Fitch Ratings yesterday praised Macau’s “strong fiscal and external buffers, exceptionally strong public and external finances, and prudent fiscal management in economic downturns.”
The ratings agency headquartered in New York made the upbeat remarks in its “rating action commentary” that affirmed Macau’s long-term foreign-currency issuer default rating (DRI) at “’AA’ with a Stable Outlook”.
The agency said it believed that “Macau’s key credit buffers will remain large even if the recovery in gaming tourism is more protracted than we anticipate.”
However, Fitch acknowledged that “the ratings are constrained by Macau’s narrow economic base, high tourism concentration from mainland China (A+/Stable), and the territory’s susceptibility to policy shifts that may affect [the central government’s] treatment of gaming tourism.”
The agency forecast that Macau’s gross domestic product (GDP) will expand by 19 percent this year, based on the assumption that gaming revenue will recover to about 44 percent of its pre-pandemic level.
“We expect the territory to maintain its ‘zero-COVID’ strategy in line with mainland China – the dominant tourism source market – to prioritise the return of mainland tourists,” the agency said, adding that “the recent COVID-19 Omicron variant flare-ups in parts of mainland China and precautionary travel restrictions point to a more volatile near-term visitation recovery trajectory.”
Fitch also said that the gaming tourism recovery should pick up momentum in the second half of this year, underpinned by a gradual resumption of inbound tourism from mainland China.
“We project growth will accelerate to 24 percent in 2023, as visitation normalises further,” the agency said, adding, “We believe the authorities will ensure that [gaming] concession renewals and revisions of the gaming law [will] facilitate the sustainable development of the gaming sector and a rising contribution from non-gaming activities.”
Fitch also said that the casino sector’s “VIP gaming segment in particular would remain sensitive to regulatory changes in Macau or mainland China.”
The agency cautioned that progress concerning the Macau-Hengqin In-depth Cooperation Zone “is unlikely to be sufficient to reduce the territory’s dependence on the gaming industry in the near term.”
Fitch forecast that Macau’s budget deficit will decline to 7.8 percent of GDP this year from 14.1 percent last year, due to a partial gaming revenue recovery.
The statement underlined that “Macau is the only entity in Fitch’s global sovereign portfolio without any outstanding government debt, which puts it well below the ‘AA’ median of 46.9 percent of GDP at end-2021.”
The statement also pointed out that “Macau’s external finances are among the strongest across Fitch-rated sovereigns [emphasis added].
“We forecast the current account surplus will widen to 15.6 percent of GDP in 2022, and 23.4 percent in 2023, as the gaming sector recovers.
“We project sovereign net foreign assets (SNFA) at 300 percent of GDP in 2022, and for the territory to remain a large net external creditor (269 percent of GDP), both well above the ‘AA’ median.”
Fitch also praised Macau for its political stability and rights, and for the rule of law, institutional and regulatory quality, and control of corruption.”
Fitch Ratings logo and slogan courtesy of BestLifeRates
