Asia and Pacific > Hong Kong Special Administrative Region, People's Republic of China

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International Monetary Fund. Asia and Pacific Dept
Hong Kong SAR’s economy is recovering strongly as ample policy space has allowed the enaction of swift and bold policy responses to address the unprecedented crisis emanating from multiple shocks, including notably the pandemic. But the recovery remains uneven, with private consumption lagging, owing, in part, to a zero- COVID tolerance approach. The financial sector has remained resilient supported by significant buffers, strong institutional frameworks, and a well-functioning Linked Exchange Rate System (LERS). Increasing financial linkages with Mainland China bring both opportunities and challenges for growth and financial stability.
International Monetary Fund

Abstract

Chapter 1 argues that fiscal policy should remain nimble and strengthen its medium-term frameworks, as countries face highly uncertain and differentiated prospects. Vaccination has saved lives and is helping fuel a nascent recovery, but risks are elevated amidst new virus variants, high debt, and poverty. In advanced economies, the shift in fiscal support toward medium-term packages to “build back better” will have overall positive effects globally. Emerging markets and low-income developing countries face a more challenging outlook, with permanent economic scarring and revenue losses. They need international support to increase vaccine availability and financing to achieve the Sustainable Development Goals. Many countries find themselves in a situation where fiscal support is still invaluable to protect lives and livelihoods. At the same time, governments are also facing questions on their elevated debt and gross financing needs. Chapter 2 provides countries with guidance on how they can both avoid withdrawing fiscal support too early, and yet signal to the public that their debt levels are sustainable in the long run. To commit to future deficit reduction, governments have several instruments, including undertaking structural fiscal reforms (such as pension reform or subsidies reform), pre-legislating changes to taxes or spending, committing to fiscal rules that lead to deficit reduction in the future. Countries that follow debt rules, for instance, manage to reduce debt faster that other countries, although fiscal rules should also provide enough flexibility to spend in times of need. Overall, governments that commit to sound public finances and that achieve high levels of fiscal transparency reap meaningful benefits: their budgets are more credible, their announcements are better perceived by the media, and they pay lower interest rates on their debt.

International Monetary Fund. Asia and Pacific Dept
The Chinese economy continues its fast recovery from the health and economic crisis as a strong containment effort and macroeconomic and financial policy support have mitigated the crisis impact and helped the economy rebound. However, growth is still unbalanced as the recovery has relied heavily on public support while private consumption is lagging. Rising financial vulnerabilities and the increasingly challenging external environment pose risks to the outlook. Important reforms have progressed despite the crisis, but unevenly across key areas.
International Monetary Fund. Asia and Pacific Dept
The Chinese economy continues its fast recovery from the health and economic crisis as a strong containment effort and macroeconomic and financial policy support have mitigated the crisis impact and helped the economy rebound. However, growth is still unbalanced as the recovery has relied heavily on public support while private consumption is lagging. Rising financial vulnerabilities and the increasingly challenging external environment pose risks to the outlook. Important reforms have progressed despite the crisis, but unevenly across key areas.
International Monetary Fund. Fiscal Affairs Dept.

Abstract

Chapter 1 of the report draws some early lessons from governments’ fiscal responses to the pandemic and provides a roadmap for the recovery. Governments’ measures to cushion the blow from the pandemic total a staggering $12 trillion globally. These lifelines and the worldwide recession have pushed global public debt to an all-time high. But governments should not withdraw lifelines too rapidly. Government support should shift gradually from protecting old jobs to getting people back to work and helping viable but still-vulnerable firms safely reopen. The fiscal measures for the recovery are an opportunity to make the economy more inclusive and greener. Chapter 2 of this report argues that governments need to scale up public investment to ensure successful reopening, boost growth, and prepare economies for the future. Low interest rates make borrowing to invest desirable. Countries that cannot access finance will, however, need to do more with less. The chapter explains how investment can be scaled up while preserving quality. Increasing public investment by 1 percent of GDP in advanced and emerging economies could create 7 million jobs directly, and more than 20 million jobs indirectly. Investments in healthcare, housing, digitalization, and the environment would lay the foundations for a more resilient and inclusive economy.

International Monetary Fund. Fiscal Affairs Dept.

Abstract

Chapter 1 argues that fiscal policies are at the forefront of responding to the COVID-19 pandemic. Fiscal measures can save lives, protect the most-affected people and firms from the economic impact of the pandemic, and prevent the health crisis from turning into a deep long-lasting slump. A key priority is to fully accommodate spending on health and emergency services. Global coordination is for a universally low-cost vaccine and to support countries with limited health capacity. Large, temporary and targeted support is urgently needed for affected workers and firms until the emergency abates. As the shutdowns end, broad-based, coordinated fiscal stimulus—where financing conditions permit—will become more effective in fostering the recovery. Chapter 2 argues that fiscal policies are at the forefront of facilitating an economic recovery from the COVID-19 pandemic once the Great Lockdown ends. Policymakers can achieve this objective with IDEAS: Invest for the future—in health systems, infrastructure, low carbon technologies, education, and research; adopt well-planned Discretionary policies that can be deployed quickly; and Enhance Automatic Stabilizers, which are built-in budgetary tax and spending measures that automatically stabilize incomes and consumption. Importantly, improving unemployment benefit systems and social safety nets can protect household incomes from adverse shocks and strengthen resilience against future epidemics. Over the past decade, state-owned enterprises (SOEs) have doubled in importance among the world’s largest corporations. They often deliver basic services such as water, electricity, and loans for families and small businesses. At their best, they can help promote higher economic growth and achieve development goals. However, many are a burden to taxpayers and the economy. Chapter 3 discusses what governments can do to get the most out of SOEs. This includes ensuring the firm’s managers have the right incentives and there is effective oversight. It also requires a high degree of transparency of their activities.

International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation with People’s Republic of China—Hong Kong Special Administrative Region (SAR) discusses that the economy is projected to start recovering next year, but the pace is expected to be gradual and both near- and medium-term risks have increased significantly, including from trade and technology tensions, ongoing social unrest, and structural challenges of insufficient housing supply and high income inequality. Hong Kong SAR is well placed to address both cyclical and structural challenges with its significant buffers thanks to its long history of prudent macroeconomic policies. Given that the fiscal framework permits deficits during economic downturns, government spending should be increased significantly in the areas of social safety nets, education/retraining, and infrastructure to cope with the cyclical downturn and address structural challenges of insufficient housing and high-income inequality. This should be complemented with measures to ensure fiscal sustainability and greater equity.
International Monetary Fund. Fiscal Affairs Dept.

Abstract

This report emphasizes the environmental, fiscal, economic, and administrative case for using carbon taxes, or similar pricing schemes such as emission trading systems, to implement climate mitigation strategies. It provides a quantitative framework for understanding their effects and trade-offs with other instruments and applies it to the largest advanced and emerging economies. Alternative approaches, like “feebates” to impose fees on high polluters and give rebates to cleaner energy users, can play an important role when higher energy prices are difficult politically. At the international level, the report calls for a carbon price floor arrangement among large emitters, designed flexibly to accommodate equity considerations and constraints on national policies. The report estimates the consequences of carbon pricing and redistribution of its revenues for inequality across households. Strategies for enhancing the political acceptability of carbon pricing are discussed, along with supporting measures to promote clean technology investments.