ADB warns of HK’s deteriorating fiscal position after 15 years

Aging population and social spending are the culprits.

According to the Asian Development Bank, the share of education, health care, and social welfare in recurrent spending in the FY2014 budget of Hong Kong is similar to actual expenditure in FY2013.

These expenditures have been on the rise since 1997 and account for about 60% of the recurrent government expenditure.

Here’s more from ADB:

The aging population has heightened the need for substantial increases in health care and welfare spending. Managing this inevitable increase while preserving fiscal sustainability presents a fiscal challenge in the years ahead.

The Working Group on Long-Term Fiscal Planning has noted that, while the government’s fiscal position will remain healthy in the medium term, the prospects of an aging population and a shrinking workforce pose a future fiscal challenge.

With revenues assumed to grow by 4.5% annually, the fiscal position is projected to begin deteriorating in about 15 years under no service enhancement for social services—that is, with spending adjusted only to take into account demographic and price factors.

With service enhancement requiring government expenditure to grow at an average of 7.5% per year, a structural deficit would result in 7 years.

The working group recommended that the government implement coordinated measures to contain expenditure growth, preserve the revenue base, and save for future generations to cope with the fiscal challenges ahead.