HONG KONG - Despite the
severity of the SARS crisis, major Hong Kong government
officials refuse to speculate on its specific impact on
the Hong Kong economy.
"The outbreak of [severe
acute respiratory syndrome] can be expected to affect
our economic forecasts for this year. However, it is not
possible to come to a clearer view at this stage but we
are closely monitoring the development," Hong Kong
government economist Tang Kwong-yiu said regarding
whether the government might adjust its economic
forecast for 2003.
Financial Secretary Antony
Leung has stipulated the objective of balancing the
budget by 2007 in his latest budget released in early
March. Hong Kong has suffered consecutive fiscal
deficits since 1998 and the 2003 fiscal deficit has
ballooned to a record high of about HK$70 billion (US$9
billion). One of the assumptions on which Leung's
objective based is an optimistic forecast of a
consecutive 3 percent annual growth.
After the
SARS outbreak, the prospect of balancing the fiscal
budget according to Leung's announced schedule looks
dim. Even worse, the fiscal deficit might grow even
bigger next year as economic impact of the SARS begins
to show in the latter half of 2003. This may trigger
another speculative attack on the Hong Kong dollar.
The government, however, insists that Leung's
objective will be met. "Balancing the budget is a
long-term objective of the government. We believe the
impact of the SARS to be short-term and the long-term
objective shall not be affected," said Raymond Tam,
spokesperson of the Financial Secretary Office.
Political pressure calling for concessions and
tax reduction is building. Many local political parties
such as the Hong Kong Democratic Party had criticized
the government for ignoring the plight of the middle
class, many of whom are already in negative equity and
suffering from salary cuts. The SARS crisis gives them
another argument for abolishing a tax hike, or even tax
reduction. Many doubt whether Leung will be able to
withstand the pressure as the Hong Kong parliament
(Legislative Council) debates the 2003 budget this week.
Leung is caught in a dilemma: he has to balance
the budget and maintain the Hong Kong dollar peg-rate
system. If the fiscal budget persists, the peg-rate
system will be under great pressure or even attacked by
foreign speculators. However, if the Hong Kong economy
remains sluggish, he cannot balance the budget without
raising taxes. That would deliver another blow to the
shrinking economy, especially post-SARS, leading to a
further increase of unemployment rate from the present
level of 7.2 percent. The government's popularity has
already plunged to a record low in recent months. Many
wonder with such ratings, could the Hong Kong government
survive the political ramifications of a 10 percent
unemployment rate?
