Guarding Against Fiscal Risks in Hong Kong SAR
IMF Working Papers, July 1, 2007
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- Guarding Against Fiscal Risks in Hong Kong SAR
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Bibliographic details
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867145.001
Summary
- Hong Kong SAR's government faces the dual challenges of volatile revenue and medium term spending pressures arising from a rapidly aging population.
- Age-related spending pressures raise long-run sustainability concerns.
- Revenue volatility creates risks to service provision, possibly entailing sudden tax changes, or even requiring new borrowing.
- The paper describes risks associated with aging, uses value at risk techniques to measure the value of the unanticipated risks posed by volatile revenue, and describes the self-insurance value of Hong Kong SAR's traditionally high fiscal savings (reserves).
- The paper also analyzes the impact alternate policy choices could have on revenue volatility.
Methods and Key Findings
- Analytical approach:
- Uses value at risk techniques to measure the value of unanticipated risks posed by volatile revenue.
- Assesses the self-insurance value of fiscal savings (reserves).
- Evaluates how alternate policy choices affect revenue volatility.
- Core findings:
- Revenue volatility poses acute fiscal risks that can force sudden tax changes or borrowing.
- Rapid population aging creates medium term spending pressures that raise long-run sustainability concerns.
- High fiscal savings (reserves) provide self-insurance against revenue shocks.
Policy Implications and Considerations
- Address revenue volatility to reduce the risk of sudden tax changes or borrowing.
- Prepare for medium and long-run age-related spending pressures to safeguard fiscal sustainability.
- Consider the role of fiscal savings (reserves) as self-insurance and how policy choices may alter revenue volatility.