How would the budget surplus be affected if Hong Kongs central bank decreased interest rates? In 2017,
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How would the budget surplus be affected if Hong Kong’s central bank decreased interest rates?
In 2017, Hong Kong’s government debt was 43.9 percent of its nominal GDP. In the same year, it witnessed a budget surplus of HK$138 billion. In March 2018, Paul Chan, Hong Kong’s financial secretary, promised to return 40 percent of the surplus to the community but stressed the importance of saving for the future.
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The budget surplus of a country is affected by the interest rates through various channels When the Hong Kong central bank decreases the interest rates it can lead to some changes in the budget surplus 1 Lower Borrowing Costs The decrease in interest rates reduces the governments debt servicing costs A lower interest payment for existing floatingrate debts means more money will remain in the governments coffers increasing the budget surplus However the effect may not be immediate if the governments debt is comprised primarily of fixedrate securities which will not be affected by interest rate ...View the full answer
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