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By Susan Fenton
HONG KONG, May 26 (Reuters) - Hong Kong announced an additional HK$16.8 billion ($2.2 billion) in fiscal stimulus on Tuesday, including temporary tax exemptions and subsidies for public services, to try and pull its economy out of its worst recession in more than a decade.
"There is still a lot of uncertainty around the world and in Hong Kong," Financial Secretary John Tsang told a press conference, saying that he believed the economy would improve.
"I'm optimistic at this point that the second half will be better than the first half," he said.
Tsang said the measures would increase an expected government deficit this fiscal year, but said exceptional measures were needed at this exceptional time to revive the city's economy, which the government forecasts will contract by between 5.5 and 6.5 percent this year. That would be its worst performance since 1998 at the height of the Asian financial crisis.
As a trading and financial hub, the territory has been hit hard by the global economic downturn and financial crisis. In the first quarter, the economy shrank 4.3 percent from the previous quarter, its worst performance since records began in 1990.
There was some encouraging news on Tuesday as data showed that exports in April fell 18.2 percent, much better than a more than 22 percent drop in the first quarter of the year, the biggest decline since the 1950s.
However, Kevin Lai, senior economist, at Daiwa Institute of Research, said the latest stimulus measures were unlikely to do much to revive the economy, arguing they were too little, too late.
"It's not going to help. The government should have done this six months ago when the crisis hit us. They should double the amount for it to have any impact," he said.
The stimulus package included some temporary tax exemptions, further waivers on payments for public services and extended credit facilities for small and medium-sized enterprises.
There were also measures to help relieve unemployment, which has shot up to a three-year high of 5.3 percent as 30,000 jobs have vanished since the global financial crisis deepened last September. They included a plan to spend HK$300 million to create jobs to help prevent the spread of H1N1 flu in the city, of which there have been nine confirmed cases.
The package follows earlier measures to help consumers, including temporary waivers on electricity bills and housing rents, a form of property tax, and a one-off income tax rebate for this year, announced by the Financial Secretary in his annual budget in February.
The government could introduce more stimulus measures if the global economy deteriorated, Tsang said, although he did not foresee that at present.
Fiscal stimulus will aggravate the government's forecast HK$40 billion fiscal deficit for 2009/10. However, its finances are in better shape than expected; it recently reported a small fiscal surplus for the 2008/09 fiscal year, surprising accountants who had forecast a massive deficit. (Additional reporting reporting by James Pomfret) (Editing by Chris Lewis)