With the budget deficit set to reach $60 billion this financial year, Financial Secretary Antony Leung Kam-chung is trying to suppress public sector expenditure, most notably by dropping uneconomic infrastructure projects.
Certainly, it has never been Hong Kong's practice to stimulate the economy by building bridges that go nowhere or airports that attract few flights. Rather, government projects low on the priority list are often shelved when revenue dips.
But suppressing capital spending is a double-edged sword. Although it is the most effective means of cutting expenditure, its impact on the economy is deflationary.
So it is a pleasant surprise to see the Secretary for the Environment, Transport and Works Sarah Liao Sau-tung considering tapping private capital to fund public projects as she tries to heed the financial secretary's demands to tighten the purse strings.
There are many ways of engaging the private sector. The so-called 'build, operate, transfer' model is one. It involves appointing a private consortium to put up funds to build a facility and run it for a profit for a fixed term, at the end of which ownership reverts to the government. Many tunnels in Hong Kong were built using this mode of financing.
But not too many projects can be funded this way. The challenge for officials is to identify suitable ones and work out appropriate financing formulas so they can be undertaken by the private sector without aggravating the budget deficit.
