Analysts cast doubt on plan to sell bonds to balance the books

Economists and international credit ratings agencies are sceptical about proposals by lawmakers for the government to abandon its target of balancing the books by 2006-07 and to sell bonds to finance Hong Kong's burgeoning deficit.

Legislators yesterday said factors such as the economic turmoil caused by the Sars outbreak and the resignation of former financial secretary Antony Leung Kam-chung make the target unattainable. Instead, the government should work harder to control spending.

But analysts say they are looking past that goal to see whether the government has an effective strategy to reduce the deficit.

'That [goal] has always looked optimistic anyway,' said Brian Coulton, senior director of Asia sovereign ratings at Fitch Ratings. 'The real need in Hong Kong is for a credible medium-term strategy to stabilise fiscal reserves.

'Were [the government] to abandon this target altogether, that would raise question marks as to whether or not they were willing to take the measures necessary over the next few years,' Mr Coulton added.

Mr Leung, who resigned last week, promised in his budget speech to erase the deficit by 2006-07, a goal timed to coincide with the arrival of a new chief executive. The deficit hit $62 billion last year and is officially forecast to reach $68 billion this year. Analysts forecast it will climb as high as $100 billion. Legislators have also proposed selling government bonds, but gave no details such as how much money could be raised, or the interest paid.