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An International Monetary Fund (IMF) Staff Mission to Hong Kong welcomed the Government・s various measures to safeguard the stability of the financial system and maintained its long-standing support for the Linked Exchange Rate system (LERS).
The mission projected the growth of the Hong Kong economy to fall to around 2% next year amid an global financial crisis of exceptional proportions. Consumer price inflation will fall below 3% in the same year. Over the medium term, an underlying growth rate of around 5% is feasible, while much will depend on the trajectory of economic and financial integration with the Mainland and how those interdependencies are managed.
The assessment was made in the Preliminary Conclusions of the IMF Mission published today (November 11), following the 2008 Article IV consultation discussions.
The mission noted that Hong Kong・s financial system had performed well and without significant dislocation. It attributed this to the Government・s efforts over the past several years to establish a more robust system of financial supervision and regulation and a sophisticated financial infrastructure. The mission commended the regulatory authorities for their ability to step up supervisory activities in recent months, substantial attention to contingency planning and continued willingness to explore areas for further improvement.
The mission considered that the 2008/09 Budget and the supplementary package of measures introduced in July had accomplished the dual goals of protecting vulnerable groups from the impacts of high food and fuel prices and the coming downturn. The mission was of the view that continued fiscal stimulus will be needed in the 2009/10 Budget and that the Government should target budget balance or a small fiscal deficit as a whole. The mission said the time had come for a more fundamental evaluation of the revenue needs of the Government, the appropriate tax structure, and the likely fiscal outlays over the medium term, and the Mission saw merit in the Government beginning to provide updated fiscal forecasts during the course of the year to help increase the effectiveness of fiscal policy. The mission also supported the reform to the healthcare system and considered that the Government had rightly recognised the problem and laid out options that ought to be considered.
Welcoming the mission・s broad support for the Government・s policy framework, the Financial Secretary, Mr John C Tsang, said, ：We are mindful of the challenges stemming from the severe economic and financial environment. We will strive to uphold our principle of fiscal prudence in managing public finance while continuing to adopt necessary measures to help those in need.；
The mission maintained its support for the LERS, which is a simple and transparent exchange rate arrangement that has proved to be an anchor of monetary and financial stability in Hong Kong over the past 25 years. It continued to find the real value of the Hong Kong dollar to be broadly in line with economic fundamentals. The mission was of the view that the measures taken by the Hong Kong Monetary Authority (HKMA) to increase the attractiveness and flexibility of its liquidity support facilities under extraordinary circumstances have begun to restore the workings of local interbank markets, although term lending has yet to normalise.
The Chief Executive of the HKMA, Mr Joseph Yam, said, ：We welcome the mission・s support of our various pre-emptive and precautionary measures. The banking system remains strong and robust. We will continue to monitor closely the global financial markets and take necessary measures to safeguard financial stability.；
The mission considered that recent progress towards the adoption of a new competition law would help enhance Hong Kong・s competitiveness. Meanwhile, if the social consensus determined that a minimum wage was the best available vehicle for lessening income inequality, the mission supported the Government・s intention to make the minimum wage legislation uniform across employment groupings. Noting the importance of the Pearl River Delta (PRD) to Hong Kong, the Mission also suggested that a broader expansion of communications and infrastructure with the PRD economy would offer significant potential for further growth and development in the region. The mission also encouraged the Government to continue to find opportunities to move forward the financial integration process with the Mainland and to play a catalytic role in the modernisation of the Mainland・s financial system and its integration with global capital markets.
The IMF mission visited Hong Kong from October 20 to 30 this year for the 2008 Article IV consultation discussions with the Hong Kong Special Administrative Region. It held discussions with Government officials and private sector representatives.
The Preliminary Conclusions of the IMF Mission are attached as an annex.
Ends/Tuesday, November 11, 2008
Issued at HKT 14:46
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