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Fiscal
Reserves
76.
It is expected that
by 31 March this year, our fiscal reserves will
stand at $365.8 billion. Over the next five
years, the fiscal reserves will be maintained at a
level between $390 billion and $580 billion. When
I took up office as Financial Secretary, the fiscal
deficit problem was very serious, with the
Consolidated Account running a deficit of over $60
billion for two consecutive financial years, and the
fiscal reserves expected to shrink further. In
view of this, I set the target level of fiscal
reserves at an amount equivalent to about 12 months
of government expenditure. The current fiscal
reserves have exceeded this level. However,
opinions are divided over whether this target should
be maintained.
77.
Hong Kong's fiscal reserves serve two main functions.
First, they help cope with fiscal pressure arising
from economic downturns, unforeseen events or
structural changes in the community. Second,
they assist the Exchange Fund in maintaining the
stability of Hong Kong's monetary and financial systems. I do not
consider that the reserves need to keep expanding,
but rather they should be maintained at an
appropriate level with a view to providing adequate
resources to meet our needs.
78.
At the end of
last year, the International Monetary Fund (IMF)
analysed Hong Kong's financial position. While recognising that
Hong Kong's economy had benefited from our skilful
macroeconomic management, the underlying flexibility
of our markets and our sophisticated financial
market infrastructure, the IMF remains concerned
that our narrow tax base, revenue volatility and
ageing population will bring pressure to bear on
government expenditure over the medium term.
The IMF is of the view that, in the absence of any
policy change or reform, the levels of reserves
needed to anticipate fluctuations in revenue could
be around 30 to 50 per cent of GDP, while those
aimed at anticipating fiscal pressures arising from
population ageing could mean putting in an
additional 30 per cent of GDP by 2030. I
think the IMF's suggestions can be used as a frame
of reference. Since our fiscal reserves are of
crucial importance in maintaining a healthy public
finance system, the Government needs to listen to
more views from the community in this regard before
coming to a decision.
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