An International Monetary Fund (IMF) staff mission to Hong Kong welcomed the Hong Kong Special Administrative Region Government’s various measures to safeguard the stability of the financial system and maintained its long-standing support for the Linked Exchange-Rate System (LERS).
The mission projected the growth of the Hong Kong economy to fall to approximately 2% in 2009 amid the global financial crisis; consumer price inflation is expected to fall below 3%. Over the medium term, an underlying growth rate of 5% is still feasible, but much will depend on the trajectory of economic and financial integration with the Mainland and how those interdependencies are managed.
The assessment was made in the November 11 Preliminary Conclusions of the IMF Mission after the 2008 Article IV consultation discussions in late October.
The mission noted that Hong Kong’s financial system has performed well and without significant dislocation. It attributed this to the government’s efforts over the past several years to establish a more robust system of financial supervision and regulation and a sophisticated financial infrastructure. The mission commended the regulatory authorities for their ability to step up supervisory activities in recent months, to pay substantial attention to contingency planning and to their continued willingness to explore areas for further improvement.
According to the mission, the 2008-09 Budget and the supplementary package of measures introduced in July accomplished the goal of protecting vulnerable groups from the impacts of high food and fuel prices and from the coming downturn. The IMF thinks continued fiscal stimuli will be needed in the 2009-10 Budget and that the government should target a balanced budget or a small fiscal deficit. The mission said the time has come for a more fundamental evaluation of the revenue needs of the government, the appropriate tax structure and the likely fiscal outlays over the medium term. The Mission saw merit in the government beginning to provide updated fiscal forecasts during the year to help increase the effectiveness of fiscal policy and also supported healthcare reforms, saying the government has rightly recognized the problem and laid out options that ought to be considered.
Welcoming the mission’s broad support for the government’s policy framework, Hong Kong Financial Secretary John C. Tsang said, “We are mindful of the challenges stemming from the severe economic and financial environment. We will strive to uphold our principle of fiscal prudence in managing public finance while continuing to adopt necessary measures to help those in need.”
The mission maintained its support for the LERS, which is a simple and transparent exchange-rate arrangement that has proved to be an anchor of monetary and financial stability in Hong Kong over the past 25 years. Members continued to find the real value of the Hong Kong dollar to be broadly in line with economic fundamentals. The mission also noted the measures taken by the Hong Kong Monetary Authority (HKMA) to increase the attractiveness and flexibility of its liquidity support facilities have begun to restore the workings of local interbank markets, although term lending has yet to normalize.
“We welcome the mission’s support of our various pre-emptive and precautionary measures. The banking system remains strong and robust,” HKMA Chief Executive Joseph Yam said. “We will continue to monitor closely the global financial markets and take necessary measures to safeguard financial stability.”
The mission remarked that a new competition law would help enhance Hong Kong’s competitiveness. In addition, its members would support the government’s intention to make minimum wage legislation uniform across employment groups — if the social consensus determined that a minimum wage is the best solution for lessening income inequality. Noting the importance of the Pearl River Delta (PRD) to Hong Kong, the mission also suggested that a broader expansion of communications and infrastructure with the PRD economy would offer significant potential for further growth and development in the region. Members also encouraged the government to continue moving forward the financial integration process with the Mainland and to play a catalytic role in the modernization of the Mainland’s financial system and its integration with global capital markets.
The IMF mission visited Hong Kong from October 20-30 for the 2008 Article IV consultation discussions with the Hong Kong Special Administrative Region.
The Preliminary Conclusions of the IMF Mission can be found on the Web site: [www.imf.org/external/np/ms/2008/102808.htm].
|
