Fiscal Reserves

153.    With a relatively sound fiscal position, Government has recorded successive years of surpluses.  Fiscal reserves are estimated to be $860 billion by the end of March 2016, equivalent to 24 months of government expenditure.

154.    The reserves are all that we have at our disposal.  They have yet to take into account unavoidable commitments including $300 billion for ongoing works projects and $800 billion for statutory pension.

155.    Our fiscal reserves are the mainstay of our economy.  It helps us ensure the stability of the Hong Kong dollar and withstand challenges posed by economic cycles and ageing population.  As one may recall, Hong Kong was beset with severe economic doldrums from 1998 to 2004.  During the period, we experienced five years of fiscal deficits which depleted 40 per cent of our fiscal reserves. 

156.    Prolonged depletion of the reserves to meet ever-increasing recurrent expenditure is not sustainable.  Recurrent expenditure must be funded by sustainable revenue.  To maintain the health of our public finances and enable us to cope with possible threats, we must exercise fiscal prudence and live within our means.

157.    To tackle the problems that come with an anticipated structural deficit, I have established the Future Fund to set aside part of our fiscal reserves for long-term investments when we can still afford to do so.  I have instructed HKMA to allocate $220 billion from the balance of the Land Fund, which is part of the fiscal reserves, as an initial endowment of the Future Fund, and to inject one-third of the actual surplus in 2015-16 into the Future Fund.  HKMA will deploy half of the Future Fund for incremental placement with the Exchange Fund's Long-Term Growth Portfolio to achieve greater returns.