IMF Staff Country Reports

This Selected Issues paper focuses on the fiscal implications of population aging for Hong Kong Special Administrative Region (SAR). Hong Kong SAR’s significant demographic pressures will create fiscal challenges for the authorities. Fiscal expenditure pressures from population aging have already been rising rapidly for over a decade and are expected to increase significantly in coming years, even without factoring in the cost of needed improvements to the social security system. Needed improvements to the social security system would further increase fiscal costs. An aging population is also going to adversely affect the economy’s potential output growth and fiscal revenue, with the effect larger in a scenario where the working age population shrinks. Revenue-boosting tax reforms and other fiscal measures will be needed to provide a stable funding base for Hong Kong SAR’s high-quality development into the medium term. Tax reforms should be designed to take into account the impact on the business environment, including from tax competitiveness vis-a-vis other financial centers.