Subject: PROPOSED RESOLUTION UNDER THE LOANS ORDINANCE
President, infrastructure is the foundation of the development of a city. The Government should set aside sufficient resources to ensure that infrastructure provides high-quality support. At the same time, development must also focus on the long term and channel more resources towards green projects in order to truly achieve the goal of sustainable development.
In the next five years, the development of the Northern Metropolis will enter a critical phase of land consolidation, which urgently requires stable and ample funding for support. I understand that the Government’s revenue growth has been constrained in recent years. In order to raise sufficient funds, I support the Government’s proposal to raise the borrowing ceiling of the Government Sustainable Bond Programme and the Infrastructure Bond Programme from $500 billion to $900 billion. However, I have three concerns and recommendations regarding future implementation.
The first one is about the timing of bond issuance. In response to actual needs, the Government will continue to expand the issuance of longer-term bonds under the two aforesaid bond programmes. Generally speaking, to hedge against various uncertainties such as inflation and default, the interest rates of longer-term bonds are usually higher than those of short-term bonds. At the same time, as Hong Kong adopted the linked exchange rate system, the interest rates on bonds issued by the SAR Government, particularly US dollar bonds, are significantly influenced by the Federal Reserve’s policy trends and uncertainties in external markets. Last Friday, the Government announced the successful pricing of $27.6 billion worth of green bonds and infrastructure bonds, with maturities ranging from 5 to 30 years. The issuance size was double that of last year. The corresponding interest rate is 3.95%, and the subscription reached 8.6 times. Given the long-term nature of interest repayments, fiscal sustainability and the positive market response, it is crucial to seize the right timing for bond issuance. Issuing bonds when interest rates are relatively low, and appropriately optimizing and adjusting interest rates when demand is expected to be high, will help the Government alleviate long-term interest expenditure.
Secondly, full consideration should be given to the fluctuations in GDP. The ratio of government debt to GDP is a key indicator for assessing the region’s fiscal health and stability. After raising the borrowing ceiling, Hong Kong’s debt ratio is expected to increase to only 19.9%. Although this ratio is lower than that of other developed economies around the world, GDP itself is a dynamic indicator. At the subcommittee meeting, I questioned the Government on how to control it. Hong Kong’s economy is highly external-oriented and extremely sensitive to the global market, making it vulnerable to economic fluctuations; coupled with the ongoing geopolitical tensions in recent years, which have a significant impact on global trade and energy price fluctuations. Taking these factors into account, it is necessary for the Government to make a comprehensive forecast of our GDP and debt ratio. As in the first quarter of this year, our GDP showed strong growth, with a year-on-year increase of 5.9%. This may well be the right time to appropriately expand the size of bond issuance. Objectively speaking, given the possibility of delays in major infrastructure projects in the Northern Metropolis, and the inherent volatility of GDP, the Government should maintain a degree of flexibility. If the Government seizes the right timing for bond issuance, it can invest temporarily idle funds in other short-term investment projects, thereby further enhancing the management efficiency of fiscal funds.
Third, we must align with the current trend of digitalization and tokenization. As the world’s largest offshore Renminbi bond issuance centre and Asia’s largest green bond issuance centre, Hong Kong has a solid market foundation. I understand that last year the Government issued tokenized government bonds worth $10 billion, covering four different currencies, which attracted overwhelming market interest with subscription reaching as high as 13 times. Moving forward, we should leverage our bond issuance capacity to expand our tokenized bond issuance to provide more options for the public and investors, while reducing transaction costs, enhancing settlement efficiency of bond issuance, and improving market transparency.
President, this amendment to the Loans Ordinance is a pragmatic measure in response to the actual needs of Hong Kong. I believe that raising more funds will provide stronger and more substantial support for Hong Kong’s major infrastructure projects, green transformation and long-term sustainable development. I support the proposed resolution under the Loans Ordinance.
I so submit.