Hong Kong government to introduce HK$70 billion retail bonds, including silver and infrastructure bonds

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27th February 2024 – (Hong Kong) The Hong Kong government is set to announce a new budget tomorrow, with plans to continue issuing retail bonds. It is expected that the total amount will be at least HK$70 billion, including not only silver and green bonds but also infrastructure bonds to support government-led construction projects.

Last year, the government successfully issued HK$50 billion in silver bonds and HK$15 billion in green bonds, both of which saw oversubscription. In the end, the total issuance reached HK$75 billion, surpassing the initial amount.

According to sources, the recent issuance of HK$5 billion in retail bonds by the Monetary Authority received a positive response, with oversubscription reaching twice the amount. Each person was only allowed to receive a maximum of three lots. The government believes that there is still room for expansion in the retail bond market, as citizens are seeking low-risk and stable investment products.

Dr. Billy Mak, Associate Professor in the Department of Accounting, Economics, and Finance at the Hong Kong Baptist University, believes that the government’s issuance of retail bonds benefits the development of the bond market. As the proportion of government debt to economic growth is relatively low, there is room for further bond issuance to diversify government revenue sources. Dr. Mak suggests that if a significant portion of the funds is used for silver bonds, the overall scale of retail bonds at HK$70 billion is appropriate. Silver bonds, to some extent, support the living expenses of the elderly, and the scale of bond issuance should be moderate. As for the issuance of infrastructure bonds, it is believed to be a trial for future large-scale projects such as land reclamation in Lantau and the development of the northern metropolis.

Regarding the popularity of bond issuance, Dr. Mak points out that it depends on factors such as the timing of issuance, interest rates, and target audience. If silver bonds are issued before a potential interest rate cut in the United States, with rates similar to or slightly lower than in previous years, citizens who want to secure returns in advance are expected to actively subscribe.

Professor Simon Lee from the Chinese University of Hong Kong, highlights that the government’s bond issuance is undoubtedly welcomed from an investor’s perspective, as it offers stable investment products with reliable returns. However, he cautions that the government’s increasing reliance on bond issuance in recent years may not be a healthy trend for public finances. The government should not use bond issuance as a mere cover-up for fiscal problems. While promoting the development of the bond market, the government must also present plans for long-term sustainable revenue recovery.

Last year’s budget mentioned that the government’s outstanding debt remained at a low level, accounting for only 4% of the local gross domestic product (GDP), significantly lower than most other advanced economies. In this context, Hong Kong should make good use of the space for bond issuance to support and accelerate economic development, create capacity for future investments, and allow citizens to share in the fruits of development at an earlier stage. Financial officials stated in January that Hong Kong’s debt-to-GDP ratio stands at 4.5%, even after five consecutive years of issuing HK$65 billion in bonds and continuing to promote infrastructure development. Even after another five years, this ratio is projected to be less than 10%.