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Hong Kong’s government is planning another volley of fiscal stimulus to rescue its tumbling economy, though that package may not include the cash handouts that some have urged.
In an interview on Thursday, Financial Secretary Paul Chan promised bold spending measures when he unveils the government’s budget on Feb. 26.
While officials are still mulling suggestions for taxpayers to receive direct cash payments, he warned the move would only worsen a projected deficit.
“Without the cash handout there’s already a deficit, then depending on the magnitude of the cash handout it could easily take our deficit to a level of over HK$100 billion ($13 billion),” Chan told Bloomberg Television’s Yvonne Man in an interview.
Lawmaker Regina Ip has suggested a HK$8,000 handout for all residents to boost consumption, similar to a general payment of HK$6,000 made amid widening dissent in 2011. With Hong Kong’s eruption of political unrest now in its eighth month, the Beijing-appointed administration is struggling to formulate a response to the discontent.
“We have to consider whether the extent of this deficit is something prudent to do,” he said.
Warning that unemployment is set to edge higher, Chan pledged to maintain spending on infrastructure and public services.
“We will continue to spend boldly to help those disadvantaged,” Chan said.
“Given the large amount of fiscal surplus we’ve accumulated over the years I do think we have the capability and financial resources to help us come through this economic recession,” he said.
The finance official also had a message for currency speculators by ruling out any change in the Hong Kong dollar’s peg to the greenback, a favorite guessing game during periods of economic stress.
“We have no intention to review it,” Chan said. There are “no circumstances” in which it would be reviewed, he said.
The comments come as Hong Kong remains mired in recession after seven months of political unrest. Visitor arrivals from mainland China have more than halved, organizers have canceled conferences and consumer spending has tumbled. Unemployment is rising and expected to climb further.
Chan added that the fourth quarter economic performance did not look good. Official data are set to be released on Feb. 3.
The International Monetary Fund has urged the city’s government to ramp up spending to support the economy. Business owners have called for more support amid little sign of an end to the political dispute.
The IMF has said the city’s economy likely shrank 1.2% last year and forecasts 1% growth in 2020. Chan expects the economy to have contracted 1.3% in 2019.
Since the unrest began, the government has announced a series of stimulus measures worth about HK$25 billion. The stimulus has been targeted to businesses and various social groups, and includes some tax breaks, one-time fuel and utilities subsidies, as well as support for children and the elderly.
Economists have criticized the response as “peanuts.” The announced stimulus spending amounts to just less than 1% of Hong Kong’s GDP while the city’s fiscal reserve stood at HK$1.05 trillion as of October.
Chan provided no signals about government plans to break the political impasse, other than saying he is confident a resolution will be found.
Playing down concerns around capital outflows and worries about an exodus of talent from Hong Kong, Chan said the hub’s banking system and markets remain stable.
In his budget last year, which came before the protests, Chan outlined a series of relief measures costing about HK$42.9 billion that included tax breaks, investment in tech industries and other social spending. A budget deficit is currently forecast for the year.
At least some of the fresh stimulus will again be targeted at small and medium-sized enterprises. However, in response to calls from business owners for lower rent, Chan said the market will correct itself.
“We have done our part and we encourage the private sector to work together and take a long-term view in terms of their business relations,” Chan said. “But at the end of the day this is a market economy.”
--With assistance from Karen Leigh and Anna Luk.
To contact the reporters on this story: Enda Curran in Hong Kong at email@example.com;Eric Lam in Hong Kong at firstname.lastname@example.org;Yvonne Man in Hong Kong at email@example.com
To contact the editors responsible for this story: Jeffrey Black at firstname.lastname@example.org, Jodi Schneider
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