The International Monetary Fund has commended the Government's measures to contain the contagious risks from the global financial turmoil and reiterated its support for the linked exchange rate system.

In its staff report on Hong Kong released today, the fund projects Hong Kong's economic growth to fall noticeably in the coming months amid the still unfolding turbulence in the international financial markets.

Consumer price inflation is expected to fall below 3% in 2009. In the long run an economic growth rate of about 5% per year is feasible given the consistent improvements in productivity and overall dynamism and adaptability of the economy.

Robust system

The fund said Hong Kong's financial system has performed well without significant market dislocations, adding a robust system of financial supervision and regulation and a sophisticated financial infrastructure has been established.

It said the 2008-09 Budget and the supplementary package of measures introduced in July should help guard against a more dramatic economic downturn. 

The fund called for continued fiscal stimulus in the 2009-2010 Budget with the Government targeting fiscal balance or a modest deficit. It also advocated taking a more medium-term perspective, favouring fiscal stimulus through an acceleration of infrastructure investments and possibly a permanent reduction in direct tax rates.

Other suggestions

The fund supported reforming the city's healthcare system and said recent progress in moving towards the adoption of a new competition law will help enhance Hong Kong's competitiveness.

It also supported the Government's intention to make the minimum wage legislation uniform across employment groupings.

Noting a broader expansion of communications and infrastructure in the Pearl River Delta will offer significant potential for further growth and development in the region, the fund recommended the Government continue to find opportunities to move forward the financial integration process with the Mainland.

Strong fundamentals

Welcoming the fund's commendations Financial Secretary John Tsang said Hong Kong's strong fundamentals, sound regulatory framework and prudent risk management by financial institutions will keep the city strong in tackling the global financial turmoil.

"We will continue to implement measures to help those in need during this difficult period," Mr Tsang said.