The Hong Kong Special Administrative Region government is expected to record its first budget deficit in 15 years as the city's general economic environment has been impacted by social unrest as well as ongoing China-United States trade frictions.
"A budget deficit for financial year 2019-20 is expected due to an adverse economic environment, decreased tax revenues and lower land sale income, as well as relief measures announced during the year. The economy is forecast to contract 1.3 percent in calendar year 2019 from a year earlier," Financial Secretary Paul Chan Mo-po told lawmakers at a Legislative Council meeting on Monday.
Hong Kong's financial year ends on March 31.
The city's beleaguered economy, as witnessed by slumping retail sales and tourist arrivals, is sustaining damage equivalent to 2 percentage points of output growth, Chan said.
He forecast a budget surplus of HK$16.8 billion ($2.15 billion) for the 2019-20 financial year when the budget was announced in February. If the forecast budget surplus turns into a deficit, it will be the first budget deficit since 2004. The city had four consecutive budget deficits from 2001 to 2004, when the economy was battered by the SARS outbreak.
"Hong Kong's economy is now in extremely difficult times. To restore the economy, different sectors have to come together to stop the violence so that social order can be restored, citizens can return to their everyday lives and businesses can resume normal operations so that room can be created for rational dialogue," Chan said, referring to the protests in recent months.
On Friday, the government announced it had recorded a HK$119.4 billion deficit for the first seven months of the current financial year. Budgetary reserves stood at $1.05 trillion as of end-October.
"The administration still possesses adequate fiscal reserves and government finances are still in good shape. It will continue to adopt a forward-looking and strategic approach to ensure proper resource allocation and maintain prudent government finances," the finance chief said.
"Even if the Hong Kong government taps its huge financial reserves for up to two years, it will not derail the city's economic growth prospects," said Jack Siu, senior Asia-Pacific investment strategist at Credit Suisse. "We are not worried about Hong Kong recording a budget deficit."
The financial secretary said the government is mulling whether to allow payments of tax, utilities and rates in installments to alleviate households' financial burdens. The administration is reviewing the effects of stimulus packages and will introduce additional measures if warranted.
Hong Kong's government unveiled three rounds of economic stimulus programs worth HK$22.5 billion since mid-August to pull the flagging economy out of a recession risk.
Hong Kong's third-quarter gross domestic product retreated 3.2 percent from the previous three months, after a 0.5 percent contraction in the second quarter, the worst slump since 2009. Two consecutive periods of negative growth means Hong Kong technically has fallen into a recession.
The city's economy also posted an annual decrease of 2.9 percent in the third quarter, the first yearly gross domestic product decline since 2009.