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FINANCIAL SYSTEM AND ECONOMY
regime, to distinguish meaningfully between imported inflation and domestically generated inflation, the fact that the former showed a faster increase than the latter can perhaps be taken to indicate that imported inflation was significant in 1981. Also, as the demand for and the supply of domestic resources even in respect of land and property was in reasonable balance in 1981, any unfavourable domestic influences on prices from this source should have been moderating.
But whether or not inflation in 1981 was predominately imported, at 15 per cent it was undesirably high as far as the consumer was concerned. This was so even though as usual and in contrast to many other economies, inflation was associated with rapid economic growth and a relatively low unemployment rate. Nevertheless, the fact remains that, given the externally-oriented nature of the Hong Kong economy, it is unlikely that even under a floating exchange rate regime, Hong Kong could have escaped more than partially what was happening in the rest of the world. In 1981, inflation in most countries was still rapid, although there were signs of a general slowing down. The rate of inflation in Organisation for Economic Co-operation and Development (OECD) countries, for example, was still over 10 per cent for the year.
One internal factor which was believed to be responsible, at least in part, for the uncom- fortably high rate of inflation experienced in 1981 was the high growth rate of the money supply. In 1981, the broadest definition of the money supply denominated in Hong Kong dollars in short HK$M3 which includes notes and coins with the public and all deposits with and certificates of deposit issued by licensed banks and deposit-taking companies held outside the monetary sector - increased by an estimate of about 22 per cent. This, in fact, is not significantly different from the growth rate of the G.D.P. in money terms. Further, in terms of a narrower definition of the money supply HK$M1B (which is the Hong Kong version of a definition currently regarded by some commentators as the most relevant measure of the money supply in terms of explaining economic activity and which includes notes and coins with the public and demand and savings deposits in Hong Kong dollars), the growth rate of the money supply was only estimated to be six per cent in 1981. The estimates were made by using money supply statistics available up to November 1981.
Nevertheless, the growth rate of loans and advances in Hong Kong continued to be high in 1981, despite historically high lending rates prevailing throughout the year.
Public Finance
General Revenue Account
For the purpose of estimates and budgetary control, the government's expenditure is classified into four broad categories - Annually Recurrent Personal Emoluments, An- nually Recurrent Other Charges, Special Expenditure and Public Works Non-recurrent. Annually Recurrent Personal Emoluments represent recurrent expenditure on payments of salaries and allowances to public officers; all other recurrent expenditure necessarily incurred in the provision of public services is classified as Annually Recurrent Other Charges. Special Expenditure is predominantly expenditure of a capital nature such as purchases of plant, equipment and minor public works, while Public Works Non-recurrent covers the capital expenditure on all projects included in the Public Works Programme with the exception of the expenditure on Urban Council projects, which is included in the Urban Council budget.
STR
In the financial year 1980-1, total gross expenditure, at $23,593 million, was $5,152 million over the original estimate. It comprised $4,671 million for Annually Recurrent