TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 69

that the income debit term may be higher than predicted due to the high growth rate in China. Mr Lane suggested that tourist outflows would probably rise sharply reflecting both more tourists visiting Hong Kong etc as well as a relaxation of the rules governing the

amount of money people were allowed to take abroad. It was noted that the overall impact of the changes to the current account was

probably to produce a larger current account deficit. This did not

seem inappropriate given the high apparent rate of return available

to foreign investors. Action: it was agreed to review the profile

for the income debit term (particularly towards the end of the

forecast) and to review the implicit forecast for tourist outflows in the earlier years.

10

CAPITAL ACCOUNT

Mr Lund explained that the forecast assumed

continued access to IBRD lending (although with a further gradual

hardening of terms) but no additional IMF drawings. Mr Lane

thought that IBRD multilateral disbursements should be higher

following the Country Strategy Review and it was agreed to check

this. Mr Riley argued that other private flows seemed low and it

was agreed this could be increased; perhaps keeping the stock

stable. In addition to stronger private inflows, there was also

clearly scope for a lower pace of reserves accumulation as part of

the process of financing a larger current account deficit. It was

also agreed to leave FDI the same. Action: Mr Lund to review the

forecast for IBRD lending, and increase other private flows.

11 Mr Lane also suggested that the calculations behind the

production of the weighted swap and official exchange rate needed

to be spelt out explicitly. Action: Mr Lund.

12

RISKS Mr Lund explained that largely as a result of political factors the balance of risk probably lay on the

-

downside downside with little long term upside risk. Mr Muckersie

asked if the risk was considerable in magnitude or probability. Mr Orchard suggested it was magnitude. Mr Lane said that he had a

number of drafting comments on the risks identified at the end of

the forecast. Some of the risks currently concentrated upon China,

others mainly affected Hong Kong. Action: Mr Lund to take account of the FCO's drafting comments and also to produce separate sections discussing the risks in China and Hong Kong.