HONG KONG -- The Hong Kong Special Administrative Region (HKSAR) will carry out the "reinforced version" of a fiscal consolidation program in the new financial year to restore fiscal balance and nurture new growth engines like artificial intelligence.

The HKSAR's 2025-26 budget released on Wednesday vowed a cumulative reduction of government recurrent expenditure by 7 percent from now through 2027-28.

While delivering the budget, Financial Secretary of the HKSAR government Paul Chan said public expenditure must be strictly contained, but in a steady and prudent manner while finding balance among the various impacts that may arise in the process.

While laying a sustainable fiscal foundation for future development, this approach represents the HKSAR government's all-out effort to minimize the impact on public services and people's livelihood, Chan said.

"It gives us a clear pathway towards the goal of restoring fiscal balance in the Operating Account in a planned and progressive manner, within the current term of the HKSAR government," said Chan.

Dubbing technological innovation a "core engine," Chan underscored boosting new economic driving forces while enhancing the competitive edge of traditional industries at a faster pace.

To that end, the HKSAR government pledged to develop AI as a core industry and empower traditional industries in their upgrading and transformation.

The new budget sets aside HK$1 billion (about $129 million) for the establishment of a Hong Kong AI Research and Development Institute.

To encourage the industrial application of AI, a HK$10 billion Innovation and Technology Industry-Oriented Fund will be set up, alongside a HK$180 million Innovation and Technology Accelerator Pilot Scheme.

GLOBAL OUTREACH

In terms of boosting the securities and derivatives market, the city will facilitate the financing of overseas enterprises and specific products.

Chan said that the Association of Southeast Asian Nations (ASEAN) is an important economic region that continues to grow, and that a number of enterprises from ASEAN are seeking to apply for listing in Hong Kong, covering businesses in areas including biotechnology, integrated logistics, and mining.

The Hong Kong Exchanges and Clearing Limited (HKEX) will step up its promotion in ASEAN and the Middle East, and actively explore areas of cooperation with countries in the region, including the listing of exchange-traded funds, to enrich the investment product choices in mutual markets and promote two-way capital flows, he said.

HKEX will also strive to increase the number of overseas recognized exchanges to facilitate more overseas companies' secondary listing in Hong Kong, he added.

Meanwhile, Hong Kong will continue to attract global capital and develop a vibrant ecosystem for family offices. Invest Hong Kong (InvestHK) of the HKSAR government has assisted over 160 family offices in setting up operations or expanding their businesses in Hong Kong, Chan noted.

The city will be hosting the third edition of the Wealth for Good in Hong Kong Summit shortly under the theme of "Hong Kong of the world, for the world," showcasing Hong Kong's strengths as a global hub for family offices, he said.

HEARTENING PROSPECTS

Chan expects Hong Kong's economy to grow 2 to 3 percent in 2025 following steady progress in 2024 amid a complicated and changing environment.

Together with the HKSAR government's initiatives to boost the economy and interest rate cuts by the United States since mid-September, they all provided support to different economic segments in Hong Kong. Hong Kong's economy recorded a moderate growth of 2.5 percent in 2024, Chan said.

Considering factors including the continued stable growth of the mainland economy, the country's domestic and international circulation, expansion of high-standard opening-up, and the gradual easing of monetary policies by major central banks, Chan expected that Hong Kong's economy will grow, on average, 2.9 percent a year in real terms from 2026 to 2029.

The budget will reinforce the government's financial strength, and create new momentum and new advantages for Hong Kong's economic development, said HKSAR Chief Executive John Lee in a statement.

He said the various measures put forth by the budget are consistent with the policy address, and expressed confidence in Hong Kong's development and future.