Hong Kong's strong credit position offsets near-term credit challenges: Moody's

Fiscal space to deal with hurdles available.

Moody's Investors Service says that Hong Kong's 2015/16 budget announcement, which includes measures to bolster growth while maintaining fiscal surpluses and increasing fiscal reserves, supports the Special Administrative Region's creditworthiness.

According to a release from Moody's Investors Service, Moody's stable outlook on Hong Kong's Aa1 rating is based on an expectation that authorities will maintain its strong fiscal position.

The budget supports this expectation. The 2014/15 budget surplus of HKD 63.9 billion (USD 8.2 billion, approximately 2.8% of GDP) and a projected 2015/16 surplus of HKD 36.8 billion (USD 4.7 billion) continues a record of several consecutive years of budget surpluses.

These surpluses will have raised fiscal reserves to HKD 819.6 billion (USD 105.6 billion) by end March 2015. These reserves far exceed Hong Kong's government debt of around 5% of GDP.

According to Moody's, Hong Kong's strong fiscal position offsets near-term credit challenges that may emerge due to uncertain global financial conditions and slower GDP growth.

The considerable buffers built up over the years provide authorities with the fiscal space to deal with these near term challenges, while at the same time addressing medium-term issues such as an aging population and the need to maintain international competitiveness.

Here's more from Moody's Investors Service:

To address the near-term deceleration in growth, the budget offered tax relief to households as well as businesses, increased social welfare spending, and targeted benefits to support sectors such as tourism and retail that suffered during political protests last year.

Measures to reinvigorate longer-term economic development and diversification included skills development initiatives and steps to boost investment in services, including the creative, cultural and financial sectors.

Budget targets are based on a forecast of 2015 GDP growth between 1% and 3%, close to Moody's own forecast of 2.5%. In the past, Hong Kong's actual budget surpluses have often been higher than estimated at the time of the budget announcement.

Whether this will be the case over the next fiscal year will depend on economic trends in the coming months.