Hong Kong is facing pressure to curb spending as it unveils the annual budget on Wednesday after accumulating massive fiscal deficits during the pandemic.
As the authorities spent over HK$600 billion on economic assistance for households and businesses during the pandemic restrictions, the sustainability of fiscal reserves has been in the spotlight, Reuters reports.
This spending saw Hong Kong's fiscal reserves drop to HK$800 billion, around half the levels from three years ago.
"As our economy and market came under pressure, we took exceptional measures during exceptional times to safeguard people's livelihood," said Financial Secretary Paul Chan. "However, as our economy stabilises, we have to make adjustments to our fiscal measures accordingly."
In addition, PWC forecasts a budget deficit of HK$109 billion for 2022/23. This compares to a shortfall of HK$56.3 billion forecast by the government in last year's budget, or 1.9% of GDP.
The Financial Secretary, who is due to present the budget on Wednesday, talked about the need to curtail spending as many pandemic restrictions have now been lifted.
"Even though the government is under tremendous pressure to reduce public expenditure, it may not be appropriate to abolish relief measures across the board," he said.
Hundreds of thousands of people left Hong Kong following the implementation of the national security law in 2020, bringing additional uncertainty and pressure to the city's regional competitiveness.
Furthermore, Hong Kong has registered a steep decline in land sales. According to PWC, this could reach HK$80 billion, 33% less than the government's original forecast.
House prices in Hong Kong also fell by 15.6% in 2022 following over ten years of price hikes within the market.
The economy contracted for the fourth consecutive quarter in Q4 2022 by an annual 4.2%, exceeding estimates made by economists as slow global demand and elevated interest rates impacted exports and spending.
This is the second deepest contraction since Q2 2020 when GDP contracted by 9.4%.
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