Ratings agency Fitch has affirmed Macau’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at “AA” with a Stable Outlook, citing strong finances, large credit buffers and the likelihood that COVID-19 recovery will accelerate in the back half of 2022.
Under Fitch’s ratings system, “AA” denotes “very strong prospects for ongoing viability” with strong fundamentals such that it is considered highly unlikely banks would have to rely on extraordinary support to avoid default.
In a Thursday note, Fitch said Macau’s ratings are “underpinned by the territory’s exceptionally strong public and external finances, and prudent fiscal management in economic downturns.
“Fitch believes Macau’s key credit buffers will remain large even if the recovery in gaming tourism is more protracted than we anticipate. The ratings are constrained by Macau’s narrow economic base, high tourism concentration from mainland China and the territory’s susceptibility to policy shifts that may affect China’s treatment of gaming tourism.”
The agency predicts the Macau economy to expand by 19% in 2022, based on an assumption that gaming revenue will recover to about 44% of its pre-pandemic level. This is despite the SAR staying in line with China’s zero-COVID policy and concerns that recent outbreaks of the Omicron variant across the mainland could lead to a more volatile trajectory throughout the year.
Macau, Fitch says, is buoyed by fiscal reserves of MOP$643 billion (US$80 billion) at end-2021 with budget deficit tipped to decline to 7.8% of GDP in 2022, from 14.1% in 2021, due to a partial gaming revenue recovery.
“We expect the territory’s fiscal buffers to remain considerable over the medium term,” it said.
“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% of GDP at end-2021.”
While Fitch said it expects authorities will ensure that concession renewals and revisions to the gaming law facilitate the sustainable development of the gaming sector and a rising contribution from non-gaming activities, it remains particularly bullish on gaming recovery in 2H22, “underpinned by a gradual resumption of inbound tourism from mainland China.
“We project growth will accelerate to 24% in 2023, as visitation normalises further. The timeline for full normalisation of mainland tourism and easing of international border restrictions remains uncertain and depends on the further development of the pandemic and containment policies.
“Macau remains well placed to meet pent-up demand from short-haul mainland Chinese tourists once travel impediments are removed.”
RelatedPosts
