Thailand Financial News

Standard & Poor’s Ratings Services today raised the long-term credit rating on Hong Kong Special Administrative Region to ‘AA’ from ‘AA-’. The outlook for the rating is stable. “The new rating mirrors the positive effect on Hong Kong arising from the improved credit fundamentals of the People’s Republic of China (A/Stable/A-1), the ultimate sovereign,” said Standard & Poor’s credit analyst Kim Eng Tan, of the Sovereigns ratings group.

“The higher credit rating on China reduces the likelihood of potential negative developments in China spilling over to Hong Kong and adversely affecting its credit standing.” The fundamental support for the ratings on Hong Kong, however, remains its economic strength, the government’s large net creditor position, and a large net external creditor position. Recent improvements to Hong Kong’s fiscal situation, particularly the discipline shown by the administration in controlling expenditure, have further reinforced this support. Hong Kong’s continuing reliance on pro-cyclical and volatile sources of revenue-asset sales, land sales, and investment income-remains a key credit weakness. Hong Kong’s continuing reliance on pro-cyclical and volatile sources of revenue-asset sales, land sales, and investment income-remains a key credit weakness. Broadening the tax base would reduce this revenue volatility. The government has begun the process of addressing this weakness by launching a public consultation on the possible introduction of a Goods and Services Tax. As a special administrative region of China, the ultimate sovereign, the ratings on Hong Kong are constrained by those on China. Nevertheless, Hong Kong enjoys higher ratings than China because of the large degree of autonomy in domestic policy, international economic relations, and external affairs that is enshrined in the Basic Law. This shields Hong Kong from risks associated with weaker mainland institutions to a significant degree. The stable outlook on Hong Kong reflects expectations of the government’s ability to maintain its fiscal balance by continuing to exercise discipline in restraining expenditure growth. Further improvements in China’s credit strength, coupled with the implementation of measures to increase the stability of public finance, would have a positive impact on the credit rating on Hong Kong. Conversely, a renewed deterioration in the fiscal situation could weaken the credit rating on Hong Kong. This could arise in the event of a sustained economic slowdown due to the reliance of the government on highly volatile and pro-cyclical sources of revenue. Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit analysis system, at www.ratingsdirect.com .  All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com ;  under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Media Contact: David Wargin, New York (1) 212-438-1579
Analyst Contacts: KimEng Tan, Singapore (65) 6239-6350
Ping Chew, Singapore (65) 6239-6345