Hong Kong's Economic Growth To Moderate In 2006, According To IMF

by Mary Swire, Tax-News.com, Hong Kong

15 February 2006

While commending the government's overall economic management, the International Monetary Fund is forecasting that Hong Kong's economic growth rate will moderate somewhat in 2006 after two years of impressive growth.

In its annual article IV review of the Hong Kong economy, the IMF stated that economic growth was likely to slow in 2006 to 5.5%, down from an estimated growth rate of 7% in 2005.

Predicting a rise in inflation to 1.5% in 2006 from 1.1% in 2005, the IMF also believes that Hong Kong's adjustment to the adverse economic 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.

With the Hong Kong government budget likely to have returned to balance in the 2005/6 financial year, the IMF report advised that now is the ideal time for the government to formulate a long term economic plan, and the report once again repeated earlier recommendations that Hong Kong widen its tax base to even out volatile revenue flows.

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.

Nonetheless, the IMF endorsed Hong Kong's intention to begin public consultation on the feasibility of introducing a low-rate goods and services tax.

It also expressed support for the Government's plans to encourage greater private-sector participation in delivering healthcare services, but cautioned against further tax concessions before any tax and healthcare reforms.

Welcoming the report, Financial Secretary Henry Tang said the IMF's assessment was an endorsement of the Hong Kong Government's macroeconomic management.

"I am confident that Hong Kong, with its sound fundamentals and stable policy framework, will continue to maintain its competitiveness and resilience," Mr Tang stated.

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