The International Monetary Fund Staff Mission expects Hong Kong's economy to grow 5.5% to 6% this year, below 5% in 2008, and average around 5% over the medium term.

The city will continue to face the challenges of high revenue volatility and rising ageing-related spending pressures over the medium term.

The IMF mission made this assessment in its concluding statement at the end of a visit to Hong Kong for the annual Article IV consultation from October 29 to November 7.

Tax-base broadening key

Welcoming the Government's policies to enhance the city's competitiveness, the mission said broadening the tax base remains important to limit revenue volatility.

The mission also looks forward to the upcoming consultation on healthcare reforms to address the rise in healthcare costs in future as the population ages.

It maintains its support for the Government's commitment to the Linked Exchange Rate system, and also finds the real value of the Hong Kong dollar to be in line with economic fundamentals. It stressed that market flexibility remains key to the success of the system and Hong Kong's competitiveness.

Wage flexibility essential

The mission reiterates its support for the planned general competition law, which will help strengthen market flexibility. It also suggests that the Government carefully balance labour-market flexibility and wage protection.

Since wage flexibility is a key means by which Hong Kong adjusts to external shocks, the mission suggests that the Government consider alternative measures such as expanding in-work benefits apart from mandatory minimum wage.