Fitch upgrades Macau outlook to stable on gaming recovery, strong fiscal reserves

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Global ratings agency Fitch Ratings is predicting Macaus economy to rebound by 53% in 2021 and budget deficit to narrow to 5% of GDP, aided by expected recovery in gaming tourism due to easing border restrictions.

Fitch on Thursday said it has revised Macaus Long-Term Foreign-Currency Issuer Default Rating (IDR) outlook from negative to stable and affirmed the SARs AA rating following recent signs of recovery, bolstered by its exceptionally strong public and external finances.

Having experienced an unprecedented economic contraction of 56.3% in 2020, Fitch projects the Macau economy to rebound by 53% in 2021, reflecting the agencys assumption of a recovery in gaming revenue to about half of pre-pandemic levels.

It also forecasts the budget deficit will narrow to around 5% of GDP in 2021 as gaming tourism recovers and expenditures are kept under budget.

Macau has a long record of fiscal prudence and remains the only Fitch-rated sovereign without any government debt, it said, noting that Macaus fiscal reserve had reached a very healthy MOP$663.6 billion (US$83 billion) as of February 2021 around seven times higher than budgeted expenditure this year.

Macau recorded its first post-handover fiscal deficit in 2020, equivalent to 22.2% of GDP according to Fitch, but the MOP$46.6 billion (US$5.8 billion) it drew down from the fiscal reserve still accounted for only 8% of total reserves at end-2019.

We expect fiscal buffers to remain considerable over the medium term, providing substantial headroom should the recovery prove more prolonged than our baseline scenario, Fitch said. These strengths have provided significant buffers to mitigate the unprecedented shock from the coronavirus pandemic and anchor macroeconomic stability.

Fitch said that Macaus ratings constraints centered around the SARs narrow economic base and high concentration in gaming tourism from mainland China, combined with susceptibility to potential policy changes that affect Chinas treatment of gaming tourism.

Nevertheless, it forecasts Macaus current account will revert to a surplus of 7.7% of GDP in 2021 following an estimated deficit of 20% of GDP in 2020.