Editorial | Hong Kong credit ratings reflect strength, support for city on financial front

For an economy that is supposed to be in the doldrums according to some pessimists, Hong Kong’s performance has not been too shabby lately. The economy experienced robust growth in the first quarter of this year, with a 3.1 per cent rise in gross domestic product from the same period last year and an 8.7 per cent jump in exports. Early signs are that the city is successfully diversifying its exports to new markets across Southeast Asia and in the Middle East, to compensate for losses from trade with the United States because of the tariff war.

It should, therefore, come as no surprise that all three major credit ratings firms have reaffirmed the fiscal stability and resilience of the city’s outlook. Moody’s and S&P Global have maintained their “Aa3” and “AA+” credit ratings for Hong Kong, respectively their fourth highest and second highest. They came just days after Fitch Ratings said it was maintaining Hong Kong’s “AA-”, its fourth highest. Indeed, Moody’s upgraded the city’s outlook from “negative” to “stable”.

It is reassuring as the latest ratings come at a time of deep uncertainties about the world’s economic and trade outlooks because of the on-again, off-again tariffs imposed by US President Donald Trump against friend and foe alike.

All three ratings reflect the city’s strong financial position, with its large fiscal buffers, low debt as well as solid funding and ample liquidity within the banking sector. It means Hong Kong has very low credit risk and a strong capacity to repay its debts. S&P has also noted the local government’s flexible and effective policies while the US dollar-peg continues to support monetary and financial stability.

While the city’s deficit, revised down to HK$80.3 billion from HK$87.2 billion, worries some critics, most economists consider it quite manageable. Depending on several likely scenarios, the government’s consolidated account – combining its operating and capital accounts – is expected to return either to a surplus or a deficit down to HK$59 billion in 2028-29. Throughout this period, the fiscal reserves are expected to remain at about HK$500 billion.

One reason for the lingering deficit is high capital works expenditure from megaprojects such as the Northern Metropolis in the northern New Territories. The local capital markets are being reanimated, especially with a thriving initial public offering (IPO) scene, which just saw this year’s biggest debut with Chinese battery giant Contemporary Amperex Technology (CATL). That is expected to propel Hong Kong back to the top three ranking in IPO listings.