The Hong Kong government has announced 120 billion Hong Kong dollars ($15.4 billion) worth of measures to support its economy, which has been dragged down by pro-democracy protests and the new coronavirus outbreak.
That planned spending would result in "an all-time high" fiscal deficit of 139.1 billion Hong Kong dollars, or around 4.8% of gross domestic product, Hong Kong's Financial Secretary Paul Chan said in his budget speech on Wednesday.
"Since January 2020, Hong Kong has come under the threat posed by the novel coronavirus outbreak, which further dealt a blow to the economy. We must take decisive measures to tackle the situation," he said, according to an official translation of his Cantonese speech.
Chan outlined measures to help businesses, workers and households weather additional economic challenges posed by the virus outbreak. They include:
But the financial secretary warned that "one-off relief measures" may have to be "progressively reduced" in the coming years as the government's expenditure is growing larger.
The planned deficit for the coming financial year starting in April is much larger than the $37.8 billion fiscal shortfall expected in the current financial year — the Hong Kong government's first deficit in 15 years.
"The deficits are mainly caused by the fact that government revenue cannot keep up with drastic increases in government expenditure, especially recurrent expenditure," said the financial secretary.
He explained that Hong Kong's fiscal reserves of about 1 trillion Hong Kong dollars have allowed the government "to roll out special measures amid the prevailing economic downturn, such as paying out cash." But over the longer term, the government must grow the economy and find new sources of revenue, he added.
The Hong Kong economy entered its first recession in a decade when it posted a 2.8% year-on-year decline in third-quarter gross domestic product. In the fourth quarter, the city's GDP fell by 2.9%.
For the whole of 2019, Hong Kong's economy contracted by 1.2% — the first annual GDP decline since 2009, said Chan.
Consumer and tourism spending have been weak spots in the Hong Kong economy. Some analysts said measures from the budget — particularly the 10,000 Hong Kong dollars cash payout — may not help the retail and tourism sectors much.
Janet Pau, director at The Economist Corporate Network, said the cash handouts could spur additional spending by Hong Kong residents. But that may not replace the loss of consumption due to a decline in mainland Chinese tourist arrivals, she told CNBC's "Street Signs Asia."
"Mainland tourist arrivals have been decimated by months and months of social unrest, and we will have to see if there's going to be a pick up after this kind of twin crises," said Pau, referring to the double threats that the Hong Kong is facing: anti-government protests and the coronavirus outbreak.