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Fitch Ratings upgrades Macau to AA

Wednesday, 14 February 2018 04:26
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Ratings agency Fitch Ratings has upgraded Macau’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from AA- to AA.

Reflecting on the past 12 months for the Asian gaming hub, Fitch said the upgrade reflects a number of key ratings drivers, including estimated GDP growth of 8.7% in 2017 following three consecutive years of decline.

“The improved growth performance can be attributed largely to a pick-up in gaming activity, though private consumption has also stabilized,” the agency said. “Territory-wide gaming revenues rose by 19% in 2017, after a 3.3% contraction in the year prior.

“Fitch forecasts real GDP growth of 5% in 2018, a view that incorporates a moderation in gaming revenue growth to around 10% and a continuation of ongoing infrastructure initiatives aimed at enhancing the territory’s connectivity and attractiveness as a tourist destination.”

Fitch also estimates that Macau’s fiscal surplus rose to 10% of GDP in 2017, up from 6% a year prior, due to a surge in gaming revenues and continued expenditure restraint. The forecast for 2018 is a surplus of 7.2%, “a view reflective of our more optimistic outlook for gaming revenues this year following a 36% year-on-year increase in January 2018.”

“Fiscal buffers have continued to rise,” Fitch continued.

“Macau is the only Fitch-rated sovereign globally without any outstanding government borrowings, whereas gross general government debt for the AA median grew to an estimated 42% of GDP in 2017. In addition, prudent expenditure management has permitted the accumulation of substantial fiscal buffers. Fitch estimates fiscal reserves were approximately 137% of GDP at end-2017, equivalent to 5.6x the planned 2018 budgetary expenditure.

“A Basic Law requirement that Macao maintain balanced budgets and avoid deficits also provides an important policy anchor to safeguard the territory’s medium-term fiscal sustainability.”

Fitch said it was notable that Macau had maintained fiscal reserves for the past 15 years, even during a decline in gaming revenues between 2014 and 2016. And its balance sheets remain among the strongest of Fitch-rated sovereigns globally.

“The Macau authorities have demonstrated a commitment to fiscal prudence through a period of gaming windfalls and a heavy revenue shock,” it explained. “As a result, the territory’s fiscal and external balance sheets have strengthened to levels that more than offset the significant risks associated with its narrow economic base and concentration on mainland Chinese gaming tourism.”

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