Hong Kong set to record first budget deficit in 15 years

HONG KONG (AFP) – Hong Kong is set to record its first budget deficit in 15 years, the city’s finance chief warned yesterday, as the business hub reels from the twin shocks of the trade war and seething democracy protests.

In the latest grim assessment for the city, financial secretary Paul Chan told lawmakers that the economy was set to contract 1.3 per cent in 2019, hitting the city’s usually bulging coffers.

Chan blamed the 2019-2020 deficit on decreased tax revenues, a slowdown in land sales and recent economic sweeteners he unveiled in a bid to win over the public during a tumultuous year of unrest.

“Hong Kong’s economy is now in extremely difficult times,” he said, as he called for political violence to cease.

The city has been battered by nearly six months of protests.

The increasingly violent rallies have hammered the retail and tourism sectors, with mainland Chinese visitors abandoning the city in droves.

Figures released yesterday showed retail sales fell by a record 24 per cent in October, the fourth consecutive month of double-digit declines.

October is a crucial holiday period in China known as ‘Golden Week’ when visitors from the mainland to Hong Kong usually spike and spend heavily. But this year, as violence escalated, the crowds fell a record 46 per cent that month.

Protests are not the sole cause of Hong Kong’s woes. The economy has also taken a pummelling from the US-China trade war in a city that serves as a crucial link between the authoritarian mainland and global markets.

The last time Hong Kong recorded a budget deficit was in the aftermath of a deadly 2003 outbreak of the Sars virus that killed some 300 people.

The city’s budget usually ends the year in an enviable position and successive fat years have built up an impressive cushion. In March the government said its reserves stood at HKD1.17 trillion with some critics saying successive leaders have not done enough to alleviate endemic inequality.

Yesterday, the city’s aviation regulator gave Hong Kong Airlines five days to find fresh revenue streams or risk seeing its licence suspended.

The carrier, which is owned by the struggling mainland conglomerate HNA Group, has been one of the most high profile casualties of plunging visitor numbers and announced last week it was delaying salaries to some staff.