Fiscal Reserves

61.     During my Budget consultations, I heard suggestions for the Government to revise the target level of fiscal reserves in the light of the prevailing conditions of the economy and public finances.

62.     In the wake of the Asian financial crisis, the Hong Kong Monetary Authority has implemented a series of measures to reinforce the stability of the Hong Kong Dollar exchange rate.  In addition, the accumulated surplus of the Exchange Fund has now reached $300 billion.  These developments have greatly enhanced the Exchange Fund's ability to maintain exchange rate stability.  I see no further need to link the level of fiscal reserves to money supply.  In my view, it should be sufficient to have fiscal reserves equivalent to around 12 months of government expenditure to meet operating and contingency requirements.  Although it is no longer necessary to link the level of fiscal reserves to money supply, the Government's fiscal reserves will continue to be placed with the Exchange Fund, thereby providing even more resources for the Exchange Fund to maintain the stability of the Hong Kong Dollar and our monetary system.