Fitch Ratings predicts nearly 50 pct economic rebound for Macau, buoyed by GGR recovery

The prediction was made after taking into consideration the city’s gross gaming revenue, which Fitch Ratings said could recover to “about half of the 2019 level” in 2023 – buoyed by a number of optimistic factors, such as a removal of pandemic curbs in January and a subsequent return of tourists on package tours the next month which will address manpower shortages.

“Macao is well placed to capture strong pent-up demand from mainland tourists, given its status as the sole legal gaming tourism destination across Greater China and its geographic proximity to the mainland,” Fitch said in a statement.

While close scrutiny of junket operators is to remain for the foreseeable future, Fitch expects the mass-market segment will remain a driver of gaming revenues this year.

According to the city’s gaming watchdog, contributions from mass-market gamblers and slot machines accounted for 76 per cent of the total in 2022.

Strong public finances

Macau recorded a budget deficit for the fourth consecutive year in 2022, with some MOP35.6 billion (USD4.41 billion) earmarked for plugging financial gaps.

Fitch expects the city’s budget deficit to decline from 35.5 per cent of GDP last year to 10.5 per cent of GDP in 2023.

“The strength of the city’s public finances remains largely intact, with the narrower deficit in 2023 mainly reflecting a surge in gaming revenue collection and an unwinding of pandemic-related relief measures,” the credit rating agency said.

The deficit was forecast to fall further – to 1.9 per cent of GDP next year thanks to buoyant gaming revenue and expenditure restraint.

“We expect Macao’s fiscal reserves to remain sizeable, equivalent to about 5x our projected 2023 budget expenditure,” it added.

Fitch also believes that the city will maintain its large net external creditor position – at 262% of GDP in 2023. “We expect the territory’s sovereign net foreign assets to remain well above the peer median at roughly 297 per cent of GDP,” it said.

Non-gaming developments a long way off

In pursuit of an economy less dependent on gambling by order of Beijing, Macau’s six casino operators pledged early this year an aggregate investment of MOP118.8 billion in non-gaming entertainment and family-friendly attractions under the watchful eyes of local authorities.

However, the credit rating agency believes that a more economically diverse Macau will take root at a slow pace.  “Human capital constraints and skill gaps pose a key challenge for Macao to substantially reduce its high dependence on the gaming industry,” Fitch explained.

It agrees with the notion that financial integration with the Greater Bay Area and closer collaboration with partners in mainland China are the only way forward.

“We expect integration with mainland China will lead to a stronger role in policymaking for the central government and a gradual convergence of governance and institutional management practices with mainland China,” it added.

By Aries Un