Cranes are seen on a construction site in Hong Kong on April 1, 2022. (ISAAC LAWRENCE / AFP)
Fitch Ratings, one of the top credit rating agencies in the world, has affirmed Hong Kong’s upper-tier credit ranking, forecasting stability on the support of large fiscal buffers, robust external finances, and the city’s high per capita income.
The international rating agency said Thursday that the city’s long-term foreign-currency issuer default rating has remained at the investment category AA- with a “stable” outlook.
The rating firm identified the special administrative government’s fiscal reserves, equivalent to more than 30 percent of GDP, as a key credit strength relative to AA peers, indicating expectations of very low default risk. And the government’s low explicit fiscal debt — 8.5 percent of GDP — also is a plus, Fitch said.
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The firm predicted the budget deficit will widen to 3 percent of GDP during the 2022-23 fiscal year, as the government has passed relief packages to cushion the economic hit from the city’s COVID-19 restrictions. However, Fitch expects a small surplus in the budget during the 2023fiscal year.
Robust capital market fundraising and stable banking sector deposit growth since 2019 highlight Hong Kong’s continued role as a leading financial center, particularly for mainland firms raising offshore capital.
Fitch Ratings
Hong Kong Financial Secretary Paul Chan Mo-po estimated in the 2022-23 Budget that fiscal reserves will stand at about HK$940 billion ($120 billion) in June, and will gradually rebound to over HK$1 trillion in the next five years.
The strong global demand for manufacturing goods during the pandemic benefits Hong Kong’s role as a trade intermediary between the mainland and the world, the rater said, adding that the city’s current account surplus has risen to new highs in recent years, surpassing 11 percent of GDP last year.
Fitch said the international financial hub is also among the strongest of the Fitch-rated economies, with net foreign assets of about 130 percent of GDP and a net international investment position of roughly 580 percent at the end of 2021.
The rating firm expects that Hong Kong banking sector’s profitability will improve slightly this year, citing a gradual rise in local interest rates due to US monetary policy tightening.
“Robust capital market fundraising and stable banking sector deposit growth since 2019 highlight Hong Kong’s continued role as a leading financial center, particularly for mainland firms raising offshore capital,” the firm said.
“The ratings on Hong Kong also reflected the closer alignment of governance and institutional management practices with the Chinese mainland, which holds A+, trends that have advanced steadily since mid-2019.”
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However, the firm forecast that GDP growth will slow to 1 percent in 2022 from 6.4 percent in 2021. The rater also warned of a possible “large economic contraction” in the first quarter because of “wide-ranging social restrictions to curb an ongoing COVID-19 outbreak are expected to recede only gradually from late April”.
Contact the writer at tianyuanzhang@chinadailyhk.com