Political Uncertainty Clouds Hong Kong's Ratings Affirmation

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

07 May 2004

Ratings agency Standard & Poor’s on Wednesday affirmed its ratings for Hong Kong, but warned that continuing political uncertainties may restrain the government's ability to deliver future tax reforms.

It means that the SAR retains its 'AA-' long-term local currency and ‘A+’ long-term foreign currency sovereign ratings, although the outlook on local currency ratings remains ‘negative’ whilst the foreign currency rating outlook stays at ‘stable'.

"The ratings reflect the territory's strong public finances, and robust economic institutions and frameworks. Hong Kong's ratings are higher than those on the People's Republic of China (BBB+/Positive/A-2) due to Hong Kong's strong credit fundamentals, including its ability to run a separate monetary system," said Standard & Poor's credit analyst Chew Ping.

S&P also praised the territory’s resilient banking sector and flexible labour and goods markets which have enabled it to weather the recent economic downturn.

However, dissatisfaction over the pace of democratisation in the territory and political uncertainty in the run-up to the September Legislative Coucil elections are reflected in the negative outlook for the local currency ratings, S&P noted.

This political cloud could also hamper the government’s efforts to introduce discretionary measures, especially tax reform, the ratings agency warned.

Recommended