Moody’s affirms Macau outlook, expects non-gaming growth
Ratings agency Moody’s Investors Service on Wednesday affirmed Macau’s government debt issuer rating at “Aa3”, maintaining the “stable” outlook. The ratings agency said the stable outlook reflects the “balanced credit risks” of the Macau government.
“Aa3” is three notches lower than the highest rating in Moody’s scale. According to the agency’s rating definitions, ratings in the “Aa” category refer to high investment grade products, subject to very low credit risk.
Moody’s said that the factors driving the rating affirmation and stable outlook for Macau included: large and growing fiscal and external buffers that continue to provide significant capacity to counter future shocks; and further progress on diversification toward non-gaming activities that will, over time, support less volatile gross domestic product (GDP) growth.
The ratings agency said however that Macau would “remain susceptible to potential economic and policy measures from China that pose risks to its gaming and tourism sectors”.
“On the upside, robust growth on the back of increasing gaming and tourism receipts, supported by the recent opening of the Hong Kong-Zhuhai-Macau bridge, may raise Macau’s fiscal and foreign exchange reserve buffers even more than Moody’s currently expects,” noted Wednesday’s report.
It added: “Diversification into mass-market gaming and non-gaming tourism may be more rapid than currently assumed by Moody’s, lowering the Special Administrative Region’s exposure to shocks to the VIP gaming sector,” it added.
The ratings agency said Macau’s fiscal surpluses were expected to continue to support the accumulation of large fiscal reserves, particularly in the absence of government debt. Fiscal reserve capital amounted to MOP566 billion (US$70 billion) as at end-March 2019, “equal to about seven years’ worth of public expenditure for 2018 or about 130 percent of 2018 GDP,” according to Wednesday’s statement.
Macau’s GDP increased by 4.7 percent year-on-year in real terms for full-year 2018, supported by growth in the city’s gaming industry, showed official data.
Moody’s said it expected “ongoing growth in gaming and associated tax revenue to support further large fiscal surpluses above 10 percent of GDP in the next two years”. It also forecast the current account surplus to remain above 30 percent of GDP in 2019 and 2020, “supported by increasing tourist arrivals and gaming revenues”.
Macau’s casino gross gaming revenue (GGR) tally for the first four months of 2019 stood at nearly MOP99.74 billion, a year-on-year contraction of 2.4 percent, according to official data.
Moody’s said also that the effort to develop the city’s non-gaming offerings would contribute to a more sustainable growth for Macau.
“Rising non-resident spending in areas such as shopping, accommodation and food and drink demonstrates continued growth in non-gaming sectors,” it stated. The ratings agency added that it expected government policies focused on encouraging gaming operators to add more services in leisure, sports and recreation, conventions, exhibitions and cultural experiences to help “attract more mass-market visitors and expand revenue from non-gaming tourism”.
Moody’s said however that the diversification of Macau’s economy “could prove less effective” leaving the city “exposed to shocks, particularly those related to economic, financial and policy developments on the mainland”.
The potential for escalating trade tensions between the United States and China was also mentioned in the report. The agency suggested that any further escalation of the trade tension between the world’s two largest economies “could pose further downside risks to investments by U.S. gaming operators in Macau if they are targeted by retaliatory measures”.
“Moody’s consider these risks as low probability events that would have a high credit impact on Macau,” said the report.
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