Fitch upgrades Macau’s long-term credit rating

Yesterday, Fitch Ratings upgraded the MSAR’s credit rating (long-term foreign and local currency issuer default ratings) to “AA”.

The international rating agency pointed out that the Macau authorities have “demonstrated a commitment to fiscal prudence” through a period in which there was a decrease in revenues for the gaming industry. “As a result, the territory’s fiscal and external balance sheets have strengthened to levels that more than offset the significant risks associated with its narrow economic base and concentration on mainland Chinese gaming tourism,” Fitch wrote. 

According to Fitch estimates, real GDP grew by 8.7 percent in 2017, following three years of consecutive declines. The improved growth performance can be attributed largely to a pick- up in gaming activity, though private consumption has also stabilized.

The rating agency forecasts real GDP growth of 5 percent in 2018, a view that incorporates a leveling in gaming revenue growth to around 10 percent, and a continuation of ongoing infrastructure initiatives aimed at enhancing the territory’s connectivity and attractiveness as a tourist destination.

According to estimates, Macau’s fiscal surplus rose to 10 percent of GDP in 2017, up 4 percentage points from a year prior, due to a surge in gaming revenues and continued expenditure restraint. The 2018 budget, approved in December 2017, targets a fiscal surplus of MOP6.9 billion (1.6 percent of GDP) based on “conservative budgeting assumptions that imply a 14 percent decline in gaming revenues.” Hence, Fitch forecasts a 2018 budget surplus of 7.2 percent.

Still according to Fitch, “adverse shocks could result from an unexpected tightening of visa regulations for mainland Chinese visitors or an end of Macau’s de-jure gaming monopoly across greater China, although this is outside of Fitch’s baseline expectations.” Other risks include “further tightening of capital-account measures in China, or recently adopted anti-money laundering and know-your-customer regulations in Macau.” Fitch says those factors “could have a direct spillover into the territory’s tourism sector, although such measures do not appear to have had a noticeable impact thus far.”
The agency does not believe negotiations on gaming concession licenses ahead of upcoming expiry dates in 2020-2022 pose a risk to the territory’s near-term economic stability. Given that “the existing concessionaries have already exceeded the authorities’ targets to boost the proportion of non-gaming revenues across the sector,” Fitch anticipates the Macau authorities will “link concession renewals with further commitments to support the government’s ongoing diversification efforts.”