ECONOMY | Staff Reporter, Hong Kong

Hong Kong government's surplus predicted to hit 1.2% of GDP

It's slightly higher than its expectations of 0.6%.

Hong Kong's FY2017/18 budget sought to provide support to the economy through various measures to households and businesses, while also investing in infrastructure, but BMI Research believes that these will be insufficient to offset the negatives from a decline in mainland economic growth and slowing domestic demand due to an expensive housing market in the near-term. 

"We forecast the government to chalk up a fiscal surplus equivalent to 1.2% of GDP in FY2017/18, slightly larger than its expectations of 0.6%, due to its considerable history of fiscal underestimates," BMI Research said.

Here's more from BMI Research:

In our view, the Hong Kong government's FY2017/18 budget announced on February 22 by Financial Secretary Paul Chan seeks to support the economy amidst an uncertain external environment, particularly as the mainland economy continues to slow.

Although the budget is expansionary in nature, with the government projecting a 5.3% y-o-y increase in total expenditures, it has not departed from its prudent ways.

Following a revised estimate of a HKD92.8b (3.7% of GDP) surplus in FY2016/17, the government has forecasted a slightly smaller surplus of HKD16.3b for FY2017/18, which is equivalent to 0.6% of GDP, despite a 9.3% y-o-y contraction in total revenues.

Given the government's considerable history of conservative fiscal estimates, we forecast that the surplus will come in somewhat higher at HKD30.8b, or 1.2% of GDP in FY2017/18.

In fact, the revised surplus from the FY2016/17 estimates came in at HKD92.8b (3.7% of GDP), which was significantly higher than the government's initial forecasts of HKD11.4b or 0.4% of GDP. The bigger than expected surplus was mostly due to higher than expected land sales and higher stamp duty revenues due to a resilient housing market.

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