1988 to HK$691 billion in 1992. As share of GDP, domestic exports have fallen from 50% of GDP in 1988 to 22% in
1992; however, re-exports have risen from 64% of GDP to 93% in the same in- terval. Because exports of services amount to 19% of GDP, the relative size of total export transactions reached 144% of GDP in 1992. Imports have grown by similar overall magnitudes, and these have reached 142% of GDP in 1992. Compared to these large flows, visible trade has tended to be near bal- ance, but moved into deficit in 1990. In 1992, the trade deficit reached 4.5% of GDP. Including net income from services (but not factor income, for which the gov- -ernment keeps no data), there was a sur-
plus of 1.9% of GDP.
Although the size of the public sector is comparatively small, growth in govern- ment spending has exceeded overall GDP growth in recent years. As a share of GDP, total public spending has in- creased from 15.9% in 1986-87 to 18.8% in 1991-92. Government con- sumption has increased only marginally
from below 8% of GDP during most of the 1980s to 8.6% in 1992 in 1992 the increase reflects mainly the impact of new investment programs. The Govern- ment has nevertheless limited the in- crease in spending to the rate of GDP growth in the last two budgets. Budget management has traditionally budget re- been very
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mneanative and the annua sults have been consistently in surplus. However, non-tax revenue, such as rev- enue from land sales or from invest- ments, is an important part of govern- ment income (22% of the total in budget year 1991-92), so that budget surpluses
Debt Profile
Measured by foreign currency debt out- standing, Hong Kong has a strong ca- pacity to pay. The government has rela- tively small debt. It has been issuing Exchange Fund Bills and Notes after 1990 for purposes of monetary manage- ment; otherwise, the issue of public debt has been limited to statutory corporations with heavy investment requirements. The amount of this debt was US$788 billion al end-1992 (of which US$492 billion in foreign currency). The debt is therefore small compared to the assets, or to the revenue capacity, of the government. Regarding the private sector, Hong Kong entities have unrestricted access to all capital markets, and lending is in the hands of private lenders on the basis of
do not imply an absence of impact on ag. gregate demand
The Hong Kong government has ai- ways felt the need to keep a cushion of assets in order to meet any contingen- cies that might threaten the economy. Recurrent budget surpluses have thus been used to accumulate various forms of wealth. In recent years, revenues have tended to exceed initial budget estimates and the government has raised the mag- -nitude of transfers to specific reserve funds. In view of the likely increase in public investment, the largest recipient of transfers has been the Capital Works Reserve Fund. In a context of uncertain support from China, the government is proceeding with plans to build a new air- port and the associated infrastructure.
Until recently, Hong Kong has not had a central bank, but various institu- tions the Office of the Exchange Fund, and the Commissioner of Banking — have essentially fullfilled the role. Note issue has been handled by two private banks. The Bank of China should be- come the third note issuer from May 1994. Whatever the peculiarities, the long-term monetary trends are deter- mined by the link of the HK dollar to the US dollar. In the short term, the parity in fact is allowed a small margin of fluctua- tion, and thus there is some room for monetary policy. In order to provide a more systematic policy framework, the Hong Kong Monotary Authority was sei up in April 1993, bringing under the same management the monetary affairs Neht issuance, and banking supervision activi- ties of the government.
riskiness and profitability of the borrower. With little regulation and a strong capaci- ty for economic adjustment, defaults can occur, but they will be absorbed by the lender, and they would not result in sys- temic risks. Although statistics on debt are not collected, a possible measure of exposure in foreign currency is the amount of foreign currency loans for use in Hong Kong. These amounted approxi- mately to US$30.2 billion at the end of 1992, or about 31.5% of GDP. As an es- timate of total debt, to this sum we have added the bilateral debt of Hong Kong to OECD countries and non-bank bond and note issues as reported by the Bank for International Settlements.
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