Hong Kong still faces a challenge in adopting policies to curb its budget deficit and should move quickly to implement a goods and services tax, the IMF said on Wednesday.
"The main macroeconomic policy challenge continues to be the adoption of a credible fiscal consolidation plan to attain budget balance over the medium term," the International Monetary Fund said in an updated assessment of the Hong Kong economy.
"The IMF welcomes the recent adoption of many policy actions along the lines of our recommendations and looks forward to further progress in this area, particularly the rapid implementation of a goods and services tax," the fund said.
Hong Kong last year announced public spending cuts and tax hikes in a bid to curb a massive deficit that looks set to top HK $60 billion (US $7.7 billion) for the year ending March 2004.
However, the government does not expect to balance its books until 2008/09.
Financial Secretary Henry Tang is expected to lay the groundwork for a goods and services tax in his maiden budget speech next month but is not expected to set a timeframe for its introduction.
The IMF was otherwise upbeat on Hong Kong prospects, hinting it could raise its 2004 gross domestic product forecast for the territory from 4.5-5 percent as the economy continues to improve on the back of a rebound in consumer confidence and higher numbers of tourists from mainland China.
Deflationary pressure is receding rapidly and the IMF said deflation as measured on a 12-month basis should end in the latter half of 2004, earlier than its previous projection.
The territory has been locked in a deflationary cycle for more than five years and prices are still lower than a year ago. But many economists say deflation has already ended as prices have been rising on a monthly basis since last summer.