On 4 May 2023 the IMF published a report following discussions with Hong Kong SAR, China under Article IV of the IMF’s articles of agreement.

The economy of the Hong Kong SAR economy has been recovering following the problems caused by the pandemic. Real GDP is projected to grow by 3.5% in 2023 and by 3.1% percent in 2024, with exports of tourism services and with domestic economic activity, in particular private consumption, projected to return to normal with the easing of Covid restrictions.

The GDP growth is projected to slow to below 3% in the medium term, due to the effects of the aging population, high private debt and slower growth in Mainland China. Greater integration with the economy of the mainland, combined with the promotion of innovation and technological development in Hong Kong SAR, may avoid the slowing of economic growth. However, there are downside risks to growth including a more severe global slowdown or further escalation of conflicts resulting disruption to trade.

The IMF report recommends that a return to a balanced budget in the medium term would help a balanced recovery. Measures to support households and businesses introduced in the pandemic could be gradually wound down. The coverage of social assistance benefits could be further increased, with an unemployment benefit system to protect the labour force.

The report notes that a comprehensive tax reform is required to broaden the tax base over the medium term and to ensure a stable source of revenue in view of the long-term spending requirements.

Any further adjustment in the property market could present a risk for the economy. An increase in the housing supply is important to correct the imbalance between supply and demand of housing. The government could consider fiscal measures to provide an incentive for more efficient use of the housing stock.

If the risks arising from speculative demand decrease, the stamp duty should be adjusted. The risk arising from speculative demand by residents and non-residents should be monitored and stamp duties could be adjusted appropriately. The Buyer’s Stamp Duty and New Residential Stamp Duty could be phased out when the systemic risk from non-resident and speculative demands begins to disappear.

Increasing the links between Hong Kong SAR and regional and global economies can increase growth potential. Increasing trade with member countries of the Regional Comprehensive Economic Partnership (RCEP) can consolidate Hong Kong’s position as a regional trade hub. Improved infrastructure and commercial ties within the Greater Bay Area of the mainland should be treated as a priority.

The IMF advises Hong Kong SAR to strengthen its competitiveness in attracting human capital, supporting the development of innovative industries and supporting business dynamism. Additional education and job training should focus on digital technologies, to support the supply of labour required for the transition to a digitalized economy.