$140b deficit second-worst since 1997

Karen Ng

The Hong Kong government expects to record a deficit of HK$140 billion for the current fiscal year ending in March, HK$83 billion more than the initial estimate of HK$56 billion.

It would be the second-worst performing fiscal year after the city's handover in 1997.

The higher-than-expected deficit comes after various streams of government revenue, including profits tax, stock and property stamp duty, and land premium, fell short of expectations at HK$603.8 billion or 15.7 percent lower than the original estimate of HK$716 billion, Paul Chan said, adding that government expenditure also significantly increased by 16.8 percent from last fiscal year to HK$809.6 billion due to the launch of massive counter-cyclical measures and anti-pandemic work.

With the city expected to remain in the red for the fifth fiscal year, Chan forecasts the deficit will shrink to HK$54.4 billion in 2023-24 as the government scales back much of its anti-pandemic support measures.

Fiscal reserves are expected to dwindle to HK$817.3 billion by the end of March, and further fall to HK$762.9 billion at the end of the next fiscal year, which is equivalent to 12 months of government expenditure. The figure has been declining from the pre-Covid-19 level of HK$1.1 trillion in 2019-20.

The government expects to be back in the black by fiscal 2024-25 and reserves to gradually rebound to HK$983.7 billion by March 2028.

"Taking Hong Kong's previous financial position in times of adversity as a reference, I consider that our fiscal reserves are currently maintained at a prudent level," Chan said, as he committed to continue to adhere to the principles of exercising fiscal prudence after "two years of heavy fiscal deficits," while consider utilizing appropriate financial instruments such as issuance of bonds to better manage cash flow.

Meanwhile, Hong Kong's economy is expected to grow by 3.5 percent to 5.5 percent this year after shrinking by 3.5 percent last year.

Economic growth is estimated to outrun by an average of 3.7 percent in real terms from 2024 to 2027, higher than the trend growth of 2.8 percent during the decade before the epidemic.

Underlying inflation and headline inflation are expected to rise to 2.5 percent and 2.9 percent respectively this year, as domestic cost pressures increase alongside the economic recovery while external price pressures will remain notable yet moderate. The underlying inflation rate from 2024 to 2027 is forecast to average 2.5 percent per annum.