Encouraging news: Financial Secretary Henry Tang welcomes Standard & Poor's revised outlook on Hong Kong's long-term currency rating from negative to stable.

Standard & Poors has upgraded Hong Kong's long-term local currency rating outlook from negative to stable. Financial Secretary Henry Tang said the decision reflects its recognition of Hong Kong's economic fundamentals, financial strength and recent economic recovery.

Speaking after the Federation of HK Industries Annual General Meeting today, Mr Tang said the positive rating will benefit the price level of the future Government bond issue. Welcoming the decision, he said the budget-balance target of 2008-09 remains unchanged.

Responding to its comments on Hong Kong's tax base, Mr Tang said the Government is actively studying ways to broaden the tax base. The working group on goods and services tax will submit a report at the end of the year to decide the way forward.

Improved outlook 

S&P recognised that a robust economic upturn, an expected end to deflation, and higher consumer confidence have continued to improve the chance that the 2004-05 fiscal deficit will come under official projections.

Outturns for the first two months of the fiscal year suggest that higher revenue growth is likely to be supported by land sales revenue, stamp duties, and other income and profit taxes, and expenditure reduction is likely to be ahead of plan.

The 'stable' outlook incorporates expectation that fiscal deficits will narrow gradually, slowing the erosion in Hong Kong's fiscal flexibility. It also reflects the expectation that prudent financial management and good economic prospects will be isolated from political developments.