Hong Kong rolls out new Dh65bn stimulus to avoid ‘massive layoffs’

The new package includes HK$80bn which subsidises half of wages for affected workers

Hong Kong chief executive Carrie Lam wearing a face mask arrives for a news conference on the novel coronavirus disease (Covid-19) outbreak. Reuters

Hong Kong chief executive Carrie Lam announced a fresh stimulus package worth about HK$137.5 billion (Dh65bn) to support the city’s deteriorating economy amid the coronavirus outbreak, with a main focus on job retention.

The spending package will include an HK$80bn job security program to subsidise 50 per cent of wages for affected workers for six months, Ms Lam said in a press conference Wednesday evening. Ms Lam and other key officials will reduce their salaries by 10 per cent for one year.

The Hong Kong Monetary Authority will “adjust regulatory parameters” to enable banks to lend more, releasing a total lending capacity of HK$1 trillion, as well as other sector-specific measures to boost liquidity, according to a government document.

“As we are facing an unprecedented challenge, the government has to respond in an unprecedented manner,” Ms Lam said Wednesday.

Bernard Chan, a senior adviser to Ms Lam and convener of the Executive Council, said one of the main focuses of the latest stimulus package is to help people keep their jobs and potentially create some as well.

“The last thing we want is to have massive layoffs,” Mr Chan said in an interview with Bloomberg Television Thursday. “What was announced yesterday was to help employers think twice. You can

imagine the economic forecast is very bad, so many companies are looking for ways to trim their workforce or downsize.”

The government intends to distribute the cash in two batches, one starting in June and the other from September, Mr Chan said. If the situation continues to deteriorate, the Hong Kong government will have to step in to do more, just as other governments will, he added.

Hong Kong is also likely still months away from considering an exit plan from the current crisis given the uncertain nature of the virus, he said.

“Still many months away before talking about a return to normalcy,” he said. “How do we know for sure the rest of the world is safe enough for us to welcome them back?”

The Hong Kong government has been under pressure to add more support for an economy that had already slid into recession following months of political unrest and now faces shutdowns to curb the virus outbreak. In February, the government announced a HK$30bn anti-epidemic fund and a HK$120bn relief package in the annual budget centred on a HK$10,000 handout to all permanent residents age 18 and above.

“This will be a step up by the government to help SMEs to survive and to hopefully prevent a mass wave of unemployment and support low-income groups,” said Tommy Wu, senior economist at Oxford Economics in Hong Kong. “It looks like this is sizable enough to cover many workers who have been affected by the virus outbreak.”

The additional spending announced Wednesday almost doubles Hong Kong’s projected budget deficit for the 2020-2021 fiscal year to HK$276.6bn from an earlier estimate of HK$139.1bn, Lam said. This accounts for about 9.5 per cent of gross domestic product, she said.

Government reserves are expected to drop to as low as HK$800bn as a result of the relief measures, financial secretary Paul Chan said at the press conference Wednesday. That is equivalent to about 14 to 15 months of government spending, he said. The government’s finances are still sound and there is no immediate plan to issue debt, he added.