Macao’s recovery is expected to continue in 2022, but it will take time before the economy returns to its pre-crisis level, according to the latest report released by the International Monetary Fund (IMF).
Dated 23 January, the report said that “Although the strong fiscal support and the financial strength of Macao SAR’s casino groups cushioned employment and consumption, the sharp decline in activity exposed Macao SAR’s vulnerabilities to external forces affecting the inflow of tourists.”
According to the IMF there are still short-term risks such as “the re-intensification of the Covid-19 pandemic and increase in the Macao SAR’s financial sector stress.”
“The heavy impact of the pandemic on Macao’s growth highlights the need to diversify the economy beyond the gaming industry. The high exposure to climate-related shocks poses long-term concerns” the report said.
Regarding the pandemic and the impact on the local economy, the report said that “Macao has been hit hard by the Covid-19 crisis, but the strong policy response has helped contain the spread of the virus and soften its economic impact. Strict containment and border control measures helped preserve people’s health and safety. Deploying its large fiscal reserves, the government was able to stabilise employment and consumption.”
The IMF 2022 report considered that “the crisis brought Macao’s overreliance on the gaming sector into sharp relief. The gaming sector – the key growth driver in the past two decades – almost came to a stop as tourist flows dried up. Despite the strong fiscal support and the financial strength of casino groups cushioning employment and consumption, aggregate GDP shrank by 54 per cent in 2020, mostly on the collapse of services exports. This highlights the vulnerability of Macao’s economy to external forces affecting the inflow of tourists, such as travel restrictions related to the pandemic.”
“The economy is estimated to have expanded by 17 per cent in 2021 helped by the partial recovery of the gaming sector. The establishment of a travel corridor lifted quarantine requirements for qualified visitors between Macao and the mainland and breathed life into the gaming sector. However, recurring outbreaks weighed on gaming services in the second half of the year” according to the report.
According to the IMF “the financial sector weathered the pandemic well, but pockets of vulnerability are emerging. The banking system remains well capitalised with solid levels of liquidity and profitability. Capital adequacy is in double digits, and the non-performing loan ratio remains low, in part due to policy support and low exposure to the gaming sector. Household debt to banks, half of which are mortgages, accounts for more than half of banks’ domestic credit.
The external side of banks’ balance sheets has a large exposure to mainland China, while a significant share of foreign liabilities has less than one year maturity, creating funding vulnerabilities.”
The IMF assessment is that Macao’s overall external position remains substantially stronger than warranted by medium-term fundamentals and desirable policies. The current account surplus in 2021 is estimated at less than half of the level observed in 2019 due to the still relatively low tourism receipts, but increased relative to 2020.
The assessment takes into account Macao’s specific circumstances while reflecting the persistent savings-investment gap, driven, in part, by high precautionary savings and subdued investments.
“Macao’s recovery is expected to continue going forward. GDP is projected to grow by 15 per cent in 2022 driven by the gradual return of foreign tourists and the recovery of domestic demand. Boosted by increasing investment linked to the issuance of new gaming concessions and further integration with the Guangdong-Hong Kong-Macao Greater Bay Area, growth is expected to accelerate to 23 per cent in 2023 before gradually converging to its long-term potential of around 3.5 percent over the medium term. However, given the depth of the economic losses during the pandemic, the level of GDP is expected to surpass its pre-crisis level only in 2025. In the absence of rapid progress towards economic diversification, the current account balance is set to return to pre-pandemic levels as tourists return to Macao.”
The report also mentioned the risks Macao faces regarding the pandemic, the gaming industry, the defaults in mainland China’s real estate and the financial sector.
According to the IMF Macao needs to build a stronger economy with new growth engines through economic diversification.