Fitch Ratings Inc says that Macau’s “sustained economic diversification away from the gaming industry” could lead to “positive rating action or upgrade” to its sovereign rating. The commentary was part of a Friday report in which the institution affirmed Macau’s long-term issuer default rating at “AA”, with a “stable” outlook.
In its latest report on Macau, a special administrative region of China, Fitch analysts George Xu, Jeremy Zook and Jan Friederich wrote: “Macau’s economy is highly dependent on mainland China, but its ‘AA’ rating remains underpinned by the territory’s exceptionally strong public and external finances, and demonstrated fiscal prudence even during periods of economic and gaming revenue shocks.”
“The rating is constrained by Macau’s narrow economic base, high concentration on gaming tourists from mainland China, and vulnerability to policy shifts that may affect China’s treatment of gaming tourism,” they added.
In March, Fitch said it expected Macau’s economic growth to be about “15 percent” year-on-year in 2024, on assumption that the city’s casino gross gaming revenue (GGR) recovers to 79.5 percent of 2019’s, compared to 62.6 percent of pre-pandemic level in 2023.
Macau casino operators’ non-gaming investment pledges under their respective 10-year concession term, along with the growth in the city’s inbound tourism business, are expected to bolster the city’s economic and gaming outlook, according to the ratings agency.
The Macau government has anticipated a fiscal surplus for 2024, and estimated the city’s casino GGR to reach MOP216.0 billion (US$26.80 billion) in the full year.
Fitch also said that the affirmation of Macau’s rating “reflects our assessment that the key drivers behind the 10 April revision of our outlook on China’s ‘A+’ rating to negative are not sufficiently material to the credit profile of Macau”.
The institution downgraded its outlook on China’s credit rating on Tuesday, citing increasing risks to the country’s finances as it faces economic challenges.
“The China outlook revision reflects increasing risks to the public finance outlook, as the country contends with more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model,” noted Fitch in its Friday report.
In December, Moody’s Investors Service changed the outlook on the Macau 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 announcement followed Moody’s outlook change on the government of China’s “A1” rating to “negative” from “stable”.
