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Budget Speech

Fiscal Reserves

57.      Our fiscal reserves, which comprise the balances of the General Revenue Account and eight other funds1, serve various functions.

58.      As our revenue is susceptible to fluctuations and the flexibility in expenditure is low, it is necessary for us to have a buffer to alleviate the impact economic cycles have on people's livelihood. Our fiscal reserves serve as such a buffer. Fiscal reserves are our provisions for rainy days. Apart from being used to meet daily operational requirements, fiscal reserves can also be drawn on in contingencies, allowing us to maintain our expenditure at a relatively steady level when government revenue is affected by economic downturns.

59.      Fiscal reserves are also an important component of the Exchange Fund. The fiscal reserves placed with the Exchange Fund help reinforce public confidence in the Hong Kong dollar and our monetary stability. In 2010-11, the investment income of the fiscal reserves accounted for about one-tenth of government revenue. It is an important source of revenue for us.

60.      Hong Kong adopts a cash-based accounting system with no provision for our liabilities, such as civil service pensions and government bonds issued in 2004. We rely on the fiscal reserves as a means of paying our liabilities and the expenditure on large-scale infrastructure projects already launched. Our ageing population will also place pressure on the expenditure on health care and social welfare. Making use of our fiscal reserves, we can build a solid financial foundation for our next generation.

61.      Recently, the credit ratings of Hong Kong have been upgraded to the highest level. This will allow local companies to raise funds at relatively low interest rates. The relevant rating agencies indicated clearly that one of Hong Kong's strengths lies in its adequate fiscal reserves. Any drop in the fiscal reserves will put pressure on our ratings.

62.      Maintaining adequate fiscal reserves does not mean that we are reluctant to increase expenditure. The revised estimate of government expenditure for 2010-11 reaches over $300 billion, an increase of over 29 per cent compared with 2007-08. This increase is greater than the 8.2 per cent nominal GDP growth. I will make good use of our valuable fiscal reserves to respond positively to the aspirations of the community and lay a solid foundation for our economy to meet future challenges. I will now elaborate on the two issues of “developing the economy” and “caring for people's livelihood”.



The eight funds are the Capital Works Reserve Fund, Capital Investment Fund, Loan Fund, Land Fund, Civil Service Pension Reserve Fund, Disaster Relief Fund, Innovation and Technology Fund and Lotteries Fund.




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Last revision date : 23 February 2011