The Hong Kong Special Administrative Region government recorded a significant fiscal deficit again this year, marking three consecutive years of budget deficits. The new Budget suggests moderately expanding the scope of borrowing, implementing a "Reinforcing Fiscal Consolidation Programme," and accelerating future investments, while strictly controlling public spending.
Financial Secretary Paul Chan emphasized during the Budget announcement yesterday (Feb. 26) that strict control of public expenditure is necessary, but the government must also carefully balance the impacts during this process, advancing cautiously to minimize the effects on public services and people's livelihoods, while providing a sustainable fiscal foundation for future development.
He stressed that Hong Kong needs to reform, innovate and relentlessly improve in the process of economic development.
"Over the past year, we have seen a number of positive developments in Hong Kong. Our economy has grown for two consecutive years. The employment market has been stable, while inflation remains moderate. Our efforts to attract talent and enterprises have been remarkably successful. The successive staging of large-scale international mega events has been coupled with a notable increase in visitor arrivals. And sentiment in the stock market continues to improve alongside a generally buoyant atmosphere across the city."
Nevertheless, Chan noted that Hong Kong has also experienced a lot of challenges.
"The international geopolitical landscape has caused disruptions to trade, supply chain, cash flow and sentiment in the investment market. Local asset prices are contained under a relatively high interest rate environment, whereas the retail and catering markets are still troubled by changes in the consumption pattern of visitors and our residents."
Last year, revenue related to the asset market was far lower than expected due to a host of internal and external factors, and the government continue to record a higher deficit this year. "While putting Hong Kong's economic resilience to the test, these challenges signify to us the necessity to reform, innovate and relentlessly improve in the process of economic development," said Chan, "Although the large-scale, counter-cyclical measures launched over the last few years in response to the pandemic have helped us achieve our goal of 'supporting enterprises, safeguarding jobs, stabilizing the economy and easing the burden on people,' we have experienced fiscal deficits these few years as a result."
Talking about the "Reinforcing Fiscal Consolidation Programme," Chan stated, "While laying a sustainable fiscal foundation for future development, this approach represents our all-out effort to minimize the impact on public services and people's livelihood. It gives us a clear pathway towards the goal of restoring fiscal balance in the Operating Account, in a planned and progressive manner, within the current term of the Government."
Developing economy with technological advancement at its core
While strictly controlling public expenditure, the Budget has proposed a strategy of investing in the future through a suitable increase in bond issuance. According to Chan, issuing bonds to support infrastructure development is a common practice worldwide. As long as the amount of bond issuance is contained at a level that ensures fiscal prudence, capital can be utilized flexibly and for investing in future economic development, bringing greater returns and benefits to the society.
"To seize the opportunities brought about by the rapid advancement of innovation and technology, we must accelerate the development of the Northern Metropolis (NM)."
He also stressed that HK must expedite its economic development, in particular boosting new economic driving forces while enhancing the competitive edge of traditional industries at an accelerated pace.
"We have to seize the opportunity to make the most out of this critical window to speed up our development, establishing the new before abolishing the old. Transformation and innovation will lead our way into the future, and we are poised to fast-track the high-quality development of Hong Kong's economy."
Economy expected to grow by about 3% in 2025-26
Speaking of the economic outlook and medium-term prospects for 2025, Chan pointed out that Hong Kong's economy is still facing a very challenging external environment, including trade protectionism that affects global trade and capital flows, dampens investment and consumer confidence, and weighs on global economic growth. However, it is encouraging that the Mainland economy continues to grow steadily.
"Our country's domestic and international circulation, expansion of high-standard opening-up, global setup of industry chains and supply chains by Mainland enterprises, etc. benefit the steady development of external trade."
Against the above backdrop, Chan said that Hong Kong's exports are expected to see steady performance in 2025-26. Moreover, riding on various policies and the good momentum of last year, visitor arrivals should continue to increase.
"Together with the recovery of other cross-boundary economic activities, these should drive continuing growth in services exports... Based on the above considerations, we forecast that Hong Kong's economy will continue to grow moderately this year, rising by two to three percent in real terms for the year."
Confidence
In the concluding remarks of the Budget, Paul Chan stated that Hong Kong's economy has been steadily progressing over the past year, with a sustained positive growth momentum, providing favorable conditions for the future development of Hong Kong.
"I have full confidence in and high expectations for the future of Hong Kong. I am confident because Hong Kong people are intelligent, creative, and tireless in contributing to our economic development. More importantly, it is due to the staunch and unwavering support we receive from our country. I also owe my confidence to Hong Kong people's profound insight into the major development trends of the future, as well as the city's enviable and advantageous position."
"Together, we can shape our future with actions, break boundaries with innovation, and pitch in to create a more prosperous, caring, diverse and international Hong Kong, unraveling a new chapter exclusively for this city and contributing to the building of China into a great country through Chinese modernization!"
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