Hong Kong's economy and fiscal position are as strong as AAA rated countries, but before its credit rating can be upgraded it will have to wait for China's rating to rise, Standard & Poor's said on Monday. Hong Kong is rated AA because it is constrained by China's lower A rating.
Standard & Poor's (S&P) said in a research report the territory's very low debt and healthy level of fiscal reserves meant its public finances were in better shape than most AAA rated economies like the United States, Singapore, Britain and Switzerland.
"Hong Kong's sovereign credit fundamentals compare very favourably to AAA-rated sovereign entities with similar economic structures," the note said. "Standard & Poor's expects these qualities to strengthen further in the medium term. This would place Hong Kong in a good position for further credit rating upgrades when the ratings on the People's Republic of China are raised." However, an upgrade is not imminent.
S&P's stable outlook on China's rating means the chances of upgrading China in the next two years to A-plus are less than a third, said Kim Eng Tan, a credit analyst at Standard & Poor's. "We are seeing financial liberalisation in China and more market-based reform," Tan said. "The task is to see that those measures are implemented."
Just a few years ago credit ratings agencies threatened to downgrade Hong Kong if it did not erase hefty budget deficits ran up after the 1997/98 Asian financial crisis. "In the past two years the government has made a great effort to cut expenditure.
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