Hong Kong can raise debt-to-GDP ratio to fund major projects, despite risk of structural deficit, top economist says

Liu Pak-wai, an economics professor and former government adviser, says city’s 6 per cent debt-to-GDP ratio could easily go up to 10 per cent without problems

But he warns cash would need to go to bricks-and-mortar projects, not to fund operating expenses such as salaries and healthcare

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Hong Kong’s debt-to-GDP ratio could be raised to help pay for massive projects such as the creation of artificial islands off Lantau, an economist says. Photo: Martin Chan

Published: 8:30am, 7 Feb 2024Updated: 11:29am, 7 Feb 2024

Hong Kong should take a bolder approach and issue more bonds to finance major construction projects, as well as build up a land bank, despite the possibility of a structural deficit, experts have proposed as the government prepares to announce the budget at the end of the month.

One highlighted the government had “plenty of room to borrow” for mega projects because of the city’s low debt-to-gross domestic product (GDP) ratio compared with places such as Singapore.

Liu Pak-wai, emeritus professor of economics at the Chinese University of Hong Kong, said raising the proportion to 10 per cent from the present 6 per cent would still be acceptable.

Another expert warned against “repeating the same mistake” made in the early 2000s, when development slowed amid mounting deficits after the Asian financial crisis and Sars outbreak, and appealed to the city government to continue investment in the city’s future.

Liu Pak-Wai, a top economist and former government adviser, says Hong Kong’s good debt-to-GDP ratio means the level could be raised to help fund major projects. Photo: Dickson Lee

“As long as the deficit is caused by investment in the future or the infrastructure, it’s fine to cover it with bond issuance … but we should never use the money on operating expenditures, such as civil servants’ salaries and healthcare,” the veteran economist said. “That would contravene the fiscal principle in the Basic Law.”

Liu, a director of the Hong Kong Institute for Monetary and Financial Research, which is led by the head of the Monetary Authority, highlighted that the investment return would be huge and should not just be measured in money.