HK financial official forecasts 25.2 bln deficit for 2010

16:44, February 24, 2010      

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Hong Kong's top financial official on Wednesday forecast a 25.2 billion HK dollars deficit in the Consolidated Account for 2010-11 in the city, expecting it to fall gradually in the next few years and achieve a balance by 2013-14.

At this early stage of recovery, the Government should maintain expenditure at a certain level to fortify the momentum of the city 's domestic economy, said John Tsang, financial secretary of the Hong Kong Special Administrative Region government, when delivering his Budget speech at the Legislative Council.

"Where affordable and without compromising our long-term financial integrity, I consider it necessary to continue to run a budget deficit in the next financial year so as to ensure a solid economic recovery without exerting excessive pressure on inflation, " he said.

"In 2010-11 I will continue to invest in infrastructure, promote the development of our industries and adopt various measures to achieve the objectives of consolidating the recovery, developing our economy and building a caring society," he said.

SPENDING GROWTH

Tsang forecast total government expenditure to reach 317.2 billion HK dollars, up 8.9 percent on 2009-10. Public expenditure will be equivalent to 19.8 percent of the city's GDP.

Total government revenue for 2010-11 will be 292 billion HK dollars, with earnings and profits tax, estimated at 123 billion HK dollars, as the major source of revenue, he said.

"Taking all these into account, I forecast a deficit of 3.8 billion HK dollars in the Operating Account and a deficit of 21.4 billion HK dollars in the Capital Account. This will result in a deficit of 25.2 billion HK dollars in the Consolidated Account, equivalent to 1.5 percent of our GDP," he noted.

Fiscal reserves are estimated at 483 billion HK dollars by end- March 2011, representing approximately 28 percent of Hong Kong's GDP and equivalent to 18 months of government expenditure, he said.

BETTER-THAN-EXPECTED REVENUE

Revising the estimates for 2009-10, Tsang said the economy showed signs of gradual improvement from the second quarter of 2009, leading to better-than-expected revenue.

The huge inflow of funds resulting from the global low-interest environment and the quantitative easing policy adopted by many countries has given rise to hectic trading in both the stock and the property markets.

As a result, revenue from stamp duties reaches 40.5 billion HK dollar, which is higher than the original estimate by 15.5 billion HK dollars, he said.

The revised total revenue is 308.5 billion HK dollars, 46.8 billion higher than the original estimate, said Tsang.

By March 31, Hong Kong fiscal reserves will have increased to 508.2 billion, he said.

MEDIUM-TERM OUTLOOK

For the medium term, with the gradual recovery of the global economy, Tsang estimated the annual trend growth rate will return to 4 percent in real terms for the period 2011-14, while the underlying inflation rate forecast will average 3 percent.

"I forecast a surplus in the Operating Account for the period between 2011-2012 and 2014-15, which will help meet the capital deficit arising from our enormous expenditure on infrastructure in these few years," he said.

The fiscal reserves will be around 470 billion HK dollars by end-March 2015, representing approximately 22 percent of the city' s GDP and equivalent to 15 months of government expenditure.

The total deficit for the financial years between 2010-11 and 2014-15 is estimated to reach around 40 billion HK dollars.

Source: Xinhua
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