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An International Monetary Fund (IMF) Staff Mission to Hong Kong has endorsed the Government's proactive policies to reinforce the resilience of the economy and the financial system, and reiterated that the Linked Exchange Rate System is the best arrangement for Hong Kong.
The assessment was made in the Preliminary Conclusions of the IMF Mission published today (April 9), following the 2014 Article IV Consultation discussions.
The Mission projected that Hong Kong's real GDP growth would rise to 3.75 per cent in 2014, supported by an improving global economy and solid domestic demand. A key external risk is the possible increased volatility in capital flows and financial markets associated with the exit from the unconventional monetary policy in the United States. Successful transformation of the Mainland's economy could slow near-term growth, but would offer significant benefits over the medium and long terms. The main domestic risk is a disorderly correction in property prices.
The Mission commended the authorities' proactive implementation of counter-cyclical prudential and fiscal measures, which help facilitate an orderly adjustment in the property market and safeguard financial stability. The Mission also welcomed the plan announced by the authorities to increase housing supply, as a long-run solution to housing hinges on ensuring adequate supply in the market.
Hong Kong's financial system, in the IMF's assessment, is regulated and supervised at the global forefront in many areas, in line with the needs of a major global financial centre and is resilient to likely shocks. The banking system is well positioned to absorb losses in adverse scenarios and is resilient to changes in liquidity conditions. As for areas for further improvement, the Mission recommended that the authorities should continue to press ahead with plans to establish a resolution regime for financial institutions and strengthen the regulation of the insurance sector.
The Mission considered that fiscal prudence is a cornerstone which has been very important to Hong Kong's resilience and success. The Mission supported casting fiscal policy in a long-term framework, as outlined by the recent Working Group on Long-Term Fiscal Planning, so as to anchor the discussion about how to balance spending, preserve low taxes and maintain fiscal prudence. The Mission is also of the view that the unwinding of fiscal stimulus in the 2014-15 Budget is appropriate and in line with the near-term improved economic outlook.
The latest assessment also reiterated the IMF's long-standing support for the Linked Exchange Rate System, which is a transparent and effective regime backed by credibility built up over three decades. Combined with robust and proactive financial supervision and regulation, prudent fiscal management, and flexible markets, the Linked Exchange Rate System has helped Hong Kong successfully weather changing and volatile global conditions.
The Financial Secretary, Mr John C Tsang, said, "I welcome the IMF's commendation of our financial oversight and fiscal management policies, which have greatly contributed to the success and resilience of Hong Kong. In light of developments globally and in the Mainland, the Government will continue taking proactive policies to enhance the strengths of our economy and financial system, managing any external risks that may arise, while capturing new opportunities, particularly from increasing integration with the Mainland."
The Chief Executive of the Hong Kong Monetary Authority, Mr Norman Chan, said, "I welcome the IMF's continued support of the Linked Exchange Rate System, which remains the most appropriate exchange rate regime for Hong Kong. We are pleased to note the IMF's endorsement of the Hong Kong Monetary Authority's banking supervision work and counter-cyclical prudential measures, which are essential to ensure banking stability in the face of an uncertain global and local economic and financial environment."
The Mission visited Hong Kong from March 4 to 12 this year for the 2014 Article IV Consultation with the Hong Kong Special Administrative Region. It held discussions with government officials and private sector representatives. The Preliminary Conclusions are attached at the Annex. The full report of the Article IV consultation will be discussed by the IMF Executive Board in May 2014.
Ends/Wednesday, April 9, 2014
Issued at HKT 12:48
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