The International Monetary Fund (IMF) projected that sustained economic growth and concerted efforts at government expenditure restraint in the Hong Kong Special Administrative Region will result in achieving a balanced budget ahead of schedule.

The IMF, however, believes that the Hong Kong government should take advantage of the current favorable macroeconomic environment to address the long-standing problem of the structural deficit.

The above assessment was contained in the Staff Report of the Article IV Consultation for Hong Kong released Tuesday. The IMF projected that Hong Kong's consolidated fiscal deficit (before bond issuance) for the financial year 2004-05 will shrink to 1.7 percent of GDP and envisioned a balanced budget in the financial year 2006-07, two years ahead of the government's target.

Notwithstanding this development, the IMF urged the Hong Kong authorities to continue with expenditure restraint to ensure a credible and lasting fiscal consolidation, while at the same time broadening the tax base through the adoption of a goods and services tax.

The IMF also encouraged the authorities to develop a longer-term focus for fiscal policy that takes into account an aging population trend.

In light of the rebound in economic activity in the first three quarters of 2004, the IMF revised up its growth forecast for Hong Kong for 2004, to 8.25 percent, and projected a 4 percent growth for 2005. Consumer prices, having edged lower in 2004, are forecast to rise by 1 percent in 2005.

The IMF believed that Hong Kong would benefit from the Chinese mainland's ongoing integration with the global economy.

HK's Financial Secretary Henry Tang welcomed the IMF's positive assessment of Hong Kong economy. Noting that many challenges Hong Kong's economy would be facing, Tang said, "By restoring fiscal balance, maintaining flexibility in the goods and labor markets and actively addressing our structural challenges, Hong Kong should be able to achieve sustainable economic growth in the medium term."

An IMF mission visited Hong Kong from Oct. 26 to Nov. 2, 2004 to conduct the Article IV Consultation.

Source: Xinhua