Hong Kong’s plan to issue bonds to tackle a dire deficit is not “monstrous” but rather a legitimate short- to medium-term solution to improve capital flow, former finance minister Henry Tang Ying-yen has said.
Tang on Tuesday defended the government’s plan, which Financial Secretary Paul Chan Mo-po announced in his budget blueprint, after his successor, John Tsang Chun-wah, warned the measure could affect the city’s credit ratings.
According to Chan’s budget speech last week, Hong Kong planned to issue HK$120 billion (US$15.3 billion) in silver, green and infrastructure bonds to cover the government’s recurring expenses. He remained confident that the city would balance the books within three years.
Tsang, the longest-serving financial secretary from 2007 to 2017, earlier said in a social media post that the city needed to look beyond bond issuances to cover government spending. He also argued the government had “undeniably fallen into an era of structural deficit”.
Speaking in Beijing as a member of the Standing Committee of the Chinese People’s Political Consultative Conference (CPPCC), Tang, who was the financial secretary before Tsang, called the plan “completely legitimate” as long as there was market demand.
“Bond issuance for the purpose of maintaining government operations is not monstrous,” Tang said.
“It is acceptable if it is used to strengthen capital flow, and raise funds in the short and medium term when the capital chain is broken.”
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Hong Kong’s budget deficit is expected to balloon to HK$101.6 billion for the current financial year ending in March, almost double last year’s forecast given by the government. Chan said more borrowings would enable the government to maintain cash flow to finance major projects, such as the Northern Metropolis.
Tang, who served as finance chief from 2003 to 2007, ducked a question on whether Hong Kong had already plunged into a structural deficit as Tsang argued.
But he stressed that Chan had a duty to follow the principle stipulated in the Basic Law, the city’s mini-constitution, that the government needed to avoid deficits and keep the expenditure within the limits of revenues.
“If you can be candid to citizens [about the dire financial situation], they can feel your respect and understand the rationale of the measures amid the challenges,” he said, referring to the city’s property downturn and soaring recurring expenditure.
Tang said that back in 2004 when he proposed issuing HK$20 billion in bonds, bankers described it as “a museum piece” as it was a rarely used tool then to solve the deficit problem.
Following measures to lure mainland Chinese tourists and launch renminbi business that year, he posted the city’s first budget surplus in five years in 2005.
Tang argued that Hong Kong was on the right track to revive its economy by finding new engines in technology and deepening cross-border integration.
Tsang’s remarks on the budget measures triggered heated debates on social media. He said that amid the high-interest rate environment, government bonds might not be as attractive to buyers as depositing their money in banks to secure higher rates of return.
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He also worried that the city would eventually need to pay the debt’s interest expenses, which could affect its credit ratings, as well as saddle future generations with higher taxes and fewer public services.
On Monday, Tang also expressed support for the city’s coming national security legislation, known as Article 23 of the city’s mini-constitution.
“Without stability, it’s hard to talk about economic development and livelihood improvements,” he said.
He added that countries, including Singapore, had been strengthening their own security legislation, urging the proposed law should be utilised effectively to gain investors’ confidence.
