Hong Kong is heading for a marked economic slowdown but its economic policies and regulation and supervision of financial sector remains sound, the International Monetary Fund (IMF) said in a report released Tuesday.

The four-page report by the Executive Board of the IMF assessed the economy, financial regulation and supervision of the Hong Kong Special Administrative Region (HKSAR) after the IMF staff team concluded bilateral discussions with the HKSAR in early December.

According to the IMF report, Hong Kong's consumer price inflation is expected to fall below 3 percent in 2009 and an economic growth rate of around 5 percent per annum is feasible in the long run given the consistent improvements in productivity and overall dynamism and adaptability of the economy.

"Executive Directors recognized that the (Hong Kong) authorities' sound economic policies and steady strengthening of financial sector regulation and supervision in recent years have provided valuable protection in dealing with the consequences of the financial turmoil," the IMF said in its report.

"Looking ahead, Directors considered a possible worsening of international financial market turbulence as the key risk for Hong Kong SAR over the short term," the IMF said, adding "Directors were reassured by the resilience of Hong Kong SAR's banking system to date, but cautioned that credit growth could slow sharply and credit quality could deteriorate alongside the economic downturn."

The IMF Directors reiterated their support for Hong Kong's Linked Exchange Rate System (LERS), saying the system was "a simple, transparent exchange rate arrangement" that has provided an anchor for monetary and financial stability in Hong Kong during the past 25 years.

The Hong Kong dollar continues to be valued broadly in line with economic fundamentals.

John Tsang, financial secretary of the HKSAR government, welcomed the IMF's comments on the city's policies and measures.

"I am confident that Hong Kong's strong fundamentals, sound regulatory framework and prudent risk management by financial institutions will stand us in good stead in tackling the global financial turmoil," Tsang said.

The IMF also supported the range of actions taken by the Hong Kong Monetary Authority (HKMA) to increase the attractiveness and flexibility of its liquidity support facilities under extraordinary circumstances.

Chief Executive of the HKMA Joseph Yam said he was glad that the IMF supports the range of actions HKMA had taken to sustain confidence in the banking system.

"We will keep a close eye on global market developments and are prepared to take any further necessary measures to safeguard the stability of the system," Yam said.

(Xinhua News Agency December 9, 2008)