IMF Executive Board Concludes 2024 Article IV Consultation Discussions with the People’s Republic of China—Hong Kong Special Administrative Region
IMF News, January 23, 2025
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- Published: January 23, 2025
Overview and Executive Board Assessment
- The Executive Board concluded the Article IV consultation discussions on January 14, 2025, and endorsed the staff appraisal without a meeting on a lapse‑of‑time basis.
- Hong Kong SAR’s economy is on a path of gradual but uneven recovery following three years of recession since 2019.
- The financial system has remained resilient, supported by strong institutional frameworks, substantial capital and liquidity buffers, and the Linked Exchange Rate System (LERS) continued to function smoothly.
- The preliminary assessment for 2024 suggests that Hong Kong SAR’s external position is in line with fundamentals and desirable policies.
Economic Outlook and Risks
- 2024 growth: real GDP growth is estimated to have moderated to 2.7 percent in 2024 from 3.3 percent in 2023.
- Projection: growth is projected to stand at 2.7 percent in 2025 and decelerate modestly to around 2½ percent over the medium term.
- Output gap: projected to continue to narrow and close by 2029.
- Inflation: projected to rise gradually to around 2½ percent.
- Downside risks (key):
- A sharper‑than‑expected slowdown in Mainland China due to escalation of trade tensions or a deeper and more protracted adjustment in the property market.
- Tighter‑for‑longer monetary policy in the U.S.
- Rising geoeconomic fragmentation pressures.
- Increased regional competition.
- Upside scenarios:
- Meaningful improvement of consumer and business confidence in Mainland China.
- Deeper integration with the Greater Bay Area (GBA).
- Increased investment in high value industries.
- Sustained inflows of skilled workers.
Fiscal Policy and Revenue Mobilization
- Assessment: The medium‑term fiscal consolidation path is appropriate; the plan to delay attainment of a balanced budget until FY2027/28 is considered appropriate given economic slack and the need to protect social welfare spending.
- Recommendation: Revenue mobilization efforts need to be stepped up to meet aging‑related and investment spending needs.
- Specific revenue measures suggested:
- Increasing the progressivity of personal income tax.
- Raising excise taxes.
- Introducing a VAT.
- Introducing taxes on capital gains and dividends.
- Social policy: Steps to expand the coverage of social safety nets and increase their adequacy are needed.
Financial Sector, Macroprudential Policy, and Housing
- Banking sector: well‑capitalized and profitable, but proactive monitoring of emerging risks is needed due to weakening debt servicing capacity and rising liquidity risk among local firms.
- Supervisory recommendations:
- Ensure banks apply prudent risk management, including in expected loss recognition and provisioning.
- Prioritize systemic risk assessments for NBFIs and high‑risk activities, augmented with enhanced data collection and stress testing at system‑wide and sector‑specific levels.
- Integrate climate risks into financial institutions’ risk management practices.
- SME policy: Support should be well‑calibrated to balance necessary assistance with facilitating an orderly exit of non‑viable firms.
- Macroprudential stance and housing:
- Risks of a sharp and disorderly house price correction and speculative demand have eased, justifying recent abolition of demand‑side management measures and relaxation of macroprudential policies.
- Further macroprudential easing should be carefully designed to maintain prudent underwriting standards and avoid excessive risk‑taking.
- Public housing supply should be further expanded and eligibility criteria strictly enforced to alleviate affordability pressures and reduce social tensions.
Digital, Sustainable Finance, and GBA Integration
- Digital and sustainable finance:
- Creating a vibrant, well‑regulated digital and sustainable finance ecosystem would reinforce Hong Kong SAR’s status as an international financial center.
- Recent efforts to step up regulation of crypto asset intermediation are welcome and should be part of a comprehensive regulatory strategy.
- Strategy elements: risk‑based approach for stablecoin issuers, close cross‑sectoral monitoring, and continued supervisory efforts to ensure financial institutions appropriately manage risks.
- Continued improvements in transparency regarding climate‑related risks will strengthen the climate information infrastructure and help position Hong Kong SAR as a global green and sustainable finance hub.
- GBA initiative:
- The GBA initiative has the potential to lift growth prospects by creating a new global technology cluster and attracting skilled labor.
- Critical priorities: mobilize private sector‑led R&D leveraging finance, academic institutions, and the pro‑market legal framework; encourage private investment; monitor talent attraction programs.
- Labor force: steps needed to raise labor force participation, particularly among older adults and women.
Climate and Energy Policy Recommendations
- Prioritize regional collaboration with Mainland China to develop zero‑carbon energy and improve energy efficiency in aging and poorly maintained buildings.
- Consider incentivizing energy saving and green transportation with additional forms of carbon pricing mechanisms.
- Continue efforts to bolster infrastructure and enhance resilience against climate‑related risks.
Selected Economic and Financial Indicators (highlights from table, various years and projections)
- Real GDP (percent change): 2019 -1.7; 2020 -6.5; 2021 6.5; 2022 -3.7; 2023 3.3; 2024 2.7; 2025 2.6; 2026 2.5; 2027 2.4.
- Private consumption (percent change): 2019 -0.8; 2020 -10.6; 2021 5.6; 2022 -2.2; 2023 7.7; 2024 -0.7; 2025 0.5; 2026 1.0; 2027 1.4; 2028 1.9.
- Gross fixed capital formation (percent change): 2019 -14.9; 2020 -11.1; 2021 8.3; 2022 -7.4; 2023 11.1; 2024 3.6; 2025 8.1; 2026 1.5; 2027 1.6.
- Output gap (in percent of potential GDP): 2019 -7.3; 2020 -2.3; 2021 -4.1; 2022 -1.1; 2023 -0.6.
- Unemployment rate (percent, period average): 2019 2.9; 2020 5.8; 2021 5.2; 2022 4.3.
- Consumer prices (inflation, percent change): 2023 2.1.
- GDP deflator (percent change): 2019 2.0; 2020 0.7; 2021 1.7.
- Consolidated budget balance (percent of GDP) 1/: 2019 -9.4; 2020 -6.7; 2021 -5.8; 2022 -5.2; 2023 -3.0; 2024 (table shows data but not labelled for some years).
- Revenue (percent of GDP): 2019 20.8; 2020 21.1; 2021 24.2; 2022 22.1; 2023 18.4; 2024 19.4; 2025 20.6; 2026 21.5; 2027 22.0; 2028 22.4.
- Expenditure (percent of GDP): 2019 21.4; 2020 30.5; 2021 28.9; 2022 24.6; 2023 23.6; 2024 23.2; 2025 21.8.
- Fiscal reserves (as of end‑March, percent of GDP): 2019 40.8; 2020 34.7; 2021 33.4; 2022 29.7; 2023 21.3; 2024 20.0; 2025 19.7; 2026 19.3.
- Credit‑to‑GDP gap 3/: 2019 21.2; 2020 23.9; 2021 11.5; 2022 3.2; 2023 -14.5; 2024 -38.9.
- Current account balance (percent of GDP): 2019 7.0; 2020 11.8; 2021 10.2; 2022 9.2; 2023 12.0; 2024 10.6; 2025 10.0; 2026 9.9; 2027 9.5.
- Foreign exchange reserves (in billions of U.S. dollars, end‑of‑period): 2019 441; 2020 492; 2021 497; 2022 424; 2023 426; 2024 439; 2025 453; 2026 477; 2027 503; 2028 529; 2029 544.
- Foreign exchange reserves (percent of GDP): 2019 121; 2020 143; 2021 135; 2022 118; 2023 112; 2024 109; 2025 108; 2026 106.
- Net international investment position (percent of GDP): 2019 432; 2020 615; 2021 574; 2022 468; 2023 457; 2024 446; 2025 435; 2026 413; 2027 403.
- Market rate (HK$/US$, period average): 2019 7.836; 2020 7.757; 2021 7.773; 2022 7.831; 2023 7.830.
IMF Executive Board press release, January 23, 2025.