IMF commends region’s economic resilience

Christine Lagarde, managing director of the International Monetary Fund

The International Monetary Fund (IMF) concluded the 2016 Article IV Consultation with the Macau SAR and published its Staff Report yesterday, Macau time, reinforcing the preliminary assessment released in November last year.

The Staff Report commended Macau’s financial institutions for their strength, particularly those in the local banking sector.

It concluded that “the sharp fall in exports [following the gaming slump] led output to fall by one-third in cumulative terms, but the spillovers to the broader economy were surprisingly limited.”

“Unemployment has remained below 2 percent, median real wages have stabilized but remained up 7 percent over end-2014 levels and non-performing loans in the financial sector continue to hover around zero,” the report continued.

The report also noted the city’s resilience to the gaming recession that began in 2014, and suggested that the economic decline was past its worst.

“The primary source of this resilience is that even though average spending per tourist fell sharply, the number of tourists was basically stable, keeping capacity utilization relatively high. As a result, most of the contraction in revenues was absorbed in the form of lower extraordinary profits rather than reduced employment,” concluded the IMF.

The IMF added that “due to high taxes on the gaming sector and discipline in public spending, Macau SAR has zero gross public debt and fiscal reserves equal to 95 percent of GDP [… and] after 15 years of double-digit current account surpluses, foreign exchange reserves are roughly USD19 billion,” which is roughly equivalent to about 180 percent of GDP at the end of 2015.

These strong buffers could continue to underpin Macau’s transition to a new and more diversified economic model the IMF proposed, which supports the government’s prudent fiscal policy.

To complement the report published yesterday, the Monetary Authority of Macau published a statement which noted that “there is no clear need to loosen macroprudential regulations.” The assertion was in relation to the economy as a whole but was particularly directed at the real estate market and the banking sector.

As for the IMF’s economic outlook for the MSAR, the mission concluded that Macau’s economy had largely bottomed out. It therefore revised its growth forecast for 2017 from 0.2 percent to 2.8 percent, adding that the city is well-positioned to achieve stable growth in the medium term.

“In the medium term, Macau SAR is well- positioned to record relatively stable growth in the low to mid-single digits,” the IMF concluded. “That said, the narrow export base will leave the Macau SAR vulnerable to shocks, particularly with respect to a sharp slowdown in the Mainland or policy changes that affect Chinese resident’s ability to spend money abroad.”

Under Article IV of the IMF’s Article of Agreement, the international organization holds bilateral macroeconomic discussions with individual members on a regular basis.

The discussions involve a staff team visiting the member country to collect economic and financial information and to discuss the country’s economic development and policies with officials. A report is subsequently prepared which forms the basis for discussion and conclusion by the IMF Executive Board. Separate consultations are held for Macau, Hong Kong and mainland China.

An IMF preliminary assessment of the state of Macau’s economy was released to the public in November last year, following a 12-day visit that ended on November 14.

The assessment praised the local government’s attempts to diversify the economy “toward an economic model with less volatile and more sustainable sources of income” and concluded that the city’s “medium-term outlook remains strong.”