HONG KONG - Hong Kong expects a budget surplus of HK$3.9 billion ($500.5 million) in 2011-2012 fiscal year, equivalent to 0.2 percent of the city's GDP, financial chief John Tsang said on Wednesday in his budget speech.

Hong Kong expects total revenue for 2011-2012 to reach HK$375 billion, while the overall expenditure for the noted period is estimated to reach HK$371.1 billion, an increase of HK$67.6 billion over 2010-2011, Tsang said.

Operating expenditure for 2011-2012 is estimated to be HK$298 billion, including recurrent expenditure of more than HK$242 billion. Of the recurrent expenditure, 56.4 percent will be used in the three policy area groups of education, health and social welfare, according to the speech.

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For the medium term, Tsang forecasts an annual surplus in the operating account for the period between 2012-2013 and 2015-2016. With a number of major infrastructure projects entering their construction peaks, a deficit will arise in the capital account, but a surplus is expected in the consolidated account, he said.

Tsang expects Hong Kong's fiscal reserves to have increased to HK$591.6 billion by March 31, 2011, with the number expected to reach HK$595.5 billion by March 31, 2012 and HK$697.7 billion by March 31, 2016.

"Maintaining adequate fiscal reserves does not mean that we are reluctant to increase expenditure," Tsang said. The revised estimate of government expenditure for 2010-2011 reached over HK$300 billion, an increase of over 29 percent compared with 2007-2008, according to the speech.

Tsang noted in the revised estimates for 2010-2011 that Hong Kong expects to record a surplus of HK$71.3 billion last year. The revised estimate for total revenue is HK$374.8 billion , HK$82.8 billion higher than the original estimate.

Government expenditure for 2010-2011 is HK$303.5 billion, HK$13.7 billion less than the original estimate.