Management of fiscal reserves and Government investment income



DateContextSummary of developmentAction
18.2.98 COU denoting Council Meeting In the 1998-99 Budget, the Financial Secretary (FS) defined three purposes for which the fiscal reserves were needed, namely to meet operating, contingency and monetary requirements. The guidelines adopted by the Government in determining the appropriate level of fiscal reserves was the total of 12 months' government expenditure and the Hong Kong dollar money supply under the M1 definition, allowing a margin of plus or minus 25%. [Budget "paragraphs 55 to 70"]
11.1.01 FA denoting Financial Affairs Panel At the briefing by the Chief Executive of the Hong Kong Monetary Authority, the Panel discussed with the Administration on the management of the Exchange Fund (EF) and requested the Administration to provide information on the investment returns of the fiscal reserves placed with EF since the financial year of 1998-99. [Follow-up paper]
2.3.01 and 9.3.01 FC denoting Finance Committee At the briefings on the 2001-02 Budget by the Secretary for the Treasury (S for Tsy) on 2.3.01 and by FS on 9.3.01, the Administration pointed out that the purpose of the fiscal reserves was to meet Government's operating needs, absorb any fiscal deficits during the downswing of an economic cycle, or meet contingencies such as any major regional or world events with serious adverse financial implications on the economy of Hong Kong. As Hong Kong adopted the currency board system to maintain currency stability, it was the Government's policy that fiscal reserves should be used to safeguard the stability of the monetary system in unforeseen circumstances as well. The Government would follow the guidelines set out in the 1998-99 Budget to determine the appropriate level of fiscal reserves.
23.3.01 FC denoting Finance Committee At the special FC meeting to examine draft Estimates 2001-02, members discussed with the Administration on the guiding principles in financial planning and management of the fiscal reserves. [Minutes]
7.5.01 FC denoting Finance Committee The Panel discussed with the Administration on the proper use of fiscal reserves, in particular the rationale for the guidelines adopted in the 1998-99 Budget to determine the appropriate level of fiscal reserves. [Paper]
4.6.01 FA denoting Financial Affairs Panel At the briefing by FS on Hong Kong's latest economic situation, the Panel discussed with the Administration on the management of fiscal reserves. [Minutes "page 10"]
3.7.01 FA denoting Financial Affairs Panel The Panel met with academics and experts on the proper use of fiscal reserves. [Minutes]

The Panel also noted the background brief on the proper use of fiscal reserves prepared by the Secretariat. [Background brief]

14.3.02 FA denoting Financial Affairs Panel The Panel discussed the research report on "Practices of Overseas Jurisdictions in Building up or Maintaining Their Fiscal Reserves" prepared by Research and Library Services Division (RLSD). [Research report]

To facilitate further deliberation by the Panel on the subject of fiscal reserves, members agreed to obtain the following information from the Administration -
 investment incomes of the Government for the period from 1996-97 to 2000-01 [Paper] ; and
 target level and purposes of fiscal reserves [Clerk to Panel's letter dated 20.3.02] [S for Tsy's letter dated 12.4.02]

The Panel also agreed to gather more information on whether the Singaporean Government managed its fiscal reserves separately from its foreign reserves and whether it employed different strategies in investing fiscal reserves and foreign reserves. [Letter from the Ministry of Finance of Singapore]

28.5.03 CQ denoting Council Question In response to the question raised by Hon NG Leung-sing on issuance of government bonds, the Administration advised that if the cost of issuing bonds by the Government was higher than the investment income from its fiscal reserves, then it would be considered not cost-effective to fund public expenditures through borrowings. [Hansard "page 32"]
5.1.04 FA denoting Financial Affairs Panel The Panel noted that when the Subcommittee on matters relating to the implementation of railway development projects considered the draft Penny's Bay Rail Link Project Agreement, some members expressed concern about the scope and extent of powers of FS in relation to the management of dividends and other forms of income generated from the Government's investments in public and private companies. Members were also concerned about whether proper mechanisms were in place to ensure that the exercise of such powers was properly accounted for by the executive authorities to LegCo. The Subcommittee requested that the above policy issues be further discussed by FA Panel.

Similar concerns were raised in the discussion on the appropriate mechanism for financing the West Kowloon Cultural District Development project and the role of LegCo in monitoring the development of this project.

To address members' concerns on the management of Government investment incomes, RLSD proposed to conduct in-depth research on this subject to assist members in analyzing the financial arrangements, corporate governance and reporting arrangements of selected statutory bodies in Hong Kong. The selected statutory bodies covered by the research are: Kowloon-Canton Railway Corporation, Airport Authority, Mass Transit Railway Corporation Limited, and Hong Kong Science and Technology Parks Corporation.

The Panel endorsed the research outline on management of Government investment incomes prepared by RLSD. [Paper]

7.3.05 FA denoting Financial Affairs Panel RLSD completed the research. [Research report]

The Panel discussed with the Administration on the management of Government investment income. To facilitate discussion, the Administration provided the consolidated information on Government investments and investment incomes and other relevant information requested by members. [Paper] [Extracts of Accounts of the Government for the year ended 31 March 2004]

To address members' concerns raised at the meeting, the Administration provided information on the dividend payout policy of public corporations, role of public officers appointed to boards of the corporations and value for money audits of the corporations. [Follow-up Paper]

Members agreed at the meeting that a joint meeting of the FA Panel and the Panel on Planning, Lands and Works be held to follow up the issues relating to land grant policy and the impact of the policy on government revenue. The Administration provided its response on these issues. [Follow-up Paper]

24.5.05 FA,PLW denoting Financial Affairs Panel and Planning, Lands and Works Panel The Administration discussed with members on the land grant policy and the impact of the policy on government revenue. [Background Brief]

To address the concerns raised by members, the Administration provided information on land granted by private treaty. [Follow-up Paper]

28.6.06 CQ denoting Council Question Hon SIN Chung-kai raised a question on the government revenues brought to credit in March in each of the financial years from 1997-98 to 2005-06. [Hansard "Page 76"]
5.7.06 CQ denoting Council Question Hon SIN Chung-kai raised a question on the government revenues brought to credit in April in each of the financial years from 1997-98 to 2006-07. [Hansard "Page 96"]
22.11.06 CQ denoting Council Question Hon SIN Chung-kai raised a question on investment income from the Exchange Fund. [Hansard "page 41"]
20.12.06 CM denoting Council Motion A motion moved by Hon Howard YOUNG and amended by Hon CHAN Kam-lam on increasing the Government's share in the investment income of the exchange fund was passed. [Hansard "page 111"]

The Administration provided in March 2007 the progress report on its views on the motion and the progress of the follow-up actions taken. [Progress report]

10.1.07 CM denoting Council Motion A motion moved by Hon TAM Heung-man and amended by Hon Jeffery LAM on enhancing the efficacy of the management of public finances was passed. [Hansard "page 83"]

The Administration provided in March 2007 the progress report on its views on the motion and the progress of the follow-up actions taken. [Progress report]

12.12.07 CQ denoting Council Question Hon David LI Kwok-po raised a question on level of fiscal reserves [Hansard "page 83]
5.5.10 CQ denoting Council Question Hon Jeffrey LAM Kin-fung raised a question on taxes collected and recovered. [Hansard "page 5]
2.6.10 CQ denoting Council Question Hon Abraham SHEK Lai-him raised a question on unused government premises. [Hansard "page 83]
19.10.11 CQ denoting Council Question Ir Dr Hon Raymond HO Chung-tai raised a question on strategies for managing reserve assets. [Hansard "page 20]
4.12.13 CQ denoting Council Question Dr Hon CHIANG Lai-wan raised a question on Government reserves and expenditure. [Hansard "page 143]
19.2.14 CQ denoting Council Question Hon Paul TSE Wai-chun raised a question on investment returns of the funds set up or with moneys injected by the Government. [Hansard "page 109]
26.3.14 CQ denoting Council Question Hon Kenneth LEUNG raised a question on Report of the Working Group on Long-Term Fiscal Planning. [Hansard "Page 154"]
7.4.14 FA denoting Financial Affairs Panel The Panel discussed with the Administration on the report of the Working Group on Long-Term Fiscal Planning issued on 3 March 2014. [Executive summary of the Report] [Paper] [Background brief]
18.12.15 FA denoting Financial Affairs Panel The Administration issued an information note on Investment of Fiscal Reserves–"Future Fund". [paper]
9.12.16 FA denoting Financial Affairs Panel The Administration issued an information note on updated on the operation of the Future Fund. [paper]
25.4.18 CQ denoting Council Question Hon WU Chi-wai raised a question on The Caring and Sharing Scheme. [Hansard "Page 71"]
13.5.20 CQ denoting Council Question Hon Kenneth LEUNG raised a question on management of public finance. [Hansard "Page 30"]
17.6.20 CQ denoting Council Question Hon Paul TSE Wai-chun raised a question on non-disclosure of information involving commercial secrets. [Hansard "Page 63"]
28.10.20 CQ denoting Council Question Hon Paul TSE Wai-chun raised a question on financial burden on the Government. [Hansard "Page 115"]


 Hong Kong Monetary Authority (HKMA) - Fiscal Reserve Account:
http://www.info.gov.hk/hkma/gdbook/eng/f/fiscal_res_acct.htm
 HKMA - The Exchange Fund:
http://www.info.gov.hk/hkma/eng/exchange/index.htm

Related topics in the Database:
 The Linked Exchange Rate System
 Exchange Fund


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