Moody’s Investors Service, an international credit rating agency, disseminated its annual credit analysis on Macau this week, finding that the territory’s government has a “stable” rating outlook at “Aa3”, due to the absence of public debt and consistent fiscal surpluses. It said that such factors were conducive to the build-up of large fiscal reserves.
The stable outlook is related to the perceived ability of the Macau SAR government to use its reserves as protection against sudden external shocks. “Such shocks would likely stem from economic, financial and policy developments in China,” the company wrote in a statement this week.
“For example, a further tightening of China’s anti-corruption crackdown and/or the introduction of gambling on the mainland would weaken gaming and tourism in Macau,” the statement continued. “As a small, open and concentrated economy, Macau’s GDP growth will remain volatile.”
Nevertheless, the credit rating agency said it expects Macau’s growth recovery to extend over the next two to three years on the back of growing gaming and non-gaming tourism.
Moody’s used four categories to assess credit stability in Macau: Economic strength, which Moody’s assessed as “moderate”; institutional strength “moderate (+)”; fiscal strength “very high (+)”; and susceptibility to event risk “low”.
This year’s rating marks no change from 2017, and a slight improvement on the Aa3 “negative” rating found the year before. Aa3 is three notches lower than the highest possible rating. Ratings in the “Aa” category are high investment grade and are subject to very low credit risk.
Moody’s could upgrade the rating upon evidence that the government’s diversification plans — such as the expansion of non-gaming activities through family-oriented integrated resorts — are delivering stronger and more resilient GDP growth over a longer period of time than Moody’s currently expects.
Conversely, the rating would come under downward pressure from a new economic recession that erodes the government’s fiscal buffers, Moody’s said, warning that such a circumstance “would likely stem from Macau’s strong financial, economic and political linkages with China.”
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