Moody’s Investors Service has changed the outlook on the Macau Special Administrative Region (SAR) government to ‘negative’ from ‘stable’, while keeping the region’s foreign currency issuer ratings at “Aa3”, indicating a very low credit risk of default. The Wednesday announcement follows Moody’s outlook change on the government of China’s “A1” rating to ‘negative’ from ‘stable’.
“The change in Macau’s rating outlook to negative reflects Moody’s assessment of tight political, institutional, economic and financial linkages between Macau and the mainland which keep the rating gap between the SAR and China no wider than one notch,” stated the ratings agency.
“The negative outlook on China’s rating therefore implies a negative outlook on Macau’s rating,” it added.
In a statement on Wednesday evening, the Macau government said it disagreed with the change on outlook announced by Moody’s.
The statement by the Monetary Authority of Macau (AMCM) pointed out that China’s macro-economy “continues to recover”, with a “high-quality development steadily advancing”.
“China’s economy will maintain its upward momentum, and China will remain an important engine for stable growth of the world economy,” said the AMCM, adding that the “long-term positive fundamentals” of the country’s economy “have not changed”.
The AMCM stated: “Macau’s close economic ties with mainland China provide strong support for Macau’s long-term development.”
It added: “The real growth of the mainland economy in the first three quarters of 2023 still reached 5.2 percent, which will have a positive impact on Macau’s external demand.”
The statement also observed that the Macau government continued to adhere to “prudent fiscal management”, and that its “abundant fiscal and foreign exchange reserves” had given the government “a strong ability to respond to and withstand external risks”.
The move on Wednesday followed a similar change by Moody’s on the outlook for China, it the agency saying costs to bail out loca governments and state firms and control its property crisis could weigh on the nation’s economy. The ratings agency also downgraded the credit outlook for Hong Kong to ‘negative’.
Regarding Macau, Moody’s stated that the city’s tourism and gaming sectors were “heavily dependent on China, while its banking system is similarly exposed to cross-border claims to the mainland”.
“At the same time, tighter political and institutional linkages have become more evident in recent years,” it added.
The affirmation of the “Aa3” rating reflected Moody’s assessment that Macau “retains formidable credit strengths, including very high per capita income and the absence of outstanding government debt”.
It added: “Moreover, its large fiscal and external reserves provide the economy with very strong buffers to absorb shocks and negative long-term trends including the structural slowdown in mainland China’s economy.”
