Opinion | How Hong Kong can dig itself out of recurring deficits

As the city borrows money to fund development, it risks depleting its savings unless policymakers act decisively to find new sources of revenue

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A visitor looks out over Hong Kong’s central business district on February 18. The city is facing its toughest fiscal test in three decades following a three-year run of substantial deficits. Photo: AFP

Published: 4:30pm, 23 Mar 2025

I apologise for returning so soon to the subject of Hong Kong’s public finances. However, I still don’t think the population at large, and in particular, our Legislative Council members, have fully grasped the extent of our present difficulties.

Part of the reason is a presentational issue. The operating account is reported on a cash basis, literally cash in and cash out. This includes what is happening on a fiscal basis but also brings in all sorts of extraneous items that can obscure the underlying situation. Let me explain.

The fiscal balance is the difference between government revenue and government expenditure. If the balance is positive, we call the result a surplus. If it is negative, we call it a deficit. Hong Kong once ran record fiscal surpluses. We amassed so much reserves that there were complaints the government was being too tight-fisted.

Those halcyon days are well in the past and, for some years now, we have been incurring fiscal deficits and have thus gradually whittled away the accumulated surpluses.

In last month’s budget speech, Financial Secretary Paul Chan Mo-po estimated a fiscal deficit in the current year of HK$87.2 billion (US$11.2 billion). But look closely and you will see that he in fact estimated a deficit of HK$201.1 billion.

First, he partially funded the shortfall by bringing in net proceeds of bond sales of HK$107.9 billion – considering new bonds issued worth HK$130 billion, less HK$22.1 billion in repayments. Moreover, the government reclaimed the unspent balance of HK$15 billion from the Anti-Epidemic Fund; the sum was reflected in the revised estimate. Both the bond proceeds and the fund transfer reduced the shortfall, for the purposes of the operating account, from HK$201.1 billion to HK$87.2 billion.