Medium Range Forecast is shown in Annex 1. It shows, inter alia, a much improved forecast level of reserves of HK$ 76.1 bn in 1997.
End Year Reserves Forecasts
Budget Surplus (deficit)
HK$ bn
HK$ bn
1992/93
MRF
1991/2 MRF
1992/93 MRF
1991/92 MRF
1991/2
91.8
74.0
15.3 *
1.3
1992/93
99.4
67.6
7.6
-6.4
1993/4
91.6
53.4
-7.8
-14.2
1994/5
82.4
40.3
-9.2
-13.2
1995/6
78.1
1996/7
71.6
-4.3 -6.5
* Estimated actual
3.
The change in the levels of forecast reserves has been very dramatic. Comparing the last two budgets shows that forecast reserves for March 1995 (the previous time horizon) have doubled from HK$ 40.3bn to HK$ 82.4bn. The principal reason for the improved outlook lies in a HK$ 14 bn improvement in the outturn for 1991/92 relative to the budget, a budgetted surplus of 8bn in 1992/93 against the previous forecast of 6bn deficit, and lower budget deficits in subsequent years.
4.
The sheer magnitude of the improved budgetary-outlook-