Hong Kong Financial Secretary Paul Chan has announced that Hong Kong’s economy shrunk by 6.1 per cent in 2020-21 – the largest economic decline on record.

“With the epidemic still lingering, our economy is yet to come out of recession,” Chan said in his budget address on Wednesday at the legislature. “Our most urgent task is to contain the epidemic and press ahead with the vaccination programme, so that people and businesses can be back on track…”

Paul Chan budget 2021
Financial Secretary Paul Chan and copies of upcoming annual budget. Photo: Paul Chan, via Facebook.

The city’s economy is expected to grow between 3.5 to 5.5 per cent this year, and an average of 3.3 per cent each year during 2022 to 2025, he announced.

Hong Kong’s exports suffered in the first half of last year, dropping by 9.7 per cent, but with improvements in the second half of 2020-21, the city only saw a slight dip of 0.3 per cent in exports overall in the year.

Chan said that Hong Kong will see a fiscal deficit of HK$101.6 billion, equivalent to 3.6 per cent of the city’s gross domestic product (GDP). The city is also expecting an operating deficit of HK$140 billion “mainly due to the counter-cyclical measures,” said Chan.

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The financial chief added that Hong Kong “will record a deficit for a number of years after achieving a surplus for 15 years,” and that the operating deficit for 2022-25 will range from HK$22.4 billion to HK$40.7 billion

This is the second year in a row that Hong Kong is seeing a deficit. In 2020-21, Hong Kong recorded a deficit of HK$139 billion. The city’s fiscal reserve also dropped drastically in two years from the equivalent of 23 months of government expenditure to 13 months.

Spending coupons

Chan also announced that the government would distribute HK$5,000 in electronic spending coupons to all residents and new arrivals aged 18 or above. Distributed in stages, the scheme is aimed at boosting local consumption.

“This measure, which involves a financial commitment of about $36 billion, is expected to benefit around 7.2 million people,” Chan said.

Paul Chan
Paul Chan. Photo: GovHK.

The coupons will be distributed in five phases, with HK$1,000 handed out per month. The spending coupons may only be used via e-payment tools with local merchants.

Government sources told HKFP that they will seek partnerships with existing payments merchants licenced under the Hong Kong Monetary Authority. No decision on an e-payment tool has yet been made, but several options will be made available to the public.

Participating merchants must be located in Hong Kong and the payment tool provider will need to incentivise retailers to install payment terminals and thus benefit from the scheme, sources told HKFP.

The government chose electronic distribution for security reasons, stating that 80 per cent of applicants for last year’s HK$10,000 handout applied electronically.

League of Social Democrats outside the government headquarters. Photo: Candice Chau/HKFP.

Outside the legislature, activists from the pro-democracy League of Social Democrats called for a HK$10,000 cash handout, whilst the pro-Beijing Federation of Trade Unions called on the government to provide emergency support to the unemployed.

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Candice is a reporter at Hong Kong Free Press. She previously worked as a researcher at a local think tank. She has a BSocSc in Politics and International Relations from the University of Manchester and a MSc in International Political Economy from London School of Economics.