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Following is the transcript (English part) of comments made by the Financial Secretary, Mr Antony Leung, today (February 5) at the Main Wing Lobby of Central Government Offices, following the release of the International Monetary Fund (IMF) Staff Mission's Concluding Statement for the 2002 Article IV Consultation with China in respect of HKSAR:

Financial Secretary: We received and published the Concluding Statement of the Article IV Consultation by the International Monetary Fund on the HKSAR. The Hong Kong Government welcomes the positive comments in the Concluding Statement and in general we believe that the assessment has been very fair. I would like to point out four specific areas that the Government would like to comment on:

Firstly, on the economic outlook. The IMF pointed out that our economy is highly dependant on the development of the external economy, particularly the United States. We believe that with the recovery in the US, the Hong Kong economy should in this year behave very positively. The second point is that in the long term, the IMF pointed out that our long-term economic future depends on our ability to capitalize on the opportunities due to the rapid opening and growth of the Mainland. That is the area the Hong Kong Government has been devoting a lot of efforts on. As you know, we are taking various measures to improve the five flows: the flow of people, the flow of cargo, the flow of capital, the flow of services as well as the flow of information. The recent discussion with the Mainland authorities on a Closer Economic Partnership Arrangement is just part of it.

The second area that the IMF has pointed out is that they support the maintenance of the linked exchange rate. As the Chief Executive and I have been repeating many times, we have no plan to change the linked exchange rate at this particular time.

Thirdly on the fiscal side, they expressed concern on our widening deficit this year and they pointed out that we might have a structural problem. They also pointed out the importance of returning to fiscal balance over a reasonable period of time and that is exactly what we are planning to do. On March 6 I'll be announcing a number of measures to show that we have the ability as well as the determination to close the budget deficit.

Lastly, the IMF commented on the labour market. Two particular points there: firstly, they pointed out there is rising income disparity in Hong Kong, but they also pointed out very clearly that it is because of the rising income of the higher income group and not because of the lowering of income at the lower income group. This is in line with the development of Hong Kong as a knowledge-based economy. Secondly, they pointed out that there is a mismatch between our labour force and the requirement of a knowledge economy. They in particular support the Hong Kong Government's efforts in the development of education in Hong Kong because it is only through the upgrading of skills of the entire population that we can achieve a rising living standard in Hong Kong for all the people, as well as capitalizing on the opportunities available in the Mainland.

Question: What about the sales tax option?

Financial Secretary: The IMF pointed out that they observed a narrowing of the tax base in Hong Kong. They believe that in the long run, some form of a product-based consumption-related type of tax would be appropriate. But that actually is kind of an observation pointed out by the Advisory Committee on Broad-based Taxes chaired by Mr Moses Cheng - that recommended an introduction of some form of a consumption-based tax. Whether we are going to adopt such a recommendation, in particular the appropriateness of the timing is something that we are considering, we still have to receive the report formally. I expect to receive it some time this month and we'll take it from there.

(Please also refer to the Chinese portion of the transcript)

End/Tuesday, February 5, 2002

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