HONG KONG: The Hong Kong government unveiled yesterday a HK$11.8bil emergency economic package to ease the impact of the deadly Severe Acute Respiratory Syndrome (SARS) virus, offering loan guarantees and lower rents for hard-hit businesses.
At the equivalent of US$1.5bil, the package is roughly 12 times the size of a package of measures announced by Singapore last week to help its economy ride out the impact of SARS, and amounts to about 1% of Hong Kongs gross domestic product (GDP).
But economists say that throwing money at the problem is unlikely to significantly improve crumbling consumer confidence, which is closely correlated with spending, and would simply blow a larger hole in Hong Kong's gaping budget deficit.
The issue really is one of confidence, and not of peoples purchasing power, said Joe Lo, senior economist at Citigroup. So I doubt that the measures would have a significant impact in boosting consumption, but a further widening of the deficit is a definite.
Hong Kong's Chief Executive Tung Chee-hwa said in a news conference the government would guarantee up to HK$3.5bil in short-term loans for SARS-hit businesses to help lessen the impact of the deadly virus on the territorys economy.
The government would also cut rentals on its properties by 30%50% for business for three months, Tung said. Government rates and utility charges would also be reduced for three months.
SARS has killed 236 people worldwide, with 99 deaths being recorded here alone in recent weeks. It has left hotel occupancy rates in single digits as tourist bookings plunged some 80%.
Tourism contributes more than 6% to Hong Kongs annual GDP, and the government has said it will not be able to meet its goal of achieving its former target of 3% GDP growth this year.
The government has pledged to eradicate its HK$70bil budget deficit which represents around 6% of GDP in four years, but it needs to average annual economic growth of 3% to achieve that aim.
Hong Kong dollar forwards, a gauge of investors view of the future path of the territory's interest rates and the future of its currency peg to the US dollar, have risen sharply this week. Reuters