SECRET
147214
MDHIA 734
BILLION. A HKD20 BILLION CUSHION PROVIDES A 0.8 PERCENT SAFETY MARGIN ONLY:
(B) A 25 PERCENT REDUCTION IN LAND REVENUE OVER THE PERIOD TO 1996/97 WOULD REDUCE THE FISCAL RESERVE FORECAST BY END 1996/97 BY ABOUT HKD 12 BILLION:
(C) A 20 PERCENT OVERRUN IN THE ACP WOULD REDUCE THE FISCAL RESERVES BY END 1996/97 BY ABOUT HKD 25 BILLION:
(D) THE GDP GROWTH RATE IN OUR FORECAST IS ASSUMED AT 5.5 PERCENT PER YEAR FROM 1990/91 TO 1996/97. HOWEVER, THE ACTUAL GDP GROWTH RATE IN 1990 WAS 2.4 PERCENT AND IN 1991 IS LIKELY TO BE 3.5 PERCENT. SO IF THE 5.5 PERCENT GROWTH RATE IS TO BE ACHIEVED, THE ECONOMY WOULD NEED TO GROW AT AN AVERAGE OF 6.5 PERCENT PER YEAR FROM 1992 TO 1996. ONE PERCENTAGE POINT REDUCTION IN THE GDP GROWTH RATE WILL RESULT IN A REDUCTION OF THE FISCAL RESERVES BY END 1996/97 OF ABOUT HKD7 BILLION. LOWER GROWTH AND/OR HIGHER COSTS ARE THE POINTS THE CHINESE HAVE FOCUSSED ON IN THE PAPER HANDED OVER BY CHEN).
(E) THE REVENUE FORECASTS ARE SUBJECT TO A VARIETY OF PRESSURES, AND IN PARTICULAR IT MAY BE NECESSARY IN ORDER TO PRESERVE HONG KONG'S STATUS AS AN INTERNATIONAL FINANCIAL CENTRE, TO EXEMPT STOCK TRANSACTIONS FROM STAMP DUTY. IF IMPLEMENTED, THIS WILL COST REVENUE OVER HKD 2 BILLION CAT 1990 PRICES) PER YEAR.
COMFORT
4. ON THE OTHER HAND, TO OFFSET THESE DOWNSIDES THERE MAY BE FURTHER SCOPE TO IMPROVE OUR FINANCIAL POSITION BY CONTROLLING NON-ACP CAPITALS WORKS EXPENDITURE MORE TIGHTLY, BY FURTHER REVENUE MEASURES, AND BY HKG BORROWING.
POSSIBLE WAY FORWARD
5. THE ONLY SIGNIFICANT MEASURE WE CAN IDENTIFY WHICH WOULD HELP TOWARDS AN IMPROVED RESERVE POSITION IN 1997 IS TO CONSIDER SELLING THE FRANCHISE TO THE LFC BEFORE 1997. THIS WOULD BE IN LINE WITH CHINESE ENCOURAGEMENT TO PRIVATISE AS FAR AS POSSIBLE, AND OF COURSE THIS PARTICULAR PROJECT WAS ORIGINALLY INTENDED TO BE PRIVATE. WE ARE OBTAINING A ROUGH ESTIMATE OF LIKELY PROCEEDS, TO FOLLOW TODAY OR TOMORROW, BUT IT WOULD CERTAINLY BE VERY SUBSTANTIAL.
6. ON THIS SCENARIO THE INITIAL PROPOSAL COULD BE HKD14 BILLION.
PAGE
SECRET
2
No comments yet.
Private notes are available after approval.