Ratings agency Fitch has affirmed Macau’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at “AA” with a Stable Outlook, citing the city’s strong financial position and fiscal prudence during periods of “economic and gaming revenue shocks”. The agency also outlined its expectation that the Macau gaming industry will continue recovering in 2024 with GGR tipped to reach almost 80% of pre-COVID levels.
Under the Fitch ratings system, “AA” is the second highest rating possible – denoting very low default risk and very strong capacity for payment of financial commitments which is not significantly vulnerable to foreseeable events.
The fact Macau has not moved to the top “AAA” rating reflects the territory’s “narrow economic base, high concentration on gaming tourists from mainland China and vulnerability to policy shifts that may affect China’s treatment of gaming tourism, it said.
In a Friday note, Fitch predicted that Macau’s gaming revenues will grow by 15% year-on-year in 2024, bolstered by a further rise in inbound tourism and gaming operators’ non-gaming investments as part of their mandate across their decade-long concession term through 2033.
“We anticipate Macau’s recovery momentum will be underpinned by the expansion of the Individual Visit Scheme to cover more mainland Chinese cities and the government’s promotion of various mega events to meet shifting Chinese consumer preferences,” Fitch said.
“A sharper slowdown in China is a key downside risk to Macau’s economic and gaming recovery prospects … [however] Fitch expects the mass-market segment will continue to drive GGR recovery on buoyant tourist inflows.”
According to the agency, Macau’s budget will also return to a surplus of 3.8% of GDP in 2024 – its first surplus since 2020 – and exceed the government’s 0.3% projected surplus on higher gaming revenues than the government has budgeted.
As such, fiscal buffers – currently equivalent to roughly 6x of Macau’s projected expenditure for 2024 – will remain “considerable and a key credit strength”.
Macau, Fitch noted, is the only entity in its global sovereign portfolio without any outstanding government debt, compared with median debt of 50.6% of GDP for all “AA” rated entities as of end-2023.
Some challenges remain, however, particularly in regard to the government’s plan to diversify by requiring gaming concessionaires to heavily invest in more non-gaming offerings.
“The multi-year plan aims to facilitate a variety of integrated tourism and non-gaming offerings in pursuit of more sustainable sources of growth,” Fitch said. “We see implementation challenges remaining for the government to effectively tackle human capital constraints and skill mismatches to enhance the territory’s competitive edge in the nascent non-gaming industries.”
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