S&P Upgrades Outlook On Hong Kong’s Currency Rating

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

01 July 2004

International Ratings agency Standard & Poor’s on Monday revised the outlook for its 'AA-' long-term local currency rating on Hong Kong to stable from negative, reflecting the recent economic recovery and better prospects for reducing the budget deficit.

Previously forecast at 6% of GDP, S&P envisages that the deficit will now be nearer to a figure of 5% through a combination of increased revenues from rising land sales and stamp duty and tighter control on expenditure.

"Three main elements have boosted fiscal prospects for the SAR government," stated credit analyst Ping Chew, Director, S&P’s Sovereign & International Public Finance Ratings Group. "These are the economic upturn, an expected end to deflation, and rising consumer confidence."

However, despite the rosier economic picture Mr Chew warned that the territory remains vulnerable to external economic shocks, whilst pointing out that the city’s narrow tax base and rigid fiscal accounts system limit Hong Kong’s room for manoeuvre.

Still, the S&P analyst noted that Hong Kong can claim to be one of the few net creditor governments globally. Fiscal reserves are standing at more than 18% of GDP in 2004 with the city supported by a “resilient, flexible and prosperous economy”.

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