TNAG-0761-FCO40-965-Budget-of-Hong-Kong--1978-1979-1978 — Page 72

5.

So we have done well on the expenditure side

this year and the unexpected revenue flush has had a very useful anti-inflationary impact: the G.D.P. deflator will be, at 3% only, much less than the budget forecast of 7%

and the average level of the C.P.I., for 1977 over 1976, will be no more than the budget forecast of 6%, despite

the fact that the economy's growth momentum has been due to the strength of domestic sector activity.

Fiscal Reserves

6.

stand at:

Our fiscal reserves at 1st April 1978 should

$mn

General Revenue

Balance at 31st March 1977

3,713

Add: estimate of surplus in

1977-78 and draw down of

$27 million from US$ loan

facility

1,102

4,815

million as cover for our

We must allow, say, $3,200 contingent liabilities (which will rise to $9,500 million by 31st March 1982, the last year of the new forecast period, thanks to the Tsuen Wan Extension of the M.T.R. and the Home Ownership Scheme (and, if total M.T.R.C. liabilities are taken to be our effective liability, then

this figure rises to about $12,500 million). Thus we shall have free reserves of $1,615 million to finance our

seasonal deficits on General Account and any short term difficulties. Expenditure next year will be of the order of $10,266 million (c.f., as a matter of interest, expenditure in your first full year here as Governor, namely, 1972-73, of $3,800 million). Thus, at 15.7%, our position will be a little better than the guideline which "requires" us to maintain free reserves at the beginning of a financial year equivalent to 15% of estimated

SECRET