Ken Ip says the SAR’s 2025-26 Budget must balance economic prudence with strategic investments to ensure long-term prosperity amid financial challenges.

Financial Secretary Paul Chan Mo-po will come under intense scrutiny over the steps he’s likely to take in the upcoming 2025-26 Budget to reverse and plug Hong Kong’s growing fiscal deficit amid escalating global economic tensions.

The challenge is clear — how could the special administrative region ameliorate its finances to secure long-term growth?

In the past few years, the local economy has been marred by shortfalls, and the outlook for this year isn’t expected to offer much relief either. A deficit shortfall of HK$100 billion ($12.85 billion) is anticipated for the 2024-25 fiscal year, with the city’s financial reserves being gradually depleted. This has prompted the SAR government to take stock of its fiscal position, with some tough decisions likely in store. The job is not merely about balancing the books — it’s about safeguarding Hong Kong’s future prosperity.

The fiscal challenge is compounded by a host of negative factors, including a rapidly changing world economic landscape, geopolitical tensions, a slower-than-expected post-COVID-19 recovery, and the shifting dynamics of global trade, all of which contribute to a precarious predicament. In this context, the 2025-26 Budget needs to strike a delicate balance between short-term measures to revive economic activity and long-term investments that will lay the foundation for sustained growth.

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The fiscal deficit has been partly addressed by drawing on the Future Fund, with HK$117 billion used last year. Still, it’s clear that relying on the SAR’s reserves is a short-term solution. The key question is: How can Hong Kong diversify its revenue streams to reduce this dependency and strengthen its fiscal health in the years ahead? The government must explore avenues that would offer a mix of fiscal prudence and targeted investment. While slashing unnecessary expenditures is one option, the administration must step up efforts to stimulate economic growth in sectors with potential for high returns.

The upcoming Budget is likely to contain measures to meet these needs. On the one hand, we can expect belt-tightening in some areas. Public spending will likely be scrutinized, and initiatives that lack clear returns may be deferred. At the same time, there could be more funding in areas that could stimulate innovation and employment, such as technology, green industries and tourism. These sectors have become central to Hong Kong’s post-pandemic recovery, with the goal of positioning it as a hub for new businesses.

One of the most significant areas to focus on is expected to be the property market that has long been one of the key pillars of Hong Kong’s economic success. But, the battered sector has been a source of concern in recent years. Property prices have been volatile, with commercial and residential properties facing downward pressure.

The SAR government’s response is likely to include measures designed to stabilize the market and prevent it from heading further south, such as providing additional support for first-time homebuyers and implementing policies to increase housing supply. At the same time, it’s crucial to adopt a long-term view to ensure that the real-estate market remains sustainable.

There’s also likely to be continued emphasis on Hong Kong’s role as an international financial hub. The city has long been the gateway to the Chinese mainland, and this position remains a critical aspect of its economic strategy. As the Guangdong-Hong Kong-Macao Greater Bay Area initiative advances, Hong Kong’s role as the “superconnector” between the mainland and the world will be even more important. In this context, the Budget is expected to introduce measures to beef up Hong Kong’s financial infrastructure and attract foreign investment, particularly in high-tech industries like financial technology and green finance. These sectors have seen rapid growth in recent years, and Hong Kong must stay competitive to capture a share of the global market.

Another important area to be dealt with is tourism that has been hard hit too by the pandemic, although it’s showing signs of recovering. With international borders having reopened, and the mainland economy gradually stabilizing, Hong Kong stands to benefit from an influx of visitors, particularly from the 11-city cluster Greater Bay Area. The new Budget is also likely to contain initiatives to attract more tourists to Hong Kong, such as perks for travel agencies and new marketing campaigns. Boosting tourism and making the city more appealing to visitors will help revive the retail and hospitality sectors that were equally battered by the pandemic.

The government should leverage its multiple-entry visa policy and push for it to be extended to more cities in the Greater Bay Area. This would complement the Development Blueprint for Hong Kong’s Tourism Industry 2.0, which emphasizes high-quality growth in tourism. Hong Kong could also make full use of major sporting events like the 15th National Games to be co-hosted by Guangdong province and the Hong Kong and Macao SARs in November as a stepping stone to developing new business models, such as “sports+ tourism”. At the same time, the Kai Tak Sports Park, due to open next month, could be a venue for large-scale concerts and other key events, contributing to the development of the “concert economy” and new service industries.

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Hong Kong must also take steps to tackle the problem of a graying population — another structural challenge that has been exacerbated by the city’s deficit woes. With a growing number of retirees and a shrinking working population, the pressure on public services, healthcare and pensions will only grow. While Hong Kong has a relatively young workforce compared to many developed economies, the government will likely face tough choices about how to balance the needs of the elderly with those of the younger generation. This could involve expanding healthcare spending, boosting retirement savings, and investing in programs that encourage longer working lives.

What can we expect from the 2025-26 Budget as a whole? It’s likely to be a mix of cautious fiscal restraint and strategic investment. Certainly, there will be emphasis on controlling public spending, but this must be balanced by the need for targeted investments in sectors that can propel future growth. The challenge for the government is to avoid austerity measures that would stifle innovation and economic activity, while ensuring that fiscal policies remain sustainable in the long term.

The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.

The views do not necessarily reflect those of China Daily.