On May 31, the International Monetary Fund (IMF) Executive Board issued an assessment report after summing up Hong Kong 2023 Article IV Consultation Discussions. The report mentioned that the talent shortage is becoming a prominent concern with the significantly declining labor force in Hong Kong during the past few years.
The IMF pointed out that the impact of the local economic challenges has extended to the labor market, and the problem with talent shortage is alarming.
Even though the unemployment rate in the first three months of 2023 has dipped from 7.2 percent in February 2021 to 3.1 percent, the total number of employed people has only increased by a meager 0.9 percent, which means that the overall labor force has declined significantly in the past few years.
The data also reflect structural problems such as population aging and short-term factors related to the pandemic, placing restrictions on the inflow of foreign workers.
The IMF report predicts that the local real economy will grow by 3.5 percent this year, touching just the lower limit of the government forecast of 3.5 to 5.5 percent.
The report also pointed out that Hong Kong has a sound institutional framework, sufficient capital and liquidity buffers, a high level of regulation of the financial industry, and the smooth operation of the linked exchange rate mechanism.
With the lifting of anti-pandemic measures in Hong Kong, tourism, service, exports, and local economic activities are expected to recover quickly, and the risks to the economic growth outlook are neutral in the short term.
However, the IMF warned that if global growth slows more than expected and regional conflicts escalate, leading to trade disruptions, it could hinder economic recovery.
As for the property market, the organization believes that increasing the housing supply is the key to solving the structural imbalance between supply and demand while maintaining macro-prudential regulatory measures related to the property market.
With the normalization of economic activities and the reopening of the borders, the Hong Kong government should carefully monitor the systemic risks arising from the speculation of non-permanent residents. If the relevant risks subside, the authorities can cancel the Buyer Stamp Duty (BSD) and New Residential Stamp Duty (NRSD).
At the same time, the Hong Kong government has withdrawn extra financial support measures adopted during the pandemic, including financing relief measures such as interest-only repayment arrangements and full credit guarantee schemes.
The IMF suggested that the Hong Kong government expand the social safety net, provide more targeted support to low-income families, increase the depth and coverage of social security assistance, and establish a specific unemployment assistance system.
In the medium term, it is necessary to broaden the tax base through comprehensive tax reform and provide a stable source of income to meet long-term expenditure needs while ensuring fiscal sustainability.
