'Deficit Expected Despite Economic Recovery'

The Financial Secretary, Paul Chan, said while he expects the Hong Kong economy to return to positive growth in the coming financial year, the government faces at least five more years of budget deficits as it continues spending to try to revive the ailing economy.

Delivering his annual budget speech Wednesday, Chan said the local economy contracted a record 6.1 percent in 2020 after the Covid-19 pandemic caused “unprecedented repercussions” on the global economy.

He also expects Hong Kong to report a record deficit of HK$257.6 billion in the current financial year, with the fiscal reserves expected to dwindle to HK$902.7 billion by March 31.

But with the roll out of Covid-19 vaccination schemes around the world, the finance chief said there’ll likely be significant improvements in the global economy in the coming financial year, with the SAR economy expected to expand by 3.5 to 5.5 percent.

“I forecast that the headline inflation rate and the underlying inflation rate will be 1.6 per cent and one per cent respectively this year,” he added.

The top minister is also optimistic that the SAR will continue to do well over the next few years, on the back of economic development in the mainland.

In the medium term, he said the local economy will likely grow by an average of 3.3 per cent per year from 2022 to 2025, while the underlying inflation rate will average two per cent.

But despite an optimistic outlook on the economy, Chan warned the government's books will remain in the red for at least five more years.

“Although I forecast an improvement in revenue for the next financial year, I expect that the fiscal deficit will be HK$101.6 billion, accounting for 3.6 per cent of GDP, due to the counter-cyclical fiscal measures and the continued increase in recurrent expenditure. In other words, Hong Kong will record a deficit for a number of years after achieving a surplus for 15 years,” he said.

Chan is also forecasting an operating deficit for four more years after 2021/22, ranging from HK$22.4 billion to HK$40.7 billion.

He said the government will rein in spending by freezing new hires in the civil service and implementing an “expenditure reduction programme” by requiring all policy bureaux and departments to cut down on expenses.