The Hong Kong government has “absolutely no problem” with repaying rising debt under a plan to issue more bonds to fund the city’s public projects in coming years, Financial Secretary Paul Chan Mo-po has said, adding that borrowing costs will decrease in the future as interest rates are expected to fall soon.
Chan also said on Saturday that he decided to reveal the delay of the Lantau Tomorrow artificial islands project to stop people from “hyping” its impact on the coffers, and assured that the private housing supply target for the next few years was on track to be met.
Chan announced in the budget plan on Wednesday that the government plans to issue HK$120 billion (US$15.3 billion) in silver, green and infrastructure bonds for the 2024-25 financial year, with the figure ranging from HK$95 billion to HK$135 billion per annum for the subsequent four years.
The finance minister said on a radio programme that the government was borrowing over the next few years to plug a shortfall in the public finances that would only be closed in the 2027-28 financial year, when government revenue was expected to exceed spending again.
He conceded part of the future borrowings would be spent on repayments of previously issued bonds, but maintained that the government had a strategy to save on interest costs. Only HK$9 billion would be needed for interest payments in the next financial year, he said.
“The interest rates are relatively high now, so we are issuing some short-term bonds that will mature in two or three years. By then, the interest rates would be lower and it will be cheaper for us to issue [new bonds],” Chan explained.
“That’s the main reason part of the money obtained from bond issuance in the next few years will be used to repay [old debts].”
He added that although the annual debt issuance could reach up to HK$135 billion, the government would only use part of the borrowings for infrastructure spending.
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Under the strategy, the city’s government debt to gross domestic product (GDP) would increase from 6.2 per cent in last November to an expected 13 per cent five years later, but Chan reiterated that there would be “absolutely no problem” in making repayments as the debt level would remain very slow when compared with other advanced economies.
Government debt to GDP ratio was more than 100 per cent in Britain, the United States and Singapore in 2022.
Chan told a television programme on Saturday that while the government would raise the borrowing ceiling to HK$500 billion from the current HK$300 billion by moving a resolution at the legislature next month, he would not fix a cap for the amount of future bond issuances.
He added that the amount of bonds planned in the budget did not cover those being planned for the artificial islands mega project near Lantau waters, and that authorities were still exploring financing options that could take advantage of private money.
Chan also clarified that the project’s delay of “two to three years” mentioned by him on Friday was only a rough estimate, as the exact timeline will depend on various factors, such as the outcome of technical studies, financing methods and state of government coffers.
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He explained that he decided to reveal the delay out of transparency as there was “hype” that the project would mount pressure on coffers.
“[There were people asking] why we were issuing bonds and hyping up the financial situation of the government, [questioning] whether it could support this project … We don’t think such hype is necessary.” Chan said, reaffirming the authorities’ commitment to build up land reserves.
“We are absolutely confident in advancing the plan for the Kau Yi Chau artificial islands plan, and we fully recognise that it is a very important project for Hong Kong’s future land supply.”
In near the term, the government’s land sale programme for the 2024-25 financial year would include eight residential sites that were estimated to offer about 5,690 flats. Six of those were unsold plots rolled over from the previous list.
Chan said that there was flexibility for the government to add residential plots into the programme, and maintained the private housing supply target of “nearly 110,000” in the coming three to four years was still on track to be achieved.
He added that the authorities could revive property curbs if the market started overheating, with measures such as collecting vacancy tax on empty new flats, but stressed that at the moment there was no plan and no need to impose the controversial levy.