Ratings agency Moody’s Investors Service says the ongoing slowdown in gaming revenue in Macau is unlikely to cause any significant harm to the credit profile of the city’s government in the short- to medium-term.
“Revenues from gaming have contributed to large fiscal surpluses built over the last decade, and externally, service exports related to gaming have led to sizeable current account surpluses and foreign reserves,” the rating agency noted in a report issued on July 3. “These buffers will help the [city’s] credit profile withstand lower revenues in the gaming industry,” it added.
In its report, Moody’s however warned that a potential “prolonged shock to the gaming industry” could lead to “government budget deficits, a fall in reserves and a resort to debt”. However, the likelihood that the city would accumulate debt represents “only a long-term risk”, the ratings agency stated.
Gross gaming revenue (GGR) in Macau has dropped for 13 consecutive months measured in year-on-year terms, and the majority of investment analysts that have commented on the issue expects the downturn to continue at least in the near term.
Macau is one of only two Moody’s-rated governments with no debt. However, the ratings agency noted in its latest report that the city’s economy is dependent on a single industry: gaming.
“Such a reliance is a credit constraint, because the industry is facing increasing headwinds from an ongoing anti-corruption campaign in China,” it stated.
The report from Moody’s added: “More than two-thirds of Macau’s tourist arrivals are from the Mainland. China’s campaign has dented revenues in Macau and resulted in a contraction in real gross domestic product. This contraction will likely continue over the near-term, as policymakers adjust to a slowdown in the gaming industry. However, trends may stabilise to a more sustainable pace over the medium-term, if efforts towards economic diversification are successful.”
Moody’s maintained an Aa2 credit rating for the Macau government.
The drop in GGR is already reducing the Macau government’s fiscal surplus. It declined by 54.9 percent year-on-year in the first five months of 2015. The city’s authorities collected a total of MOP38.45 billion (US$4.82 billion) in direct taxes from gaming during the January to May period, down by 35.4 percent year-on-year, according to data disclosed earlier this month by Macau’s Financial Services Bureau.
The gaming industry is the major source of Macau’s fiscal revenues. The government levies an effective tax rate of 39 percent on casino GGR – 35 percent in direct government tax, and the remainder in a number of levies to pay for a range of community good causes.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China