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IMF commends Hong Kong's macroeconomic management

    The International Monetary Fund (IMF), in its Staff Report on Hong Kong released today (February 14),  has given a positive assessment of Hong Kong・s economic performance and commends the Government・s fiscal and exchange rate polices.

     The IMF projects the economy to have grown by 7% in 2005, which is in line with the latest Government projection.  For 2006, real gross domestic product (GDP) growth is expected to moderate to 5.5%, with some easing of external demand.  Inflation is expected to rise modestly to 1.5% in 2006 from 1.1%  in 2005.  

     With the recent upturn in domestic prices, the IMF believes that the adjustment of the economy to the adverse shocks of the past seven years may finally be over, and that external competitiveness has been restored to a level that is consistent with economic fundamentals.      

     Projecting a budget balance in financial year 2005-06, the IMF believes that this is now a good time to develop a longer-term fiscal strategy to meet the challenges of an ageing population.  

     In formulating the strategy, the IMF believes consideration should also be given to the level of fiscal reserves, because adequate reserves underpin market confidence in the Government・s ability to meet higher and unanticipated spending pressure without significantly changing Hong Kong・s low-tax environment.    

     The IMF welcomes the Government・s intention to begin public consultation on the feasibility of introducing a low-rate goods and services tax.  It also supports the Government・s plans to encourage greater private sector participation in delivering health care services.  However, the IMF cautions against further tax concessions before any tax and health-care reforms.

     Welcoming the publication of the Staff Report, the Financial Secretary, Mr Henry Tang, said the IMF・s positive assessment was an endorsement of the macroeconomic management of the Hong Kong Government.  

     :I am confident that Hong Kong, with its sound fundamentals and stable policy framework, will continue to maintain its competitiveness and resilience.;

     The IMF reiterates its support for the authorities・ commitment to the linked exchange rate system.  The three refinements introduced since  last May have successfully dampened speculative inflows related to market expectations of a renminbi appreciation and helped keep financial markets calm after the regime shift in the renminbi exchange rate last July.

     The IMF welcomed the initiatives undertaken to strengthen Hong Kong・s financial market infrastructure and supervisory systems.  It also welcomed progress made on the introduction of a deposit protection scheme, preparations for adopting Basel II by banks and the establishment of the Financial Reporting Council.  

     The IMF also noted the importance of Hong Kong playing an increasing role in the Mainland・s financial intermediation.  The continued success of Hong Kong as an international financial centre hinged upon its ability to assist in the Mainland・s financial intermediation, a process in which Hong Kong was well-positioned to play given its sophisticated financial infrastructure.  To this end, co-operation and coordination of financial authorities between the two economies would become increasingly important.

     On maintaining Hong Kong・s status as an international financial centre, the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, said efforts over the past years to encourage the Mainland to make greater use of Hong Kong・s sophisticated financial platform would consolidate and enhance Hong Kong・s position as the pre eminent financial centre for the Mainland.    

     The IMF mission visited Hong Kong between October 13 and October 25 last year to conduct the Article IV Consultation.  

     The Staff Report on the Consultation is the sixth report published by the Government, following its agreement to participate in the IMF・s exercise to increase transparency in its assessment of world economies.

     The IMF・s Public Information Notice is attached as annex.  The Staff Report can be obtained from the website of the Financial Services and the Treasury Bureau [] or the IMF website [].

Ends/Tuesday, February 14, 2006
Issued at HKT 13:03