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Moody's Maintains Positive Credit Rating For SAR

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

16 May 2002

In its annual report released on Tuesday, international ratings agency, Moody's echoed the sentiments expressed by Standard & Poor's last week, maintaing its positive outlook and favouable credit ratings for Hong Kong, whilst expressing concerns with regard to the SAR's structural deficit.

According to a report in the South China Morning Post, the ratings agency explained that the jurisdiction had kept its A3 foreign currency and Aa3 local currency country ceiling ratings in 'recognition of the SAR's ability to maintain its fiscal and economic autonomy since Britain's 1997 handover of Hong Kong to China as a special administrative region.'

However, Moody's Vice-President, Steven Hess told the SCMP that: 'Deficits could continue for the coming few years, forcing the government to run down its fiscal reserves and possibly putting pressure on the SAR's exchange rate regime.'

These concerns are similar to those expressed by S&P last week, which - while reaffirming the regions A+ rating on Hong Kong's long-term sovereign foreign and local currency credit - warned that: 'Failure to provide appropriate pro-active measures to stem the deficits could erode the [economy's] fiscal strength and investors' confidence.'

Responding to the ratings agency comments earlier this week, Financial Secretary Antony Leung Kam-chung stated that the SAR government's ability to reduce its deficits will 'hinge upon a number of things, including the magnitude of adjustment of the civil service pay', which was identified before the Hong Kong budget as a priority.

However, the South China Morning Post reported on Wednesday that the Finance Minister disagreed with the suggestion made by Moody's that increased economic integration with the Chinese mainland will mean that Hong Kong's ratings are unlikely to stray very far from the corresponding Chinese ratings.

'I am not sure whether that is an absolute correct view,' he told the newspaper.

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