Hong Kong eyes bond issues to deepen debt market

HONG KONG, Feb 25 - Hong Kong plans to issue more government bonds to further stimulate the financial hub's debt market, its financial secretary said on Wednesday during his annual budget address.

"In view of the current investment market conditions and low interest rates, we believe that there is demand for quality bonds," said John Tsang, Hong Kong's financial secretary.

He said the sums raised will be credited to a fund to be established under local public finance legislation. The fund will not be treated as part of the fiscal reserves and will be managed separately.

While Tsang gave few specifics of the fund or the size of issuance, he said approval would be sought from the city's legislature as soon as possible.

Tsang suggested the initiative stemmed from a desire to promote the bond market, rather than as a result of structural fiscal difficulties, requiring the raising of public funds through bond sales.

"Promoting the development of the bond market is important to reinforcing Hong Kong's position as an international financial centre."

Despite this, Hong Kong's finances have been showing increasing strain from the financial crisis after a healthy surplus last year.

Tsang said the city's consolidated deficit this year is expected to hit HK$39.9 billion ($5.2 billion), or 2.4 percent of gross domestic product. He added that he didn't expect a budget surplus to emerge till the 2012/13 financial year. The city's economy which fell into recession in the third quarter last year, is forecast to contract by 2-3 percent in 2009.