Moody's Investors Service said on Monday that it has downgraded the long-term issuer and senior unsecured ratings of the Government of Hong Kong to Aa3 from Aa2 and changed the outlook to stable from negative.
The downgrade principally reflects Moody's view that Hong Kong's Institutions and Governance Strength is lower than previously estimated, the rating agency pointed out.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed,” said Moody’s. “It may also point to more significant constraints on the autonomy of Hong Kong's institutions than previously thought.”
The stable outlook at Aa3 reflects Moody's assessment that a one-notch gap between Hong Kong's and China's rating will likely persist for the foreseeable future, according to the rating agency.
“In particular, Hong Kong's rating is supported by "aaa" fiscal strength that Moody's expects to be resilient to a period of low or negative growth, and a very high likelihood that macroeconomic stability will be preserved,” Moody’s said in a statement.
While Moody's assessment of the strength of Hong Kong's institutions and governance is now somewhat weaker than previously, it remains markedly stronger than China's at “baa1, the firm added
Hong Kong's minimal government debt burden and large fiscal reserves continue to support "aaa" fiscal strength, according to Moody’s.
While Moody's expects government debt to rise modestly due to fiscal policy easing in a context of a sharp economic slowdown, it will remain very low, the rating agency noted.
Fiscal reserves of HKD1.2 trillion (US$154 billion)—around 40% of GDP—in fiscal 2019/20 (the year ending March 2020) represent a material buffer to address long-term structural issues, including a fast ageing population, or absorb the current and future periods of slow or negative growth, Moody’s said.
Moreover, ample foreign exchange reserves contribute to macroeconomic stability for a small, open economy and large financial centre and support the credibility and viability of the currency peg, the firm added.
“In Hong Kong's past, and during the current recession and period of political, social and economic uncertainty, the peg's credibility has remained strong,” said Moody’s. “This track record supports Moody's view that the Hong Kong Monetary Authority will maintain macro-economic stability.”
Over time, the closer institutional and economic linkages between Hong Kong and China become, the more closely the two ratings will converge, the rating agency noted.
Moody's Investors Service said on Monday that it has downgraded the long-term issuer and senior unsecured ratings of the Government of Hong Kong to Aa3 from Aa2 and changed the outlook to stable from negative.
The downgrade principally reflects Moody's view that Hong Kong's Institutions and Governance Strength is lower than previously estimated, the rating agency pointed out.
“The absence of tangible plans to address either the political or economic and social concerns of the Hong Kong population that have come to the fore in the past nine months may reflect weaker inherent institutional capacity than Moody's had previously assessed,” said Moody’s. “It may also point to more significant constraints on the autonomy of Hong Kong's institutions than previously thought.”
The stable outlook at Aa3 reflects Moody's assessment that a one-notch gap between Hong Kong's and China's rating will likely persist for the foreseeable future, according to the rating agency.
“In particular, Hong Kong's rating is supported by "aaa" fiscal strength that Moody's expects to be resilient to a period of low or negative growth, and a very high likelihood that macroeconomic stability will be preserved,” Moody’s said in a statement.
While Moody's assessment of the strength of Hong Kong's institutions and governance is now somewhat weaker than previously, it remains markedly stronger than China's at “baa1, the firm added
Hong Kong's minimal government debt burden and large fiscal reserves continue to support "aaa" fiscal strength, according to Moody’s.
While Moody's expects government debt to rise modestly due to fiscal policy easing in a context of a sharp economic slowdown, it will remain very low, the rating agency noted.
Fiscal reserves of HKD1.2 trillion (US$154 billion)—around 40% of GDP—in fiscal 2019/20 (the year ending March 2020) represent a material buffer to address long-term structural issues, including a fast ageing population, or absorb the current and future periods of slow or negative growth, Moody’s said.
Moreover, ample foreign exchange reserves contribute to macroeconomic stability for a small, open economy and large financial centre and support the credibility and viability of the currency peg, the firm added.
“In Hong Kong's past, and during the current recession and period of political, social and economic uncertainty, the peg's credibility has remained strong,” said Moody’s. “This track record supports Moody's view that the Hong Kong Monetary Authority will maintain macro-economic stability.”
Over time, the closer institutional and economic linkages between Hong Kong and China become, the more closely the two ratings will converge, the rating agency noted.
