Government Response to Fitch Ratings Announcement (24

Press Release

Government Response to Fitch Ratings announcement

Thursday, April 24, 2003

In response to announcement by Fitch Ratings to change Hong Kong's outlook from stable to negative due to the impact of atypical pneumonia, a government spokesman stressed today (April 25) the Government would spare no efforts and resources in controlling the disease. The Government had also introduced a package of relief measures to help the community tide over the current economic difficulties and to revive our economy once the disease is under control.

"The carefully considered relief package is appropriate response to the adverse impact on our economy by the outbreak of atypical pneumonia, in the short, medium and longer term," the spokesman said.

"The relief package is one-off in nature. Although it will increase our budget deficit for this year, we are able to fund it through our sizeable fiscal reserves. This would not affect our medium term strategy for addressing the budget deficit problem and therefore should not affect our credit rating," he said.

He also reaffirmed the Government's determination and ability to maintain prudent fiscal policies and achieve the three fiscal targets in the medium term, i.e. by 2006/07. "As such, we believe that the stability of our financial and monetary markets would be preserved," the spokesman stressed.

"Meanwhile, we note Fitch's recognition that Hong Kong possesses major credit strengths including large fiscal reserves, a strong banking system and healthy external accounts. Adequate foreign exchange reserves are available to maintain confidence in the Link. More importantly, the system continues to be underpinned by the healthy banking sector and sound economic fundamentals," the spokesman added.

Acknowledging that the atypical pneumonia had adversely impact on Hong Kong's economy and the earlier forecast GDP growth would not be attained, the spokesman said the Government was closely monitoring the situation and would announce the updated economic forecasts as soon as they are available.