The strength of Hong Kong’s institutions are eroding, as suggested by rating agencies.
Hong Kong’s rating outlook has been downgraded by Moody’s. This is due to the weakening of the institutions of Hong Kong. It has managed to maintain it’s current rating over a downgrade by the Moody’s rival Fitch as reported by Financial Times.
Moody’s said the negative outlook “reflects the rising risk that the ongoing protests reveal an erosion in the strength of Hong Kong’s institutions, with lower government and policy effectiveness than Moody’s had previously assessed, and undermine Hong Kong’s credit fundamentals by damaging its attractiveness as a trade and financial hub”.
The rating agency has mentioned that the region has “strong fiscal reserves and external buffers” which helped them to make the decision for keeping there bond rating of AA2. Also, low government debt and large fiscal and foreign exchange reserves, “all of which offer resilience to shocks and negative long-term trends”.
Moody’s added, “the closer the institutional and economic linkages between Hong Kong and China become, the more closely the two ratings will converge”.
“Moody’s has previously noted that a downgrade could be triggered by a shift in the current equilibrium between the SAR’s economic proximity to and legal and regulatory distance from China,” the agency wrote. “The decision to change Hong Kong’s outlook to negative signals rising concern that this shift is happening, notwithstanding recent moves by Hong Kong’s government to accommodate some of the demonstrators’ demands.”
