Amid encouraging signs of economic recovery, the International Monetary Fund projects Hong Kong's real gross domestic product will grow at around 4.5%-5% for 2004 following an estimated growth of 3% for 2003.

Acting Financial Secretary Frederick Ma welcomed the fund's recognition of the significant effort and progress the Government has made towards restoring fiscal balance, adding that the Government is committed to achieving fiscal balance by 2008-09.

The fund said that the strong economic recovery is supported by surging inbound tourist arrivals - foremost from the Mainland - a strengthening global economy, the advent of the Closer Economic Partnership Arrangement with the Mainland, and the improvement in domestic consumer sentiment.

It expects an easing of deflationary pressures in the near term and projects consumer price deflation to ease to 1% by end-2004 and cease to exist by mid-2005.

On the fiscal side, the fund recognises that despite difficult economic conditions, significant progress has been made this year in enacting a number of revenue and expenditure measures. 

However, it suggests that the government use the improvements in its macroeconomic prospects to make headway towards fiscal consolidation. 

Further reduction of operating deficit recommended 

It recommends a further reduction in the operating deficit by about 1% of GDP in the financial year 2004-05. It believes this will provide a credible start to the drive for fiscal consolidation.

The fund's mission was in Hong Kong from December 11 to 15. During the visit, it assessed our macroeconomic policies, including fiscal and exchange-rate issues.