Hong Kong risks narrowing fiscal buffers amidst ‘sizeable’ spending plan

The city’s deficit is expected to remain wide for a longer period. 

Hong Kong will struggle to balance its budget as it launched a “sizeable” budget amidst a wide fiscal deficit, S&P reported. 

The Hong Kong government projected spending to exceed $760b and a deficit reaching HK$119b in the fiscal year ending in March 2024, which is wider than S&P forecasts.

“The government could take much longer to balance its budget, especially if it keeps rolling out support measures each year," Rain Yin, S&P Global Ratings analyst, said.

S&P noted the larger-than-expected 2022 and 2023 fiscal deficits, along with the higher recurring expenses intended to stimulate the economy will likely weaken Hong Kong’s fiscal resources. 

Read more: How can Hong Kong narrow down its fiscal deficit

“We estimate the government's current liquid assets, which includes the fiscal reserves and bond fund assets, at more than 30% of GDP. Although this ratio has fallen substantially from 45% of GDP in 2019, this is still sufficient to withstand some fiscal deterioration in the next one to two years,” the report also read.

“If investments to improve productivity and boost potential growth bear fruit, this could restore the government's fiscal health over the medium term and maintain support for the rating at the current level.”