## 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_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2024 Article IV Consultation Discussions with the People’s Republic of China—Hong Kong Special Administrative Region](https://www.imf.org/en/news/articles/2025/01/21/pr25010-china-exec-board-concludes-aiv-consult-discuss-hong-kong-special-admin-region) ## Other formats - [Markdown version](/en/news/articles/2025/01/21/pr25010-china-exec-board-concludes-aiv-consult-discuss-hong-kong-special-admin-region/index.md) - [Structured JSON version](/en/news/articles/2025/01/21/pr25010-china-exec-board-concludes-aiv-consult-discuss-hong-kong-special-admin-region/index.json) - [Bundle manifest](/en/news/articles/2025/01/21/pr25010-china-exec-board-concludes-aiv-consult-discuss-hong-kong-special-admin-region/bundle-manifest.json) ## Bibliographic details - 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.* --- ## References - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [People's Republic of China - Hong Kong Special Administrative Region and the IMF](http://www.imf.org/external/country/HKG/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2025/01/21/pr25010-china-exec-board-concludes-aiv-consult-discuss-hong-kong-special-admin-region_