Information Note for the Legislative Council Panel on Financial Affairs Management of the Fiscal Reserves
Introduction
This paper briefs Members on the management of the Fiscal Reserves.
Components of the Fiscal Reserves
2. The fiscal reserves are the consolidated accumulated cash surpluses of the Hong Kong Government. These comprise the cash surpluses in the Governments main accounts, namely the General Revenue Account, the Capital Works Reserve Fund (CWRF) (excluding the Suspense Account), the Capital Investment Fund, the Civil Service Pension Reserve Fund, the Disaster Relief Fund and the Loan Fund. The cash surplus in the Suspense Account of the CWRF is not part of the Hong Kong Governments fiscal reserves as it is subject to sharing between the Hong Kong Government and the Hong Kong Special Administrative Region Government Land Fund. Of this, the Hong Kong Governments share is paid into the Works Account of the CWRF, whereupon it can form part of the fiscal reserves.
3. Below are the balances of the components of the fiscal reserves as at 31 March 1995 and 31 March 1996 -
|
1996
|
1995
|
|
$m
|
$m
|
|
|
|
|
General Revenue Account
|
104,690.9
|
107,353.5
|
|
Capital Works Reserve Fund
|
28,696.9
|
28,106.2
|
|
Capital Investment Fund
|
5,112.3
|
4,456.3
|
|
Civil Service Pension Reserve Fund
|
7,383.6
|
7,000.0
|
|
Disaster Relief Fund
|
7.4
|
19.7
|
|
Loan Fund
|
2,035.5
________
|
4,103.8
________
|
|
147,926.6
========
|
151,039.5
======== |
Investment Principles
4. We invest the fiscal reserves according to directions given by the Financial Secretary under section 26 of the Public Finance Ordinance. Three main principles underlie the investment of our fiscal reserves -
(a) the Government should, through the Exchange Fund, seek to obtain the best possible yield on its investments;
(b) the investment should as far as possible be made immune from exchange and other risks; and
(c) funds must be available to effect timely payments when required.
Performance
5. In accordance with the above investment principles, apart from a small part (normally about 5%) held as working capital and deposited with banks, we place the fiscal reserves with the Exchange Fund in a mix of call and fixed term Hong Kong Dollar deposits, with maturities matched to foreseeable cash flow requirements and interest rates determined by reference to the corresponding yields of Exchange Fund Bills or US Treasury Notes. Under the present arrangement, the Hong Kong Monetary Authority in effect insures the fiscal reserves against credit, exchange rate and market risks.
6. We set out below the amount of fiscal reserves deposited with the Exchange Fund, the amount of interest earned and the rate of return in each of the past four years -
|
Year
|
Fiscal reserves placed
with the Exchange Fund
at the end of the year 1)
|
Interest
earned(1) |
Rate of
return 2)
|
|
HK$million
|
HK$million
|
(per annum)
|
|
|
|
|
|
1993
|
115,683
|
3,845
|
3.63%
|
|
1994
|
131,240
|
5,330
|
4.32%
|
|
1995
|
125,916
|
7,436
|
5.78%
|
|
1996
|
145,898
|
7,780
|
5.72% |
Administration
7. The Treasury monitors the cash position on a daily basis, taking into account up-to-date revenue collected and payments made, and arranges placement of deposits with the Exchange Fund and licensed banks. The Treasury enters records of deposits in its computerised registers and, upon the receipt of deposit statements from the Exchange Fund and bank confirmations, verifies the deposit details against those in the registers. Stringent procedures are in place in controlling the transfer of funds. For example, specimen signatures of all authorised Treasury signatories are lodged with the Hong Kong Monetary Authority and the banks concerned, and all instructions to the Exchange Fund and banks for placement/withdrawal of deposits and transfer of funds must be given together by two senior authorised Treasury officers.
Audit
8. The Internal Audit Section in the Treasury regularly checks the deposit records and ensures that there are adequate internal controls on the management of the fiscal reserves and that the prescribed control procedures are complied with. The Treasurys deposit records are also subject to checking by the Director of Audit.
Way Forward
9. Management of the fiscal reserves after 30 June 1997 is a matter for the Hong Kong Special Administrative Region Government. We see no case, however, for changing these essentially prudent arrangements.
Finance Branch
25 February 1997
(P0300)
Last Updated on 18 August 1998
