IMF Says Hong Kong Economic Outlook Positive

The International Monetary Fund (IMF) said Monday that Hong Kong's economy has reversed the trend of slump, posting a 2 percent growth in 1999, and the outlook for 2000 and beyond was generally positive.

In an annual review of the Hong Kong economy, the IMF said that clear signs of recovery emerged in the first half of 1999, helped by the fast pace of economic growth in the mainland of China and the sharp rebound in the earlier crisis-hit economies in the region.

"(Executive) directors attributed this successful turnaround of the economy to the authorities' skillful economic management, the credibility of policy-making in Hong Kong SAR, and the economy's flexibility and resilience," the IMF said.

The IMF said the supportive and timely fiscal policy, combined with job creation and retraining programs helped mitigate the Asian financial crisis' impact on the Hong Kong economy. "While the recovery was not yet broadly based, and much would depend on external developments, as well as the speed with which the remaining domestic price adjustment was completed and corporate profitability improved, directors believed that the outlook for 2000 and beyond was generally positive," the IMF report said.

Given that the recovery was not yet broadly based, the IMF said for the fiscal year 2000 a structural tightening of the fiscal position should be avoided. It also urged the authorities of the Hong Kong SAR to further strengthen employment and training programs, especially for the youth unemployed. The IMF backed Hong Kong's currency board, which pegs the Hong Kong dollar to the U.S. currency and ties cash in circulation to central bank reserves. It said the system was "the linchpin of the rules-based approach to economic policy making." The fund also said the financial position of Hong Kong's banking system remains generally strong, with non-performing loans stabilizing at about 10 percent of assets in the third quarter of 1999.

The IMF projected that the Hong Kong economy would likely undergo major structural changes in coming years, due both to technological advances in key service industries and the evolving relationship with the mainland, including as a result of China's accession to the World Trade Organization.

"Preserving Hong Kong SAR's economic performance in an increasingly competitive external environment will require a continuing effort to strengthen the regulatory framework, upgrade skills, and foster technological innovation," the IMF said.

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