TNAG-2515-FCO40-3669-Future-of-Hong-Kong-International-Rights-and-Obligations-Sub-1992 — Page 14

CONFIDENTIAL

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to 1990/91 contributed to the acceleration of inflation, while the sharp

rise in the surplus in 1991/92 moderated inflationary pressures.

there is શ

Indeed, the latest

Looking at budgetary prospects for the current fiscal year and beyond,

concern that fiscal policy would once again turn expansionary.

The construction of the airport core projects, while desirable from the

viewpoint of Hong Kong's long-term growth potential, will call heavily on

economic resources over its period of implementation.

budget estimates envisage a large reduction in the fiscal surplus in the

current fiscal year, and a sizable swing into a deficit position in

1993/94. Part of this movement represents a decline in revenues from land

sales and an increase in equity investments by the Government ahead of

actual capital expenditures by the airport authority, and thus would not

represent a boost to aggregate demand, Even excluding these elements,

however, the reduction in the fiscal surplus would be large, unless

offsetting measures are put in place.

are put in place. Furthermore, looking beyond the next

fiscal year, the commencement of large-scale spending by the Airport

Authority and the MTRC will result in additional incremental claims on

economic resources for the public sector as a whole.

Furthermore, there is a risk that the pressure on the budget position

could be even larger than envisaged in the medium-range forecast, While the

cyclical downturn in the global construction industry is currently having a

favorable impact on the cost of capital projects, there remains the

possibility of cost overruns on the airport project as global economic

conditions improve. In addition, rising affluence in Hong Kong is,

understandably, leading to increased demand for social services and public