RTTNews - Underpinned by Hong Kong's strong external financial positions, prudent public finance and a sound banking system, rating agency Fitch affirmed the city's long-term foreign Issuer default Ratings at 'AA', with a stable outlook on Friday.

Further, Fitch confirmed the local currency IDR 'AA+' also with a stable outlook. Moreover, it affirmed the short-term foreign currency IDR at 'F1+' and the Country Ceiling at 'AAA'.

The firm pointed out that the Hong Kong's sovereign rating also remained higher than China's rating of 'A+', as the city retained considerable autonomy from China with respect to economic and financial policies.

Fitch said Hong Kong's foreign exchange reserve was one of the highest among all the Fitch-rated sovereigns. The accumulation of reserves was mainly due to a strong and stable services account surplus, a trend which the agency expects to continue in the medium term. Given this backdrop, Fitch forecasts reserves to touch US$222 billion at the end of 2009, equivalent to 5.6 months of current external payments.

Moreover, the firm expects the international liquidity ratio to remain steady at 180% and the gross external financial requirement, which is the current account balance minus external debt amortization payments, to be 0.8% of reserves. All these are stronger than the 'AA' rated peer group medians.

Hong Kong's external debt indicators also remained higher than the 'AA' rated peers. The external debt, at 300% of GDP and the short-term external debt, at about 230% of GDP, was higher than the 'AA' medians, but in line with other international banking systems.

At the same time, the city's external debt ratio at 0.3% of gross external debt, was among the smallest among the peer groups. The net external credit position is also the strongest among the Fitch rated sovereigns.

Hong Kong's economy emerged out of recession in the second quarter, after four consecutive quarters of contraction, prompting the government to raise the outlook for 2009. The gross domestic product rose a seasonally adjusted 3.3% sequentially in the second quarter, reversing a 4.3% drop in the first quarter.

The government now expects the economy to contract by between 3.5% and 4.5% in real terms this year, up from a 5.5% to 6.5% decline forecast in May.

Hong Kong's Financial Secretary, John Tsang said on August 14 that the strong and forceful stimulus measures by the Mainland Authorities helped the Chinese economy regain faster growth momentum, which in turn helped the Hong Kong economy.

Inflation in the economy continued to ease, as local and external price pressures remained virtually absent. In July, consumer prices dropped 1.5% year-on-year in July, faster than a 0.9% fall in June and marked the biggest drop in almost five years.

At the same time, the jobless rate stayed at a four-year high of 5.4% in the May to July period, unchanged from the previous three-month period.

For comments and feedback: contact editorial@rttnews.com