Moody's Investors Service says that Macao continues to show rapid economic growth, large fiscal surpluses, increasing levels of fiscal reserves, as well as a very strong balance of payments and external financial position.
Thanks to the booming gaming industry, which attracts a large number of visitors from neighboring Mainland China and Hong Kong, Macao's economy has averaged close to 14% annual growth over the past decade. This development has, in turn contributed to the large fiscal surpluses the special administrative region has posted over the same period, increasing the government's financial assets.
Moody's notes that these factors were behind its decision on 2 March to upgrade Macao's ratings to Aa2 with a stable outlook. Moody's conclusions were contained in its just-released credit analysis, titled "Macao" and which examines the territory's credit profile in four categories: economic strength, which is assessed as "very high (-)"; institutional strength "high (+)"; fiscal strength "very high(+)"; and susceptibility to event risk "low (-)".
The report constitutes an annual update to investors and is not a rating action.
Although gaming has been beneficial to Macao's economy and finances -- helping it consistently expand faster than its rating peers for over a decade -- dependence on a single industry for the great majority of government revenue and economic activity is also a constraint on the rating. Few other governments -- aside from most notably oil exporters in the Gulf and elsewhere -- rely so heavily on a single source of revenue, and further upward rating movement is unlikely in the near term, the report notes.
Over the long term, risks to Macao's ratings could develop if there were an unforeseen shock that affected the gaming industry -- with which most other sectors of the economy are linked -- and the government's revenues from that source.
But, the strength of visitor arrivals and their upward trend in recent years indicate the low probability of such a shock.Macao's rating could also be affected by downward movement of China's rating, as the special administrative region, while insulated to some degree against shocks, is nonetheless closely linked to China both economically and politically.
Political risk in Macao is assessed to be very low, notes the report. Domestically, although there have been demonstrations to voice some discontent that the ongoing economic boom does not benefit all sectors of the population, authorities have made efforts to address these concerns.