Provisional results for 2006-07 show surplus
The Hong Kong Special Administrative Region Government (HKSARG) had expenditures of US$29.41 billion and revenues of US$36.92 billion for the 2006-07 fiscal year, resulting in a surplus of US$7.51 billion (HK$58.6 billion). The financial year ended March 31.
An HKSARG spokesman said the surplus represents a US$448.71 million improvement compared to the US$7.06 billion surplus forecast for the current year. The improved financial position is mainly due to lower-than-forecast expenditures of US$461.53 million. The government’s strenuous efforts to rein in expenditures and spend only where necessary worked.
The spokesman noted that this year’s variance between the revised estimate and the provisional results was the smallest in five years, reflecting bureaus and departments’ continuous efforts to improve financial management.
The territory's fiscal reserves stood at US$47.34 billion as of March 31, a US$7.51 billion increase over the year before.
The spokesman added that all figures are provisional pending the final closing of the annual accounts, but experience shows that any changes to the provisional figures are unlikely to be significant.
Foreign currency reserves at US$136.8 billion
Hong Kong’s foreign currency reserves stood at US$136.8 billion at the end of April, according to the Hong Kong Monetary Authority, up from US$135.4 billion at end-March.
Including unsettled forward contracts, the foreign currency reserve assets of Hong Kong also stood at US$136.8 billion, compared to US$135.4 billion at end-March.
Hong Kong is the world’s eighth-largest holder of foreign currency reserves, after mainland China, Japan, Russia, Taiwan, South Korea, India and Singapore.
The total foreign currency reserve assets of US$136.8 billion represent about seven times the currency in circulation, or 36% of Hong Kong dollar M3.
Hang Seng Index closes April at 20,319
Following the buoyant global stock markets and bolstered by the positive sentiment in the market along a string of initial public offerings, the Hang Seng Index continued its uptrend in April and fully recovered the ground lost at the end of February and the beginning of March. The index closed the month of April at 20,319, close to January 24’s record high of 20,821. Trading was hectic, with the average daily turnover rising to US$7.05 billion, comparable to recent highs.
Dollar weakens against major currencies
Tracking closely the movements of the U.S. dollar, the Hong Kong dollar depreciated against most major currencies in April, though it rose against the Japanese yen. On the whole, the Hong Kong dollar depreciated further in April, with the monthly average trade-weighted index down 0.4% compared to March.
Interest rates edge up slightly
Abundant liquidity in the local banking sector kept local interest rates at low levels in April. The overnight Hong Kong Interbank Offered Rate (HIBOR) notched higher during the month due to surging short-term liquidity demand on the back of a new round of initial public offerings. The longer-dated HIBOR edged up slightly as well, though to a much lesser extent.
The three-month HIBOR ended slightly higher at 4.19% in April, compared to 4.12% at end-March. There was little change in the longer-dated interest rate gap between the Hong Kong and U.S. dollars during the month. The average gap between the three-month HIBOR and the Eurodollar rate was 115 basis points in April, comparable to March’s 117 basis points.
Exchange Fund totals US$156.85 billion
Assets of the Hong Kong Exchange Fund totaled US$156.85 billion on March 31. This is US$2.06 billion less than at end-February, according to the Hong Kong Monetary Authority.
Foreign currency assets fell US$1.07 billion, and Hong Kong dollar assets dropped US$987.17 million.
The decline in foreign currency assets is mainly due to the redemption of Certificates of Indebtedness, which was partially offset by interest and dividend income from foreign currency assets. The decline in Hong Kong dollar assets is mainly due to fiscal drawdowns.
The Currency Board Account shows that the monetary base at the end of March was US$38.34 billion, 3.2% less than at end-February. The decline is mainly due to a decrease in Certificates of Indebtedness.
Backing assets fell 2.8% to US$42.53 billion. The decline is mainly attributable to the redemption of Certificates of Indebtedness in the monetary base and revaluation losses, which were partially offset by interest from investments.
The backing ratio rose to 110.93% at end-March, from 110.53% a month earlier.
Government reappoints 3 to HKEx board
On April 26, Hong Kong Financial Secretary Henry Tang reappointed Marvin Cheung, Henry Fan and Fong Hup to the Board of the Hong Kong Exchanges and Clearing (HKEx) for a term of two years.
Mr. Tang said appointment to the board is an important public-interest safeguard. “Marvin Cheung, Henry Fan and Fong Hup are experienced, well-respected and prominent figures in the financial services industry,” he said. “We are glad that they have accepted the reappointments and demonstrated their commitments to serve the public.”
Mr. Cheung is a retired accountant. He was chairman of the Listing Committee of the Stock Exchange of Hong Kong from January 2003 to April 2005. He has been serving on the HKEx Board for two years as an appointed director.
Mr. Fan is managing director of CITIC Pacific. He has served on the Securities and Futures Commission as a nonexecutive director for eight years and the HKEx Board as an appointed director for more than three years.
Mr. Fong is a senior adviser to Deloitte Touche Tohmatsu. He has been serving on the HKEx Board as an appointed director for four years.
The HKEx board comprises up to six shareholder-elected directors, the HKEx Chief Executive and up to six appointed directors. The other current appointed directors are Ronald Arculli, Laura Cha and Moses Cheng.
The appointments are made under the Securities and Futures Ordinance. According to section 63(2)(a) of the ordinance, HKEx has the statutory duty to act in the interest of the public, having particular regard to the interest of the investing public.
Monetary Authority releases 2006 report
The Hong Kong Monetary Authority (HKMA) recently published its 2006 annual report, reviewing trends and events in monetary and banking affairs and assessing the HKMA's work during the year. The report also sets out plans for the coming year.
In the report, HKMA Chief Executive Joseph Yam said the exchange and money markets were stable throughout the year despite record fund flows related to initial public offerings and speculation about the renminbi’s effect on the Hong Kong dollar.
The territory enjoyed another year of robust economic growth in 2006, helped mainly by strong domestic demand, increases in trade with the Mainland and solid demand for Hong Kong's goods and services from its other major trading partners. Unemployment declined to its lowest level in six years, while inflation remained moderate. The asset markets were stable after a strong rise in 2005, and the stock market staged a strong rally in the second half of 2006. The profitability of banks improved due to higher net interest income and income from fees and commissions.
The report also included the audited Exchange Fund accounts for 2006. The Exchange Fund, which is managed by the HKMA, earned a gross investment income of US$13.3 billion in 2006. Its rate of return exceeded that of the investment benchmark approved by the Financial Secretary on the advice of the Exchange Fund Advisory Committee by 0.6%.
2006 also saw the establishment of a blueprint for the financial development of Hong Kong, which was adopted by a Financial Services focus group set up by the Chief Executive’s Economic Summit on “China's 11th Five-Year Plan and the Development of Hong Kong.” Other developments included the January 1 completion of the administrative work and legal process necessary to implement the Basel II requirements in Hong Kong, launching of the Deposit Protection Scheme, further expansion of renminbi business in Hong Kong and international credit rating agencies upgrading Hong Kong’s sovereign ratings to AA, the highest they have ever been.
As part of its efforts to increase transparency, the HKMA has included in its report the terms of reference of the five Subcommittees of the Exchange Fund Advisory Committee.
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