JWL0176
MR ELSTON
From Jakob Lund
ра видел до
HKB 100/3
RECEIVED IN REGISTRY REGISTRY
Copies to Mr Crockett
Mr M A King
Mr Page
Mr Smeeton
Mr Miles
(15)
Mr S H King Mr Milne
ID Section 6
BSD Group 3 18
Mr Ricketts (HKD, FCO)
Mr Lane (Economic Advisers, FCO)
3 1
DESK OFFICER
INDEX
PA
REGISTRY Action Taken
Mr Hodson (ECGD)
Mr MacIntyre (HMT)
4.3.93
HONG KONG BUDGET 1993/94
Presented by Financial Secretary Hamish MacLeod to Legco on 3 March
Analysis based on preliminary information - more detailed analysis in due course
1 Fiscal Stance: MacLeod's latest estimates are for a budget surplus of HK$20.5 bn (3.6% of
GDP) for 1992/93, a deficit of HK$3.4 bn (0.6% of GDP) for 1993/94, a deficit of HK$16.7 bn
(2.6% of GDP) for 1994/95, declining budget deficits in 1995/96 and 1996/97, and balanced
budgets thereafter, as the Airport Core Programmes are completed and new revenue streams are in place. These estimates imply that Fiscal reserves are now HK$119.6 bn, and will fall to
HK$78.4 bn by end 1996/97 - more than three times as much as the HK$25 bn required by the
Memorandum of Understanding on the Airport. Given the strength of the reserves, the rolling
issue of two-year government bonds will be stopped and replaced by a programme of two-year
Exchange Fund bonds. Budgets have historically underestimated actual surpluses (original
estimates for 1992/93 were a HK$5.1 bn surplus and HK$71.6 bn reserves), so actual deficits and
drawdown of reserves might well be less than these figures.
2 Evaluation: A very expansionary budget, likely to fuel inflation. IMF staff believe that although the government plays only a small part in the economy and has large fiscal reserves, a change in the public sector's net savings-investment balance will translate into increased claims on overall availability of resources, which in the Hong Kong context of full employment will be absorbed by rising imports and further inflationary pressures. Nonetheless the expenditure
increases are concentrated on infrastructure, which should relieve bottlenecks in the long run, and
the current slack in the construction sector means that wages are unlikely to be bid up. Politically, it is a very populist, 'good government' budget, with increased expenditures on health, social welfare, environmental cleanup, and generous increases in personal tax allowances. But such 'good government' is likely to anger China, which appears more interested in having a large fiscal reserve in 1997 than in having Hong Kong's citizens spoiled by tax breaks and social
spending.