He said Hong Kong’s debt levels as a result of the potential bond scheme would remain at “a very safe level” even when it was projected to reach 9.5 per cent of gross domestic product (GDP) in the 2027-28 financial year.

“At a nearby place, a city that is often compared to Hong Kong, its government’s debt level is 130 per cent [of GDP]. By comparison, our current borrowing is at a very safe level,” he said at a press conference after the budget speech. Sources said he was referring to Singapore.

A government source said financing infrastructure projects through bonds would ensure construction would continue in a steady manner.

“Past experience has shown that the city had struggled to finance infrastructure projects when the economy was slow, like during the Sars crisis. And the projects were carried out at the same time when the economy recovered, causing labour shortages and inflation of building materials,” the source said.

Chinese University’s Institute of Global Economics and Finance executive director Terence Chong Tai-leung cautioned that interest rates were on the rise.

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“The government should issue such large-scale bonds when interest rates are relatively low,” he said.

Pre-empting potential concerns about whether the government’s financial management conformed to Article 107 of the city’s mini-constitution, the Basic Law, which states the authorities should avoid deficits, Chan noted the necessity of unleashing countercyclical measures.

“We need to stabilise the economy and safeguard people’s livelihood during the economic downturn,” he said.

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As Chan expected the economy to rebound this year following the resumption of restriction-free travel, he anticipated the deficit would shrink sharply to HK$54.36 billion in 2023-24.

He forecast economic growth of anywhere between 3.5 per cent and 5.5 per cent in 2023 from a contraction of 3.5 per cent last year. From 2024, the economy is expected to grow at 3.7 per cent annually.

Chan said he would adopt a moderately liberal stance. He earmarked 80 per cent of the budget resources for residents and the rest for small to medium-sized enterprises.

Chong of Chinese University said the decision to pump billions of dollars into anti-epidemic measures in the past couple of years was needed and temporary.

“If the deficits last for five years, and because the pandemic-related spending was temporary, I am not hugely concerned about the government’s failure to meet the Article 107 requirement,” the academic said.

He said the city was on track for an economic rebound following the return to post-pandemic normality, and the government’s bread and butter – tax income and revenue from land sales – would improve.

For 2022-23, Hong Kong’s revenue from land premium is expected to be HK$71.1 billion, 40 per cent lower than previously forecast at HK$120 billion amid lower transaction prices of certain lots and some cancellations of sales.

Revenue from stamp duty is expected to be HK$67 billion in 2022-23, also 40 per cent below the previous estimate of HK$113 billion because of sluggish property and stock markets.

The city’s expenditure jumped 16.8 per cent to HK$809.6 billion in 2022-23 as a result of robust countercyclical measures and anti-epidemic work.

By the end of the financial year on March 31, the city’s deficit is estimated to snowball by about 40 per cent to HK$139.8 billion from its previous estimate. Its reserves are expected to amount to HK$817.3 billion, or 12 months of government expenditure.

Some financial experts called for a review of Hong Kong’s taxes to enhance the city’s competitiveness. Chan said those suggestions were ill-timed because of the existing recession and would risk sabotaging the city’s efforts to attract talent and businesses.

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“This year we reviewed raising salaries tax or profits tax, but eventually we decided not to do it because over the past three years, people in Hong Kong and SMEs have been suffering,” he said.

KPMG China tax partner Stanley Ho welcomed the government’s efforts to catch up with regional players in enticing overseas companies to redomicile in Hong Kong, which would bring in fresh growth, capital and talent.