Pandemic-related economic headwinds are easing in Hong Kong, but a blast from the past arrived this week with word that taxpayers could be on the hook for bad loans under a special scheme to help small and medium-sized enterprises (SMEs) during the Covid-19 pandemic. A full accounting is needed to understand what happened and help prepare for the future.

Official data released to legislators showed that of the 67,189 loan applications approved under the now-defunct, fully government-backed financing scheme, 13,231 had defaulted by the end of February. The 19.3 per cent default rate was better than the 25 per cent originally expected, according to the Commerce and Economic Development Bureau, but the government, as guarantor, looks likely to have to cover the HK$27.8 billion (US$3.6 billion) default with participating lenders.

Also worrying was the data showing that the loan scheme was used by scammers. The bureau found that nearly 4,000 applications in the 100 per cent guarantee category were suspect. While 42 per cent of such cases were caught by vetting, the others involving HK$6.1 billion were found only after funds were withdrawn.

The Special 100% Loan Guarantee was introduced in April 2020 to prevent pandemic-related closures and lay-offs at businesses struggling to pay wages and rent. It was offered under the SME Financing Guarantee Scheme launched in 2011. Loans were fully guaranteed by the government at a concessionary low interest rate.

It was fortunate the city had reserves to tap during the crisis. However, Hong Kong is still reckoning with how well it balanced the speed of disbursement with vetting to determine who benefited. The bureau has pledged to recoup as much repayment as possible and to keep pursuing fraudulent actors, but the community also deserves to know more about whether the spending was a good investment. Answers depend on a clear accounting of the jobs protected and businesses that survived because of the loan programme.

Authorities must learn how best to bridge the gap between emergency generosity and fiscal prudence. Accountability is not about finger-pointing but ensuring resilience for the future.