Macau growth strong but diversification needed: Moody’s

Macau retains a strong credit rating due its robust growth, large fiscal surpluses and the absence of debt, though its reliance on gaming is a credit constraint, Moody’s Investors Service said in an annual update.

Moody’s gave the Macau government an Aa2 issuer rating, pointing out that while the city’s average growth performance over the last decade has exceeded by a large margin that of sovereigns within the same rating category, Macau’s economy is dependent on a single industry: gaming. 

“Such a reliance is a credit constraint, because the industry is facing increasing headwinds from an ongoing anti-corruption campaign in China (Aa3 stable).”

With more than two-thirds of Macau’s tourist arrivals from the Mainland, where the government’s campaign has dented revenues in Macau and resulted in a contraction in real GDP, if efforts towards economic diversification are successful trends may stabilize to a more sustainable pace over the medium-term, says Moody’s.

The Moody’s report further points out that the small size and lack of diversity in Macau’s economy limits further upward movement in the SAR’s rating in the near future. But, positive rating triggers could occur with greater economic diversification.

The report adds that revenues from gaming have contributed to large fiscal surpluses built over the last decade, and externally, service exports related to gaming have led to sizeable current account surpluses and foreign reserves. 

“These buffers will help the SAR’s credit profile withstand lower revenues in the gaming industry.”