ENG-1979 — Page 75

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FINANCE AND ECONOMY

cent in the 1979-80 estimates. The decision was devised to leave relatively untouched the plans detailed in the government's White Papers for the expansion of education, medical and health services, and social services for the handicapped, the aged, the young and those unable to help themselves. However, it bore down heavily on the Public Works Programme which, because of its rapid growth, was causing cost inflation and an over- extension of the building industry. While expenditure on public works continued to grow in 1979, it was at a slower pace and many desirable projects had to be rephased. However, in the rephasing process very high priority was given to housing and housing-related projects and amenities.

At the end of 1979, evidence indicated that measures taken by the government to slow down the growth rate of demand were achieving results. The growth rate of demand was more in line with the growth rate of the economy's output, and the growth rate of imports was slowing down. At the same time, Hong Kong's domestic exports were growing quickly and the growth rate of total exports was faster than the growth rate of imports. This was a reversal of the trend in 1978. Hong Kong's visible trade deficit had narrowed and this, together with higher interest rates, was helping to stabilise the exchange rate of the Hong Kong dollar. There had also been a shift in the distribution of resources towards the manufacturing sector.

Reflecting these favourable developments, the money supply was growing at a rate actually lower than the growth rate of the gross domestic product at current prices, which was also a reversal of the 1978 situation. The growth rate of bank advances had slowed down, but not sufficiently.

Nevertheless, excess overall demand still persisted in Hong Kong, with the consequent pressure on prices. Both imported inflation and domestically-generated inflation were considered by the government to be running at an uncomfortable rate. With world prices accelerating due, in part, to sharp increases in oil prices, consumer prices in Hong Kong were increasing at around 11 per cent. Building and construction costs were increasing at a rate of 30 to 40 per cent.

The government's revenue collections for the 1979-80 fiscal year were exceeding expecta- tions by the end of 1979, and were forecast to surpass the Budget estimate. However, it was anticipated that any increased revenue would be absorbed in meeting increased expenditure on both the government's recurrent and capital accounts because of additional commitments.

Because of the buoyant demand for Hong Kong's exports, the economy was expected to record a growth rate in real terms as high as 12 per cent in 1979, compared with the Budget Speech forecast in February of seven per cent. But this achievement was being regarded in relation to the situation of excessive demand and the fact that the gross domestic product was only expected to show an increase of around five per cent in per capita terms in 1979, which represented a slowing down from the growth rate of 7.8 per cent in 1978. While Hong Kong, in fact, experienced a much faster than forecast growth rate of the economy in 1979, it was affected by the year's influx of immigrants from China and Vietnamese refugees. Instead of a population growth rate of around two per cent in 1979, Hong Kong's growth rate (excluding Vietnamese refugees) was more than five per

cent.

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