IMF advises Hong Kong should boost spending to save economy

The International Monetary Fund urged Hong Kong’s government to boost spending to support the territory’s convulsing economy, citing a range of risks from trade tensions to political unrest.
Greater fiscal support would help bolster growth while maintaining longer-term sustainability, the fund said yesterday in its latest regular review of the economy, known as an Article IV Consultation.
“Government spending should be increased significantly to cope with the cyclical downturn and address structural challenges of insufficient housing supply and high income inequality,” the IMF said. “If growth falters more than expected, the authorities should provide more near-term fiscal support.”
The IMF projects Hong Kong’s economy will contract by 1.2% this year before gradually recovering to 1% growth in 2020. Gross domestic product shrank sharply in the third quarter as the economy sustained hard hits from both external and domestic shocks.
Officials said deterioration of the socio-political situation and delays in tackling housing and inequality issues could further weaken the economy and reduce the city’s competitiveness in the long term.
Another stimulus in the current fiscal year aimed at households and smaller enterprises is needed, the IMF said.
“Additional fiscal spending of about 2.5 percentage points of GDP over two years, that is significantly front-loaded to the current fiscal year, would help those severely affected by the cyclical downturn,” the IMF said. With low tax rates, such support could be better delivered by “targeted spending” for vulnerable households through rent relief and subsidies for low-income students, it said.
The Hong Kong government announced further stimulus measures worth around HKD4 billion ($511 million) yesterday, aiming to shore up businesses suffering from almost six months of political unrest.
A list of nine new measures included subsidies for water and sewer bills as well as waivers on property tax rates for businesses. Individuals and companies also may apply to pay profits and salaries tax in installments, Financial Secretary Paul Chan said at a news conference yesterday alongside other members of the administration.
Stimulus measures announced since June amount to about HKD25 billion, Chan said, reiterating that the government expects to post a budget shortfall this fiscal year.
Hong Kong’s business outlook fell to a near record low in November, according to IHS Markit, as businesses remain under pressure after almost half a year of unrest on the city’s streets and export weakness amid the U.S.-China trade war.
The Securities and Futures Commission said earlier it will waive annual licensing fees for the 2020-2021 financial year to relieve regulatory cost burdens on the industry amid a challenging market environment. The initiative will cost about HKD117.5 million in foregone revenue, in addition to the 50% waiver announced earlier this year.
Previous stimulus measures include a HKD19 billion ($2.4 billion) package in August. In October, Lam added another HKD2 billion in economic support and announced a raft of new polices, including loosened mortgage rules, compulsory land purchases for housing, cash for students and increased subsidies for low-income families.
October retail sales contracted 24.3% by value from a year earlier, the fourth month of double-digit declines. On Monday, the financial secretary told lawmakers that he expected the first fiscal-year budget deficit since the early 2000s, and said that the turmoil has dragged down economic growth by some 2 percentage points this year.
Protesters and police again clashed in the former British colony – a special administrative region of China since 1997 – last weekend, following a lull in violence surrounding local elections in which pro-democracy candidates secured a landslide win. MDT/Bloomberg