On February 25, the Hong Kong government said it will log its first operating budget surplus after three consecutive years of deficit, thanks to a stock listing boom and economic recovery, while it steps up plans for more debt loading.
Hong Kong’s fiscal deficit has snowballed in recent years due to a lagging economy and ballooning infrastructure costs for major development projects. A prolonged real estate downturn has also deprived the government of billions of dollars in land premiums, a key source of revenue.
But in his annual budget address, financial secretary Paul Chan said the government’s consolidated account will have a HKD 2.9 billion (USD 370 million) surplus for financial year 2025–2026, compared to the HKD 67 billion (USD 8.6 billion) deficit previously expected. The operating account, which includes items such as stamp duties and salaries tax, is on track for a surplus of HKD 51.3 billion (USD 6.6 billion), while the capital account, which comprises land premium revenue and capital work expenditure, continues to be in the red.
Government bond borrowings are added to the revenue, offsetting a portion of expenditures.
The improved numbers come as stamp duty revenue from the city’s securities exchange has jumped to nearly HKD 100 billion (USD 12.8 billion) amid a rush of listings and a revival in trading activity. Statistics from the Hong Kong Stock Exchange show average daily turnover value was up 89.3% in January compared to the same period last year.
Government revenue in the financial year through March is set to reach HKD 688.8 billion (USD 88.2 billion), around 4.5% higher than expected, compared to expenditure of HKD 789.2 billion (USD 101 billion).
The theme of the budget is “driving high-quality, inclusive growth with innovation and finance,” Chan said at the beginning of his speech to the legislative council.
The development and adoption of artificial intelligence technology is at the center of the latest plan. A HKD 3 billion artificial intelligence subsidy scheme funding the development of large language models, new materials and biotech is backing over 30 approved projects, Chan said.
Central to its tech-related initiatives, the government is looking to secure more funding for its ambitious Northern Metropolis program, an urban development project that aims to turn Hong Kong’s mostly rural border with Shenzhen covering 30,000 hectares into a technology powerhouse. Hetao Hong Kong Park, officially the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone, has already attracted 60 companies to move into two completed buildings, according to Chan.
“We will establish a dedicated company this year and seek approval from [the legislative council] to inject HKD 10 billion (USD 1.3 billion) as initial capital to take forward the development,” Chan said of the latest plan for the tech park. Separately, another HKD 10 billion will be injected into a dedicated company for San Tin Technopole, an extension of the tech park project, Chan said.
The project is a key factor behind the Hong Kong government’s increased debt levels in recent years. Chan announced that the government debt ceiling will be raised from the current HKD 700 billion (USD 89.6 billion) to HKD 900 billion (USD 115.2 billion), and the proceeds from bond issuances will be exclusively earmarked for infrastructure development. Meanwhile, total capital expenditure will reach HKD 128 billion (USD 16.4 billion) in the 2026 to 2027 financial year.
The government is also proposing to use HKD 150 billion (USD 19.2 billion) in investment income from the exchange fund, the financial hub’s de facto sovereign wealth fund, to support infrastructure projects, according to the budget. A government official told Nikkei Asia on condition of anonymity that the first such fund transfer in decades would be a one-off not used for other recurrent expenditure or salary payments for civil servants.
The government’s debt-to-GDP ratio will rise from 14.4% to 19.9% as a result of more borrowings during a midrange forecast period, which Chan called “a highly prudent level” and “well below that of most advanced economies.”
Despite an overall surplus in the budget, again, taking into account bond issuances, Chan said the government will exercise caution and control its expenditure. As part of this drive to reduce spending, the government will cut over 10,000 civil service jobs within the current term, which finishes at the end of June 2027, the secretary announced.
Economists and analysts had painted a more negative outlook for Hong Kong’s government budget ahead of its release. Accounting firms predicted a fiscal deficit somewhere between HKD 200 million (USD 25.6 million) to HKD 11.2 billion (USD 1.4 billion), while UBS saw the possibility of a slight headline surplus of HKD 200 million.
Land premiums, once a major source of government income, dropped by 85% from HKD 89 billion (USD 11.4 billion) to just HKD 13 billion (USD 1.7 billion) over the past five budget years. The government estimates land premium income at HKD 17.5 billion (USD 2.2 billion) for the current fiscal year and HKD 18 billion (USD 2.3 billion) next year, reflecting a slow recovery of the city’s residential market but still a far cry from the peak. Chan said the land sale program in the coming year will include nine residential sites, and given the current oversupply situation for commercial real estate, there will be no commercial sites for sale next year.
Lately, student housing has emerged as a bright spot amid sluggish land sales, with three commercial sites to be potentially tendered by the government to be used exclusively for such accommodation, depending on market interest.
The budget also devotes a new section to initiatives aligning the city with Beijing’s 15th five-year plan. Chief Executive John Lee had announced last month that Hong Kong will devise its own five-year plan, and he will lead a special task force to oversee the formulation.
Chan said the city will promote more international sports and other events. The Kai Tak Sports Park, which opened a year ago and has hosted concerts by the likes of Coldplay, has racked up stronger ticket sales and more gross income than any other such venue in Asia, he said.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.