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IMF Applauds HK's Fiscal And Financial Stability

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

07 December 2010


Hong Kong’s Financial Secretary, John C Tsang, has welcomed the International Monetary Fund (IMF) mission's positive assessment of its economy, particularly regarding its continued fiscal and financial stability.

The IMF said that, in its 2010/11 budget, the government had continued with temporary stimulus measures - including waiving two months’ rent for public housing tenants, providing additional social assistance and old age allowances, and reducing or waiving taxes and fees - and forecasted a deficit of 1.5% of gross national product. However, it added, revenue performance in the first part of this fiscal year has been buoyant, with strong tax performance and substantially higher land-related revenues.

However, with Hong Kong's economic recovery more entrenched and the likely persistence of loose monetary conditions in many industrial countries, the IMF’s mission envisaged continued upward pressures on property prices and an accelerated credit-asset price cycle.

Nonetheless, it was said that Hong Kong remains in a strong position to guarantee financial stability in the event the cycle shifts into reverse. The financial system has been prudently managed and is well supervised and regulated, and recent regulatory measures to tighten the underwriting standards for mortgage lending will help insulate it from the effects of a housing downturn.

Noting various policy measures in response to higher housing prices, the IMF considered that Hong Kong’s government is much better prepared to deal with housing price pressures and safeguard financial stability. Its mission fully supported the government's announcement of the package of anti-property speculation measures (now also including the imposition of additional stamp duties), and it believes that the initiatives will have an important impact in shifting the trajectory of the property market to a more sustainable path.

Given the buoyant outlook for tax revenues, the IMF’s mission expected that the fiscal position of Hong Kong will remain firmly in surplus in the coming years, even with a higher level of capital spending.

Tsang said that "while Hong Kong has sound economic fundamentals, its openness makes it susceptible to the international environment, in particular the current abnormal macro-financial environment. We have therefore recently implemented a number of extraordinary measures concerning the property market to maintain our economic and financial stability. We will introduce further measures if circumstances so warrant in the future."

The Chief Executive of the Hong Kong Monetary Authority (HKMA), Norman Chan, added that "we welcome the IMF's support of the prudential measures on mortgage lending introduced by the HKMA, which are crucial to the maintenance of banking stability in Hong Kong."

The IMF also believes that Hong Kong's unique position as an international financial centre with strong links to Mainland China provides significant potential for growth and development. In addition, continued efforts are needed to steadily build on Hong Kong's position as an offshore renminbi centre. In this regard, the mission recognized the important steps that have been made over the past year, and recommended that the government continues to seek opportunities to increase the use of the renminbi as a settlement currency.

TAGS: tax | investment | real-estate investment | banking | real-estate | budget | International Monetary Fund (IMF) | offshore | offshore banking | stamp duty | Hong Kong | currency

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