Hong Kong is widely recognized as one of the world’s best-managed economies. It consistently ranks at the top in finance, trade, and business competitiveness, serving as a global financial hub and a major re-exporter. However, beyond these well-known strengths, there is another area where Hong Kong excels—its remarkably low government debt.
Hong Kong’s Low Debt-to-GDP Ratio
A look at the latest data from the International Monetary Fund (IMF) reveals that Hong Kong’s gross government debt as a percentage of GDP stands at just 9% in 2024. This figure is significantly lower than that of other major financial hubs such as Singapore, Switzerland, and Luxembourg, as well as oil-rich Middle Eastern economies. Even compared to China, which has a much higher debt-to-GDP ratio, Hong Kong remains in a league of its own.
This begs the question: does this mean Hong Kong is outperforming other major financial hubs? To answer that, we must first examine Hong Kong’s economic model and its historical approach to fiscal management.
The Roots of Hong Kong’s Fiscal Discipline
Hong Kong’s low-debt economy traces its origins to its colonial past. Under British rule, Hong Kong’s administrators recognized early on that its small size and external vulnerability made fiscal discipline not just prudent, but essential for survival. Unlike larger economies that can sustain budget deficits due to diversified industries, Hong Kong had to ensure that government spending remained within its means.
A pivotal figure in shaping this approach was Sir John Cowperthwaite, Hong Kong’s Financial Secretary from 1961 to 1971. He championed the philosophy of “positive non-interventionism,” advocating for minimal government intervention in the economy. His policies kept public spending low, taxation minimal, and revenue from land sales and other sources sufficient to maintain robust fiscal reserves. This approach played a crucial role in transforming Hong Kong from one of the world’s poorest regions into a thriving global financial center.
Even after the 1997 handover to China, Hong Kong continued to adhere to this principle of spending within its means. A look at the region’s overall balance—a measure of the difference between government revenue and expenditure—shows that Hong Kong has consistently run surpluses, accumulating reserves rather than debt. There were exceptions, such as during the Asian Financial Crisis of 1998, the Global Financial Crisis of 2008, and the COVID-19 pandemic in 2020, which led to temporary fiscal deficits.
The Impact of Recent Economic Challenges
Despite its long-standing fiscal discipline, Hong Kong has seen a slight increase in government debt in recent years. Historically close to 0%, the debt-to-GDP ratio has risen due to the economic impact of the COVID-19 pandemic. To understand this shift, let’s analyze the government’s revenue and expenditures in different periods.
In the fiscal year 2017-2018, Hong Kong’s government revenue stood at HK$507.7 billion, primarily from profits tax, salaries tax, and land premiums. Expenditures, including spending on education, security, and social welfare, totaled HK$491.4 billion. This resulted in a fiscal surplus of HK$16.3 billion, in line with Hong Kong’s tradition of financial prudence.
However, by the 2020-2021 fiscal year, the picture had changed dramatically. Revenue increased slightly to HK$572 billion, but expenditures surged to HK$731 billion due to government measures to combat the economic downturn caused by the pandemic. The government’s decision to engage in fiscal stimulus—injecting funds into the economy to prevent a deeper recession—led to a temporary rise in debt.
How Hong Kong’s Government Borrows Money
Unlike many other economies, Hong Kong does not rely on traditional debt-financing methods. Instead, it issues bonds, including:
- Green Bonds (HK$203 billion): Used to fund environmental projects such as clean energy and sustainable infrastructure.
- Infrastructure Bonds (HK$34.5 billion): Used for large-scale public projects like roads and railways.
- Silver Bonds (HK$54.9 billion): Retail bonds designed for elderly investors, offering low-risk returns.
- General Government Bonds: Issued to support public finance and cash flow management without being tied to specific projects.
Is Hong Kong’s Rising Debt a Problem?
Despite the recent increase in government debt, Hong Kong’s debt-to-GDP ratio remains one of the lowest in the world. This ensures that its fiscal health remains strong, and its ability to manage economic challenges remains robust. While some may argue that increased spending during crises is irresponsible, the government’s approach to fiscal stimulus helped stabilize the economy during downturns.
Overall, Hong Kong’s strict fiscal discipline, low taxation, and careful management of public finances continue to set it apart from other major economies. As it navigates future economic challenges, this approach will likely remain a cornerstone of its financial strategy.