The Hong Kong government's proposed cash handouts to residents could boost the city's flagging economy by around 1%, the city's Financial Secretary Paul Chan told CNBC on Friday.
Chan, in his budget speech on Wednesday, said the 10,000 Hong Kong dollars ($1,282) handouts is estimated to cost the Hong Kong government around 71 billion Hong Kong dollars. The initiative is expected to benefit about seven million permanent residents aged 18 and above.
The handout is part of a package of measures worth 120 billion Hong Kong dollars that the government has planned in its upcoming budget to support the flagging economy, which has been dragged down by months of pro-democracy protests and the new coronavirus outbreak.
"The outbreak of the coronavirus caught everybody by surprise," Chan told CNBC's Emily Tan.
"In Hong Kong, we have been trying very hard to fight this disease. Our economy has been hard hit, that's why in the budget we rolled out measures to try to help stimulate the economy and to help relieve the burden on the people," said the financial secretary.
Hong Kong has reported 93 cases of the coronavirus, of which two have died, according to official data.
Chan added that all the measures — including earlier rounds of stimulus — could boost the Hong Kong economy by about 3%.
The Hong Kong economy contracted by 1.2% in 2019, and is at risk of shrinking again this year. The government's forecast for 2020 is for gross domestic product to change between -1.5% and 0.5%.
Some economists warned that the cash handout may not help the economy much because people may save that money instead of spending it.
"Beyond the risk of saving over spending, it is plausible that the money may be taken overseas," economists from Natixis wrote in a report.
The move has also received some public criticism. Those against the decision argued that it's unfair new immigrants and Hong Kongers who have left the city also stand to benefit.
In response to the criticism, Chan told CNBC that the administrative task to sieve out Hong Kongers who live outside the city is "doable," but would delay the implementation of the measure. In addition, the cash handouts could encourage those living overseas to come back and spend in Hong Kong, he added.
"We have been hearing the feedback from people. This is something that perhaps we may look further into it, but the initial thinking and ... the overriding objective is to implement the scheme as quickly and as simply as possible," said Chan.