The budget handouts - expected to result in a HK$7.5 billion deficit in 2008-09 - will reduce the fiscal reserves from HK$484.9 billion to HK$477.4 billion, the government estimates. Still, the latter figure is equal to 18 months' expenditure.
Standard & Poor's credit analyst Kim Eng Tan said fiscal prudence should be exercised given the uncertain economic environment.
'Should the 2008 economic growth in Hong Kong fall far short of the government's forecast of 4 to 5 per cent, the expected consolidated deficit could rise much higher than the HK$7.5 billion projected currently,' Mr Tan said.
'We do not expect this to affect the credit ratings of the government, given its strong financial position. However, it highlights the volatility associated with the structural weaknesses in Hong Kong's public finances.'
Loretta Shuen Leung Lai-sheung, vice-president of CPA Australia's Hong Kong China division, said the reserves should ideally cover more than 20 months' expenditure.
The 2008-09 fiscal reserves were estimated to equal 27.7 per cent of Hong Kong's gross domestic product, compared with 35 to 36 per cent before 1997, said James McCormack, head of Asia sovereign ratings at Fitch Ratings. The International Monetary Fund recommends fiscal reserves equal 25 per cent of GDP.
'The reserves came down so quickly during the downturn in 2002 and 2003. This suggests that Hong Kong needs sizeable fiscal reserves,' Mr McCormack said.