TNAG-2470-FCO40-3594-Budget-of-Hong-Kong-1992 — Page 32

CODE 18-77

Mr Lane

Economic Advisers

Reference

FILE

726

elyet file

Man's look

HONG KONG: FUTURE RISKS

1.

Your minute of 11March to Mr Broadbent has fetched up with me.

2. I fully take the points you make about the relevant relative fragility of Hong Kong's fiscal position to outside shock and to cost over-runs on the PADS projects. The only point I wish to make is that it is easier for the Hong Kong Government to contain expenditure than for many other governments. This is because of the large percentage of expenditure devoted to capital works. These comprise about 25% of total expenditure. Further, as the Financial Secretary delights in telling his audiences, the government's share of the cost of capital works for the airport core programme will absorb about 25% of the total capital expenditure during the period up to 1997. Therefore, if growth is much less than predicted or if there are other shocks, there is plenty of scope for cutting down capital works in other areas.

Mital v stare

M V Stone

Hong Kong Department

WH304

270 2651

1 April 1992

REGACB