An International Monetary Fund (IMF) Staff Mission to Hong Kong expressed its support to Hong Kong Special Administrative Region (HKSAR) government's efforts to reduce the structural deficit and ensure a credible and lasting fiscal consolidation.

According to a government press release Tuesday, the mission expects the Hong Kong economy to grow by 7.5 percent amid strong domestic demand and exports. However, the growth will moderate to 4 percent in 2005, reflecting a slowing in global growth and some easing of activity in the Chinese mainland.

Consumer prices, which are expected to remain flat on average over 2004, are projected to increase by 1 percent in 2005. The mission urges the government to take advantage of the current favorable macroeconomics environment to address Hong Kong's policychallenges in order to ensure robust and sustainable growth over the medium term.

This assessment was made by the IMF Mission in its Concluding Statement at the end of a visit to Hong Kong for the annual Article IV Consultation, which involves a review of Hong Kong's macroeconomics policies, including fiscal and exchange rate issues.

The mission notes that fiscal performance in Hong Kong has improved markedly, reflecting the strong recovery and implementation of deficit reduction measures. The mission commendsthe authorities for their expenditure restraint in the current economic upturn, and reiterates its recommendation to broaden the tax base and stabilize revenue through the adoption of a goods andservices tax.

Eswar Prasad, division chief of the IMF's Asia and Pacific Department, who led the mission, said the mission welcomed the authorities' commitment to eliminate the structural deficit. "It is essential that the authorities take advantage of the current favorable macroeconomics environment to forcefully address the long-standing structural deficit problem."

Hong Kong Financial Secretary Henry Tang, said, "we welcome the IMF mission's assessment of the Hong Kong economy. We remain strongly committed to restoring fiscal balance by fiscal 2008-09 and to bring public expenditure down to 20 percent of GDP or belowin line with our principle of 'market leads, government facilitates'."

Chief Executive of the Hong Kong Monetary Authority Joseph Yam,welcomed the IMF's continued support for the linked exchange rate system and the positive assessment of the initiatives introduced to enhance the regulatory and supervisory framework in Hong Kong.

"It is encouraging to note that the mission shares our view that maintaining a certain degree of constructive ambiguity on strong-side operations is helpful for currency stability," Yam said.

"We will continue to strengthen the financial infrastructure aswell as supervisory and regulatory systems to maintain Hong Kong'sposition as a leading international financial center," he added.

The IMF mission was in Hong Kong from October 26 to Nov. 2 for the annual Article IV Consultation. It held discussions with the private sector, government officials and members of civil society,including academics and civil service unions.

Source: Xinhua