Rare Exchange Fund withdrawal to pay for Northern Metropolis, other big schemes

The Hong Kong government has produced a consolidated surplus earlier than expected, its first in four years, ahead of a rare transfer into coffers from the Exchange Fund and other sources.

“We will bring back about HK$15.8 billion from funds established outside the government’s accounts, and transfer HK$37 billion and HK$75 billion, respectively, from the surplus of the Bond Fund and the investment income of the Exchange Fund to the government’s accounts,” Financial Secretary Paul Chan Mo-po said in his speech.

The move to take investment income out of the Exchange Fund – the government’s main investment arm and de facto sovereign wealth fund – was last done in 1984.

Chan proposed transferring HK$75 billion in each of the coming two financial years, or HK$150 billion in total, from the Exchange Fund to the Capital Works Reserve Fund to pay for the Northern Metropolis and other infrastructure projects.

In 1984, a HK$250 million transfer from the fund was used to compensate for the loss of revenue resulting from the removal of the tax on interest earned on Hong Kong dollar deposits, according to a Legislative Council document that year.