Since I delivered the Budget on February 25 - just 12 days ago - we have seen a string of reports that have starkly underscored the extent of the financial crisis that governments across the world are trying to battle and contain.

Let me just recap a few of the items from the past week or so:

* The Royal Bank of Scotland announced a record 24 billion pound loss in 2008 - the biggest in UK corporate history.

* AIG announced a fourth quarter loss of almost US$62 billion - the biggest quarterly loss in US corporate history.

* Not long after that story appeared, the company revealed another US$12 billion exposure to potentially toxic products, a disclosure that even prompted the usually rather restrained Ben Bernanke to blow off some steam.

* The US Government announced it had acquired 36% of Citibank, which has already received some US$45 billion in funding from US taxpayers.

* Just last Friday, across the Atlantic, the UK Government had to increase its stake in Lloyds Bank to 65%, insuring 260 billion pounds of the bank's toxic assets.

* General Motors announced a loss of almost US$31 billion in 2008, and there are now fears that the company may become insolvent.

* Our homegrown hero, HSBC, which we affectionately call "The Big Elephant", announced a rights issue to tap the market for close to US$18 billion and, to the dismay of many, its share price is continuing to test new lows.

The news is also not that encouraging for our major trading partners, either.

In the past week, our two largest trading partners in Europe - Germany and the UK - announced that their economies had shrunk in the fourth quarter of  2008, the worst economic performance for 20 years or more.

The US economy - the biggest in the world and our second largest trading partner globally - shrank by 6.2% in the fourth quarter of 2008, the worst drop since 1982. Its unemployment rate has just hit a 25-year high of 8.1%, and a double-digit unemployment rate is on the horizon.

Looking across the region, there were significant GDP contractions in Q4 2008 among our major trading partners in Asia - Japan (-4.6%), Singapore (-4.2%), Korea (-3.4%), Taiwan (-8.4%) and Thailand (-4.3%).

In Hong Kong, the day after I announced the Budget, our trade figures for January were released. Exports had dropped by almost 22% - the biggest decline in 50 years. Imports dropped by an equally devastating 27%.

Elsewhere in the region, the figures underline the extent of the malaise and the severe effect the financial crisis is having on merchandise trade. Since November, exports in US-dollar terms have registered significant declines in all East Asian economies. The January data we have shows that exports declined by 17.5% in the Mainland; 35% in Japan; 40% in Singapore; 34% in Korea; 44% in Taiwan, and 26% in Thailand.

As a small, open and services-led economy, Hong Kong will be affected by global downturns. We've seen it before in varying degrees. But this time it is clear that, with all the numbers streaming in, we are going to be hit very hard. We are hurting now, but we have not seen the bottom. The worst is yet to come.

I mention this not to be overly gloomy or pessimistic. Some might even say I am using scare tactics. I am not. I know in my heart - and I hope you share my confidence - that Hong Kong people and Hong Kong businesses will overcome these challenges with their trademark stoicism, resilience and uncanny knack for making the best of a bad situation. We have seen difficult times in the past and each time we have emerged stronger than ever.

But, I also believe that now is the time to be frank and realistic. We all need to clearly understand Hong Kong's situation in the context of the much bigger drama that is unfolding on the global stage - in terms of the sheer scale of the money involved; the extent and pace of the contractions going on around the world; and our ability to respond with fiscal measures in the face of such a calamity.

On this last point, I want to address one perspective that has been raised since I released the Budget. That is, we weren't bold enough and we didn't spend enough and that we should be dipping further into the fiscal reserves to help those in need and stimulate the economy.

In the two Budgets that I have delivered - in February last year, and February this year; and three times in between - in July, in October, and in December last year - all together five times in the past 12 months - we have, indeed, responded to the changing global environment with timely and targeted measures and initiatives to provide financial relief to the population, to create jobs, and to keep the wheels of the economy turning.

Initiatives announced in last year's Budget, and by the Chief Executive later in July, cost $57 billion. Some of these measures will continue to benefit people in 2009-10. In my latest Budget, I have proposed a further $10 billion worth of measures to create jobs and help ease the burden of the community.

Altogether, we are offering 120,000 job and internship opportunities - that's the equivalent of  3% to 4% of our current workforce. We have provided $100 billion in loan schemes to help small and medium-sized enterprises survive and continue doing business. These schemes have been well received so far, with more than 3,800 applications approved, involving $8 billion worth of loans.

We are investing in an accelerated infrastructure programme that may reach $50 billion a year to enhance long-term competitiveness and boost connectivity with our hinterland.

We introduced a deposit guarantee scheme to instill confidence in our banking system. We have been actively seeking new opportunities for our enterprises and entrepreneurs through a much deeper and broader engagement with the Mainland.

We continue to invest heavily in education which remains our largest expenditure item. And we have committed substantial funds to improving social and healthcare services.

Last year - when our fiscal position and outlook was more robust than it is today - we could afford to return wealth to the people and share our prosperity with the community without betraying our philosophy of prudently spending within our means.

This year, at this time now, I believe we need more pragmatism and more prudence than ever.

You will see that we have adopted a practical approach over the past year. We have continuously and closely monitored the fast-evolving global environment and taken incremental steps to tackle immediate problems. That approach will continue. That is why I took the unusual step in the Budget to highlight the importance of our mid-year economic update.

Depending on the economic situation then, and the extent of the prevailing risks, I may have to consider further assistance for our community at that time.

In terms of managing public finances, some may feel I have so far been too cautious. Some have even called me gwoo hon, or a miser, but I think you would agree that it's the duty of every Financial Secretary to be prudent and conservative when managing your tax dollars. There is a great deal of uncertainty out there. So much has happened within just one week of the Budget. That is why I do not believe that you want me to give away too much of your hard-earned money, too readily and too fast.

For a start, it limits our ability to react quickly and effectively later in the year with more targeted relief measures, if need be. By the middle of the year, we will have a better idea of how the economy is coping and what our revenue stream will look like - and how this might impact on our forecast deficit of $40 billion for 2009-10, and a total deficit of $100 billion for the medium-range forecast period.

As I have expected, my approach has proved unpopular with some people. But I believe, for the sake of future generations, for the sake of our young people, it is wise to keep the reserves up our sleeves for the time being. It is about our ability to survive during this crisis period that is full of uncertainty and volatility and our ability to achieve a soft landing in this turbulent environment.

That, of course, includes soft landing for businesses across the full spectrum of our economic landscape - most of which are suffering at the moment; soft landing for people in the workforce who are worried about their jobs, or face the prospect of unemployment; and soft landing for our future business leaders and captains of industry - our university graduates who will be entering the workforce later this year.

Our young people will be facing their first major economic calamity. We have to help them get over this big hump. That is why we have devised specific training and internship schemes for our young people to bridge this period and learn some useful skills so that they can better prepare themselves for more gainful employment when economic conditions improve.

I have advised them not to bicker about compensation but to grasp the opportunity in front of them and take a pragmatic view of the current situation. This is an extraordinary period and we must all try to look for the silver lining in the clouds of uncertainty that are hovering above us.

Like many economies around the world, Hong Kong is facing unprecedented challenges. Over the past year, the government has responded to these challenges with timely, practical and prudent measures. We will continue to take this approach.

My Budget this year addresses both short-term and longer-term issues facing our community and economy. Because of the uncertainties we face, I believe that we must be very careful with the management of the fiscal resources at our disposal, picking the optimal timing to deploy our arsenal.

Our response over the past year has shown that we will draw on these resources when needed, to implement measures that can provide short-term relief, grease the machinations of the economy, and provide building blocks for future economic vibrancy.

We have also shown that we respond to the needs and suggestions of the market, and we continue to welcome your input and ideas. By working together, the community and government, old and young, unions and enterprises, rich and poor, with everyone together, I am sure that Hong Kong will once again prove its mettle as one of the most resilient, most flexible and most vibrant economies in the world.

Financial Secretary John Tsang gave this address at a joint business community luncheon.