Financial Secretary John Tsang has hailed Moody's decision to upgrade Hong Kong's long-term foreign-currency and local-currency sovereign ratings to "Aa2" from "Aa3", with a "stable" outlook.

Moody's Investors Service announced today that it has upgraded Hong Kong's long-term foreign-currency and local-currency sovereign ratings to reflect a strengthening of Hong Kong government finances and its external position.

This strong position gives the government considerable financial flexibility and provides a strong buffer against potential shocks emanating from the Mainland or elsewhere.

Global recognition

Mr Tsang said the upgrade reflected international recognition of Hong Kong's strong economic fundamentals.

"Hong Kong has now achieved AA ratings for its foreign-currency and local-currency obligations by all major international credit-rating agencies, the highest that have ever been assigned to Hong Kong," Mr Tsang said.

"I am pleased to note Moody's recognition that Hong Kong's economic and financial resilience to unforeseen external developments has grown over the past several years. Our robust systems as well as large and growing fiscal reserves and international asset position will continue to provide a buffer to Hong Kong to withstand potential external shocks.

"We are also confident that Hong Kong's economy will continue to benefit substantially from the trade and financial links with the Mainland," Mr Tsang added.

Bright outlook

Moody's put Hong Kong's long-term foreign-currency and local-currency sovereign ratings on review for possible upgrade in May this year. The agency last upgraded Hong Kong's long-term foreign-currency sovereign rating to "Aa3" from "A1", with a "positive" outlook, in September 2006.

After today's upgrade, Moody's ratings of Hong Kong stand two notches above those of the Chinese government, which were also upgraded today to A1. Hong Kong's foreign-currency bank-deposit ceiling was upgraded to Aa2 from Aa3.

Moody's Vice President Steven Hess pointed out the Hong Kong Government has almost no debt and large and growing fiscal reserves, equivalent to about one quarter of GDP.

He said Hong Kong as a whole has a large and growing international asset position. Consistently large current-account surpluses have enabled Hong Kong corporations, banks, and the Government to build up one of the strongest net international investment positions in the world, providing yet another buffer against possible shocks, he added.

Stronger resilience

"The upgrade reflects our belief that, over the past several years, Hong Kong's economic and financial resilience to unforeseen external developments has grown," said Mr Hess.

"This resilience means that a rating gap between Hong Kong and China is justified, even though Hong Kong and the Mainland have become increasingly integrated."

He said the trade and financial flows between the rest of China and Hong Kong mean that there is still an element of China risk in Hong Kong's ratings, but Hong Kong's ability to deal with this risk has been enhanced over time.

Standard & Poor's upgrades, also

Meanwhile, Standard & Poor's Ratings Services affirmed its "AA/A-1+" credit ratings on Hong Kong, with the outlook revised to "positive" from "stable".

According to Standard & Poor's, Hong Kong's economic strength, the government's large net creditor position, and Hong Kong's large net external creditor position are the key strengths of its credit quality. Recent improvements to Hong Kong's fiscal position, particularly the discipline shown by the administration in controlling spending, have reinforced this support.

Standard & Poor's also noted that Hong Kong enjoys a large degree of autonomy over domestic policy, international economic relations, and external trade and investment affairs, which are enshrined in the Basic Law.

"We are committed to further strengthening Hong Kong's public finances with our usual prudence and discipline," Mr Tsang said.

"On the external front, we remain vigilant in guarding against sudden shocks. We will also continue to work with the Mainland authorities to develop further proposals to capture the tremendous potential arising from the Mainland market."

Standard & Poor's last upgraded Hong Kong's long-term foreign-currency and local-currency sovereign ratings to "AA" from "AA-" in July 2006, with a "stable" outlook.