On January 6, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation discussions1 with Hong Kong Special Administrative Region (SAR), and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.2
With a soft global trade environment and a downturn in tourism arrivals from Mainland China, Hong Kong SAR’s growth rate is expected to have slowed to 1.5 percent in 2016. Growth is likely to pick up modestly to about 2 percent in 2017, with private consumption continuing to be a main driver supported by a steady labor market. The current account surplus remained below 3 percent of GDP, and is projected to improve to around 3.5 percent over the medium term as the global economy recovers.
With a more challenging external environment, with the U.S. rate cycle moving up, global trade growth tepid and Mainland China rebalancing, the growth recovery may be gradual. Over the longer term aging pressures may weaken the structural fiscal position, requiring fiscal planning to alleviate the decline; and a housing supply shortage also needs to be tackled.
Prudent fiscal policy and intensive supervision of the financial system have built buffers that can be drawn on to weather a less favorable environment. Fiscal reserves amount to 35 percent of GDP or 23 months of expenditures and the net international investment position is positive at 355 percent of GDP. The banks are capitalized well above Basel III levels; liquidity cover and the use of stable funding have increased. The Linked Exchange Rate System (LERS) provides a credible anchor for a small open economy with a large globally integrated financial services industry exposed to cross-border flows.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.