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The budgetary policy of Hong Kong will continue to reflect the principle of fiscal prudence, ensuring that growth in government expenditure will be in line with medium term economic growth trends, the Chief Executive, Mr Tung Chee Hwa, said in his policy address today.

Such financial discipline had been a cornerstone of our success, and had allowed Hong Kong to build up strong reserves, which were essential to the protection of the linked exchange rate, he said.

In the current year, because of the contraction in the economy and the suspension of land sales, the budget deficit might be substantially more than the $20 billion announced in June.

"Because of the downturn in our economy, in the medium term our recurrent expenditure may grow more slowly than before.

"Nonetheless, we have the means to support our commitment to spending over the next five years in key areas such as infrastructural development, which are essential for our economic growth and which will create more jobs for our workforce," he said.

Mr Tung also said another element fundamental to the continued economic stability was the linked exchange rate.

"I will take the opportunity again today to underline our resolve to maintain our linked rate.

"Without it we would run the risk of major capital outflows, even higher interest rates and a crisis of confidence in our currency. It is an essential plank in our platform for growth, and will remain so," he said.

End/Wednesday, October 7, 1998

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