Moody’s Investors Service has downgraded the outlook for the Macau SAR’s ratings from stable to negative, citing its close ties to China which has been given a similar downgrade.
In a Wednesday note, Moody’s said it downgraded the Government of China’s A1 rating from stable to negative due to its weakening economy and therefore downgraded Macau as well. The change in Macau’s rating outlook reflects, Moody’s explained, its assessment of “tight political, institutional, economic and financial linkages between Macau and the mainland which keep the rating gap between the SAR and China no wider than one notch.”
In particular Moody’s said that Macau’s “large tourism and gaming sectors are heavily dependent on China, while its banking system is similarly exposed to cross-border claims to the mainland. At the same time, tighter political and institutional linkages have become more evident in recent years, notwithstanding the broad retention of Macau’s policy autonomy under the principle of ‘One Country, Two Systems’.”
The ratings agency has, however, affirmed Macau’s Aa3 rating, reflecting its assessment that the SAR retains formidable credit strengths, including very high per capita income and the absence of outstanding government debt.
“Moreover, its large fiscal and external reserves provide the economy with very strong buffers to absorb shocks and negative long-term trends including the structural slowdown in mainland China’s economy,” Moody’s said.
Macau’s fiscal reserves amounted to MOP$569 billion as of July 2023, equivalent to between five and six times of budgeted expenditure.
“Moody’s expects Macau’s fiscal buffers to remain large and ample over the near to medium term,” the agency wrote.
“However, there are risks that Macau’s currently very large fiscal and external buffers may erode over time, should Macau’s growth prospects weaken. In particular, weaker economic activity, especially in the gaming sector, would lead to lower government revenue and services exports, undermining fiscal and current account surpluses in the absence of mitigants such as expenditure restraint or a material diversification of the SAR’s economic structure.”
RelatedPosts
