Fitch Ratings has praised Macao’s “strong fiscal and external buffers, exceptionally strong public and external finances, and prudent fiscal management in economic downturns.”
The New York-based ratings agency made the upbeat remarks in its “rating action commentary” that affirmed Macao’s long-term foreign-currency issuer default rating at “AA with a Stable Outlook”.
The agency said it believed that “Macao’s key credit buffers will remain large even if the recovery in gaming tourism is more protracted than we anticipate.”
However, Fitch acknowledged that “the ratings are constrained by Macao’s narrow economic base, high tourism concentration from mainland China (A+/Stable), and the territory’s susceptibility to policy shifts that may affect [the central government’s] treatment of gaming tourism.”
The agency forecast that Macao’s gross domestic product (GDP) will expand by 19 per cent this year, based on the assumption that gaming revenue will recover to about 44 per cent of its pre-pandemic level.
“We expect the territory to maintain its ‘zero-Covid’ strategy in line with mainland China – the dominant tourism source market – to prioritise the return of mainland tourists,” the agency said, adding that “the recent Covid-19 Omicron variant flare-ups in parts of mainland China and precautionary travel restrictions point to a more volatile near-term visitation recovery trajectory.”
Fitch also said that the gaming tourism recovery should pick up momentum in the second half of this year, underpinned by a gradual resumption of inbound tourism from mainland China.
“We project growth will accelerate to 24 per cent in 2023, as visitation normalises further,” the agency said, adding, “We believe the authorities will ensure that [gaming] concession renewals and revisions of the gaming law [will] facilitate the sustainable development of the gaming sector and a rising contribution from non-gaming activities.”
Fitch also said that the casino sector’s “VIP gaming segment in particular would remain sensitive to regulatory changes in Macao or mainland China.”
The agency cautioned that progress concerning the Macao-Hengqin Intensive Cooperation Zone “is unlikely to be sufficient to reduce the territory’s dependence on the gaming industry in the near term.”
Fitch forecast that Macao’s budget deficit will decline to 7.8 per cent of GDP this year from 14.1 per cent last year, due to a partial gaming revenue recovery.
Fitch underlined that “Macao is the only entity in Fitch’s global sovereign portfolio without any outstanding government debt, which puts it well below the ‘AA’ median of 46.9 per cent of GDP at end-2021.”
Fitch also pointed out that “Macao’s external finances are among the strongest across Fitch-rated sovereigns.
“We forecast the current account surplus will widen to 15.6 per cent of GDP in 2022, and 23.4 per cent in 2023, as the gaming sector recovers.
“We project sovereign net foreign assets (SNFA) at 300 per cent of GDP in 2022, and for the territory to remain a large net external creditor (269 per cent of GDP), both well above the ‘AA’ median.”