Quick Take: Ex-Head of Hong Kong Monetary Authority Says City Government Should Have Done More to Stimulate Economy

The Hong Kong government, which has been sitting on massive fiscal reserves over the past decade, should have spent more or taxed less to further stimulate the export-dependent economy, the former chief of Hong Kong’s de facto central bank said.

Joseph Yam, who was chief executive of the Hong Kong Monetary Authority from 1993 to 2009, wrote in his blog that the city’s government had been holding its purse strings too tightly. That approach no longer keeps up with the time and could lead to “fiscal drag” — a condition in which a lack of state spending or too much taxation increases deflationary pressure.

Although the government managed to avoid a fiscal deficit even in the toughest economic periods, it has failed to spend more to inject more life into the economy, Yam added.

“Basically, there is no rule (in the Basic Law) that requires the government of the special administrative region to achieve a balanced budget every year. A more reasonable approach should be maintaining a balance between income and expenditures over a medium-length economic cycle,” he wrote in his Chinese-language blog. The Basic Law is the de facto constitution governing Hong Kong.

As of March, the city’s fiscal reserves stood at a record-high HK$936 billion ($119.7 billion), the government said earlier. According to another document from the legislative council, the city’s lawmaking body, nearly HK$300 billion was disbursed to residents and businesses as one-time relief and tax refunds over the past 10 years.

Contact reporter Aries Poon (ariespoon@caixin.com)