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| No.9 December, 2009 |
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IMF welcomes HK's recovery efforts |
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 The International Monetary Fund has recognised the Hong Kong Government's efforts to aid economic recovery, suggesting it further modernise its current budgetary management system.
In a report on Hong Kong released on December 3, the IMF said Hong Kong’s economic recovery was fuelled by Chinese growth, supportive government policies and accommodative monetary conditions imported from the US.
The IMF expects Hong Kong‘s economy to steadily strengthen as unemployment declines in the coming months. Consumer price inflation is projected to be close to zero by the end of 2010. |
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Noting Hong Kong's financial system has withstood the downturn well, the fund said banks in Hong Kong should be readily able to absorb a decline in profits likely to result from higher provisioning and tighter interest margins in the coming months.
To mitigate the risk of a credit-asset price cycle, the fund has suggested further measures on top of the continued strict enforcement of the existing regulatory regime to ensure financial stability.
The fund also agreed with the increase of the deposit protection limit and commended the steps taken to co-ordinate with Singapore and Malaysia an the exit from the blanket deposit guarantee.
Predicting a smaller deficit than originally estimated, the fund said risks to the global economy argued for a supportive fiscal stance to be maintained in the 2010-11 Budget. It also supported the contribution of private financing sources to a larger share of healthcare spending.
Maintaining its long-standing support of the linked exchange rate system, the fund said maintaining a high degree of flexibility in the economy, particularly in the labour market, will be essential for the real exchange rate to adjust to external shocks.
Expecting the accommodative monetary conditions will remain in place for an extended period, the fund said the recent extraordinary expansion in the aggregate balance will be unwound at some future point, leading to capital outflows. Communicating the authorities' policy actions during this period will be critical to avoid any disruptive market movements.
Welcoming the report, Hong Kong’s Financial Secretary John Tsang said the global economic outlook remained subject to considerable uncertainties.
"We are mindful of the prevailing risks in the external environment and will continue to adopt necessary measures to sustain economic growth," Mr Tsang said.
Monetary Authority Chief Executive Norman Chan welcomed the fund's continued support of the linked exchange rate system.
"We remain firmly committed to the link, which has served Hong Kong extremely well since 1983 as the anchor for monetary and financial stability."
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