The management said the rating reflects the city’s economic recovery last year, citing support from the central government and local measures to boost market confidence, such as organizing mega events and drives to attract capital and talent.
According to a government spokesperson, “good progress” has been made as new measures have been “steadily implemented” and new rankings “recognized Hong Kong as one of the most competitive economies in the world.”
The spokesman added that the city will continue to contribute to comprehensive national development while expanding its capabilities and cultivating new growth areas so that there are more opportunities for residents and businesses.
The report said that Hong Kong ranked first in international trade and business legislation, second in tax policy, and third in international investment. The city’s performance was also “strong” in real GDP per capita growth, and exports of goods and commercial services and tourism revenues improved.
But the city ranked 65th out of 67 global economies in managing inflation and the high cost of living.
The report also noted a decline in government policy adaptability and transparency, highlighting Hong Kong’s “decline in the Rule of Law Index from 17th to 22nd place.”
“The decline in government efficiency is largely driven by declines in public finances [from eighth to ninth place]Institutional framework [from 11th to 12th place]And the societal framework [from 28th to 30th place]José Caballero, chief economist at the Center for Global Competitiveness at the International Institute for Management Development (IMD), said in the report.
Meanwhile, Singapore, which regained the top spot it last held in 2020, came in second in government efficiency. It outperformed Hong Kong in three key areas, coming in third in economic performance, second in business efficiency, and fourth in infrastructure.
The center said Singapore had seen a “return to form” with the city-state, which ranked fourth last year, showing a “particularly strong performance” in government and business efficiency.
The report said Singapore remained “in good standing” in international trade and improved in international investment, while topping other indicators such as the availability of skilled labor.
Gary Ng Cheuk-yan, chief economist at Natixis Corporate and Investment Bank, noted that Hong Kong’s economy only rebounded last year while other regions recovered in 2022 after the Covid-19 pandemic.
He added that the city is still suffering from the “heavy after-effects” of public policies resulting from the pandemic, but it still has an advantage in its tax system.
“Hong Kong faces a big problem given its multi-year fiscal deficit as the government has spent more money during the pandemic, while economic growth has slowed and its income has been reduced.”
The government posted a deficit of HK$122 billion in FY 2022-23 and HK$100 billion in FY 2023-2024. Its budget announced in February also projected that its operating account would run a deficit in this fiscal year ending in March 2025.
Ng suggested that the administration narrow this deficit by reviewing its workforce and streamlining internal procedures to reduce costs, as well as by helping small and medium-sized enterprises adopt digital technologies to improve their efficiency.
The city’s political image has also been distorted in recent years, he added, thus urging the government to promote Hong Kong as a market-driven economic city.
Edmund Wong Chun-sik, an MP for the accounting sector, said the city still suffers from a relatively weak economy and a persistent labor shortage, and called on the government to boost the labor market by attracting more highly-skilled talent.
The International Institute for Management Development (IMD)’s Global Competitiveness Ranking, which began in 1989, covered 67 global economies in its latest report.
Switzerland ranked second in this year’s general classification, while Denmark came in third.
Last year, Denmark was the top country in the rankings, followed by Ireland and Switzerland.