Hong Kong’s financial landscape has undergone a remarkable transformation, with the government now projecting a HK$2.9 billion (US$372 million) surplus for the 2025/26 fiscal year—a dramatic reversal from the previously anticipated HK$67 billion deficit. Financial Secretary Paul Chan announced this unexpected fiscal improvement during Wednesday’s budget presentation, attributing the positive shift to stronger-than-anticipated revenue streams and strategic financial management.
The surplus emerges against a complex backdrop of economic challenges and opportunities. Fiscal reserves are expected to grow to HK$657.2 billion by March 2026, up from HK$647.3 billion the previous year, signaling stabilization in public finances despite persistent weakness in the property sector.
Multiple factors contributed to this fiscal turnaround. Stamp duty revenue reached HK$99.5 billion—HK$31.9 billion above initial projections—driven by renewed vigor in equity markets and accelerated economic growth. Additionally, the government expanded bond issuance to HK$155 billion while strategically reallocating HK$62 billion from various special endowment funds established outside government accounts.
The property market crisis that began in late 2021 fundamentally altered Hong Kong’s fiscal model. Land premium revenue plummeted to an average of HK$16.8 billion annually over the past three years, representing a HK$110 billion annual shortfall compared to pre-2021 levels. This revenue decline coincided with increased capital expenditure, which grew 27% to HK$155 billion in 2024/25 and another 21% to HK$187 billion in 2025/26.
Credit rating agencies have expressed cautious optimism. Fitch Ratings noted that while Hong Kong’s government debt-to-GDP ratio remains manageable at 15% in 2024/25, continued bond issuance averaging HK$177 billion annually through 2029/30 could gradually erode fiscal strength. Fiscal reserves are projected to decline to approximately 14% of GDP by 2029/30, compared to 41% at the pre-pandemic peak.
Financial Secretary Chan defended the borrowing strategy, emphasizing that the projected debt-to-GDP ratio of 19.9% remains “highly prudent” by international standards. He reiterated that bond proceeds would exclusively fund infrastructure investments rather than recurrent government expenditure.
Looking ahead, the government plans to draw HK$15.8 billion from special funds, HK$37 billion from Bond Fund surplus, and HK$75 billion from Exchange Fund investment income to maintain fiscal stability in 2026/27. However, Hong Kong Monetary Authority Chief Executive Eddie Yue cautioned that the favorable market conditions of 2025 may not persist, citing global economic uncertainties, central bank policies, AI developments, and geopolitical tensions as potential headwinds.