Paul Chan Mo-po, Hong Kong's financial secretary, listens during a Bloomberg Television interview in Hong Kong, China, on Friday, June 5, 2020. (LAM YIK / BLOOMBERG)

Hong Kong’s economic recovery will depend on the special administrative region government’s prudent management of recurrent expenditures and its endeavors to discover new areas for growth, Financial Secretary Paul Chan Mo-po wrote in his official blog on Sunday.

Chan made his statement as he revealed the government sees a fiscal deficit of more than HK$300 billion (US$38.7 billion) this year — the steepest in history. The fiscal reserves plummeted from the equivalent of 23 months of government expenditure at the beginning of this year to that of only about 14 months at the year end.

Financial Secretary Paul Chan Mo-po revealed the government sees a fiscal deficit of more than HK$300b (US$38.7b) this year — the steepest in history

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Chan said that the rate of increase in the recurrent expenditure will affect the government’s ability to navigate through structural challenges, and hence the city’s financial stability. 

The government’s recurrent expenditure increased from HK$150 billion in 1997 to almost HK$500 billion in 2020-21, Chan said.

The recurrent government expenditure was estimated at HK$731.1 billion in the 2020-21 Budget. Some of the biggest spending include concerns related to the economy (HK$121 billion), social welfare (HK$115 billion), education (HK$112 billion), health (HK$98 billion) and infrastructure (HK$78 billion).

Considering the city’s small yet open economy, the financial chief said that Hong Kong’s economic recovery and future development will still be influenced by different external factors. 

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The variables include China-US relations, geopolitical changes, fluctuations in international taxation, as well as the speed of economic recovery and the change in the political and economic landscape on the Chinese mainland, within Asia and in European and American countries.

On the same day, Hong Kong Chief Executive Carrie Lam Cheng Yuet-ngor said that the Qianhai Special Zone is a crucial platform for cooperation and development in the Guangdong–Hong Kong–Macao Greater Bay Area.

She made her remarks while delivering a video speech to the advisory committee of the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone.

Lam said the Hong Kong government has always attached great importance to exploring new room for cooperation with Qianhai and contributing to the making of a high-quality Greater Bay Area.

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As of October this year, there were over 11,000 Hong Kong-funded enterprises registered in Qianhai. Meanwhile, there were over 200 Hong Kong startup teams incubated at the Qianhai Shenzhen–Hong Kong Innovation and Entrepreneur Hub.