Moody’s Investors Service Inc says the drop in gaming revenues in Macau is a credit negative for the government, given the gaming industry’s “central role in public financing”.
“The gaming industry comprises nearly half of the economy, and is critical to its overall health,” Moody’s said in a report on Monday.
“Although the sector’s rapid expansion has underpinned exceptionally strong economic growth performance, with real GDP [gross domestic product] growth averaging 14.3 percent over 2009-13, the narrowness of Macau’s economic base poses a high degree of vulnerability to adverse developments in the gaming industry,” it added.
Despite these reservations, Moody’s maintained an Aa2 credit rating for the Macau government that it had previously assigned in March 2014, and maintained the outlook as “stable” .
Macau’s casino regulator on January 2 reported that gross gaming revenue (GGR) for 2014 fell 2.6 percent year-on-year to MOP351.52 billion (US$44.0 billion), following a 30 percent year-on-year decline in December.
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.
In the first 11 months of 2014, the Macau government collected MOP120.2 billion in direct tax from its share of GGR, accounting for 82.4 percent of the government’s total revenues, according to official data. Direct taxes from gaming have constituted more than 80 percent of the Macau government’s total revenues since 2010, up from 50 percent in 2002, said Moody’s.
“Revenues will likely remain under pressure as the gaming industry matures and as long as China’s anti-graft campaign continues,” said the ratings agency.
Macau’s Secretary for Economy and Finance Lionel Leong Vai Tac last week said that the city’s GGR was unlikely to return to year-on-year expansion until the second half of 2015.
“Although lower revenues from the gaming sector will dent Macau’s economy and public finances, its substantial financial assets, lack of general government debt and high foreign reserves provide it with sufficient buffer,” Moody’s noted on Monday.
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings