Hong Kong plans to reduce budget deficit as economy expected to recover By Reuters

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2/2 © Reuters. A man wearing a protective mask takes his lunch breaks in the Central Business District, following the outbreak of the coronavirus disease (COVID-19), in Hong Kong 2/2

By Twinnie Siu and Clare Jim HONG KONG (Reuters) – Hong Kong plans to run a much smaller budget deficit in the next fiscal year as the economy is expected to rebound from its longest recession on record, the Finance Secretary said on Wednesday. Paul Chan. Hopes of recovery for the Chinese-ruled city are now pinned on coronavirus vaccines. The often violent protests and trade tensions between the United States and China in 2019 had plunged the global financial center into a recession even before the pandemic hit. Chan told lawmakers that he expected the budget deficit for next year to hit HK $ 101.6 billion ($ 13.10 billion), less than the record HK $ 257.6 billion expected for 2020/21. The deficits followed a 15-year period of accumulating surpluses. Kevin Lai, Daiwa Capital Markets chief economist for Asia excluding Japan, said the budget indicated that Hong Kong was trying to get back to living within its means. “The overall budget seems generous, but it is actually tightening,” Lai said. “General spending is actually a reduction compared to last year.” Pandemic relief measures, including cash donations to residents and tax breaks and other benefits for businesses, left the city with a much deeper deficit last year than the HK $ 139.1 billion anticipated. “With the epidemic still lingering, our economy has not yet come out of recession,” Chan said in his budget speech. “This year’s budget is focused on stabilizing the economy and easing the burden on the people.” To support the recovery of business and consumer activity, next year’s spending includes HK $ 5,000 coupons for residents, cuts in income and wage taxes, and a waiver of business registration fees. . The tourism and technology sectors will also receive some support. On the revenue side, the government will increase the stamp duty for stock trading from 0.1% to 0.13%, a surprising move that has sent the Hong Kong Stock Exchange operator’s shares down. Hong Kong tends to have balanced budgets or surpluses, as its fixed currency system commits it to fiscal prudence. Its fiscal reserves are expected to reach HK $ 902.7 billion by the end of March 2021 and fall to HK $ 775.8 billion by the end of March 2026. The city’s economy was expected to expand between a 3.5% and 5.5% this year and had an average annual growth rate of 3.3% from 2022 to 2025. Gross domestic product (GDP) contracted 6.1% in 2020, its worst recorded annual performance since 1962. Tensions between the United States and China and uncertainty related to how a groundbreaking national security law introduced last year could affect Appetite for non-Chinese investments in the global financial center remains a significant risk to the recovery, say analysts. Hong Kong has allocated HK $ 8 billion to “safeguard national security,” more than 10 times the money intended to boost the barely breathing tourism sector and nearly double the amount to be injected into the Innovation Fund. and Technology in the coming years. anus. There is no breakdown on where the national security money goes or the time frame to spend it. The city begins its vaccine rollout this week, having obtained a total of 22.5 million doses of COVID-19 vaccines from Pfizer (NYSE :), Sinovac and AstraZeneca (NASDAQ :), lagging behind other developed cities.