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With Hong Kong being a small but highly open economy heavily influenced by global developments, the International Monetary Fund (IMF) has praised the Government's fiscal prudence, which it identified as being key to the city's financial sector success.
In the preliminary conclusions of its 2014 Article IV Consultation with the Hong Kong Government, the IMF supported the work of the Working Group on Long-Term Fiscal Planning, which has sought to address fiscal policy from a broader, long-term viewpoint. The Working Group has been addressing how to balance spending and revenues, address the ageing population and income inequality, preserve low tax rates, and reinforce the importance of maintaining a prudent fiscal balance.
The IMF said the unwinding of fiscal stimulus, including a reduction in one-off measures, in Hong Kong's 2014-15 Budget was appropriate, and in line with the near-term improved economic outlook.
In a specific section dedicated to Hong Kong's housing market, which was identified as the main domestic risk if there were to be a disorderly correction in property prices, the IMF pointed out that a long-term solution to housing hinges on ensuring adequate supply in the market. However, that increased supply, it said, will take years, and, in the meantime, the counter-cyclical fiscal measures, such as increased stamp duties, the Government has deployed will be needed to spur an orderly adjustment in the market while safeguarding financial stability. Those measures, the IMF concluded, should only be removed when systemic financial sector risks dissipate. Stamp duties should be eased in line with the normalization of the market, with a faster reduction in the event of a sharp correction.
Hong Kong's Financial Secretary, John Tsang, welcomed "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."
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