XN000022-1995-03-21 — Page 4

3.

"The Medium Range Forecast published with the Financial Secretary's Budget on March 1, 1995 covers a five-year period (1994-95 to 1998-99) in accordance with our normal planning practice.

"In his Budget Speech (para 95) the Financial Secretary has emphasised that this is a forecast only, presented to provide the appropriate context for planning purposes and that, in no way, does it impose any commitment on the future SARG.

"The final year of the Medium Range Forecast (1998-99) is the first full financial year after the change of sovereignty and the establishment of the SARG. It is clearly a matter for the SARG to determine how best to manage and use the balance it will inherit from the Land Fund come July 1, 1997.

"However, to properly present an overall picture of the likely financial strength of the future SARG, account must be taken of the forecast balance of both the fiscal reserves to be passed on by the Hong Kong Government and the Land Fund. This is what we have done in the published Medium Range Forecast.

"The estimate of the balance of the Land Fund of $138.5 billion at July 1, 1997 is derived on the basis of ;-

the published balance of the fund at March 31, 1994 ($65.5 billion);

our published revised estimate of gross land revenue in 1994-95 and our published estimate of gross land revenue in 1995-96;

the forecast gross land revenue from 1 April 1996 to June 30, 1997 based on a historical analysis of the relationship between land revenue and GDP. We have adopted a conservative approach in making this forecast;

the sharing arrangement for gross land revenue as provided for in the Joint Declaration; and

a modest level of interest earnings on the accumulated balance of the

fund.

"We believe this assessment to be realistic based on a historical analysis of land revenue and after taking account of the attractive and valuable sites which may be released to the market over the forecast period.

"We recognise that the HKSARG Land Fund Trust was established by the Chinese side of the Land Commission and it is of course for the trustees to manage the Fund until the balance is transferred to the SARG."

End/Tuesday, March 21, 1994