Economy | Moody’s: Growth volatility of Macau among the highest

Moody’s Investors Service confirmed the Macau SAR’s local and foreign currency issuer rating at Aa3, and maintained a stable outlook.
In a statement, the rating agency noted that despite the collapse in tourist arrivals resulting in a precipitous fall in gaming revenues, Macau’s fiscal and external buffers have allowed it to deploy significant stimulus measures over the course of the past year. Total fiscal stimulus amounted to MOP52.6 billion, or 27% of gross domestic product (GDP) in 2020, and a further 12% of GDP in 2021, as forecast by Moody’s.
These measures have limited the impact of the slump in economic activity on domestic demand.
The collapse in gaming revenues resulted in real GDP falling over 56% year-on-year in 2020.
Meanwhile, fiscal measures and the fall in revenues resulted in the fiscal surplus falling from 12.6% of GDP in 2019 to 1.7% of GDP in 2020. In order to finance the stimulus, the government also dipped into its fiscal reserves, drawing down MOP47 billion in 2020 and using the sum to supplement its capital revenues.
In 2021, the SAR has budgeted a continued drawdown in reserves of MOP35.7 billion, or 15.1% of GDP according to the Moody’s estimate.
“The growth volatility of Macau’s economy is among the highest of all rated sovereigns. While efforts to diversify growth away from the gaming industry have been ongoing since 2015-16, Moody’s does not expect them to yield material results over the near-term,” the institution said.
“But despite the highly volatile nature of economic growth, Macau’s vast fiscal and external reserves – significantly stronger than those of similarly rated peers – and very high per capita incomes continue to support its credit profile,” it added.
The stable outlook reflects Moody’s expectations that economic activity will likely be restored to pre-pandemic levels by 2024, spurred by a recovery in the gaming sector, and that the impact on the labor market, while severe, will not be permanent.
According to Moody’s, Macau’s local-currency country ceilings remain at Aaa. The three-grade difference from the sovereign rating reflects the high composition of a single industry in overall revenues, offset by strong institutional and policy capacities and a “very strong external position.”
Meanwhile, concerning factors that could lead to an upgrade of the ratings, Moody’s would consider upgrading the rating if there were evidence that the government’s diversification plans were delivering stronger and more durably stable economic growth than the rating agency currently projects. That could stem from material and sustained progress on initiatives that support growth in non-gaming tourism offerings and further builds Macau’s resilience to shocks, said the agency.
However, Moody’s would consider downgrading the rating if Macau endured a prolonged economic downturn beyond current baseline expectations, and if that downturn led to a significant and lasting erosion of fiscal and external buffers due, in part, to an ineffective policy response. “Measures by China that significantly tighten access to gaming for its citizens could be the trigger for such a shock,” it added.