Moody's Maintains Aa3 Rating, Stable Outlook on Macao

Moody's Investors Service says that the outlook for Macao's Aa3 foreign and local currency ratings remains stable.


Macao's Aa3 rating is supported by a high degree of economic resiliency, very high government financial strength, and low susceptibility to event risk. These conclusions were outlined in Moody's annual Credit Analysis on Macao.


Despite the small scale of the Special Administrative Region (SAR) economy and its high dependence on a single\industry, its resiliency has been demonstrated by the very high economic growth rates recorded over the past decade, which have underpinned government finances and brought per capita income to a very high level.


Macao had an economy of $43.6 billion in 2012 and real GDP growth that averaged 14% over the last ten years. The SAR's current account surplus has averaged 31% of GDP since 2002. It reached 46% of GDP in 2011 as service receipts from the tourism sector continued to rise.


Moody's expects growth to moderate to single-digit figures in the coming years, supported by investments geared to the gaming sector.


However, Macao's economy remains vulnerable to external shocks in the form of fewer tourists visiting the country as well as competition in the gaming sector from other Asian destinations.


Macao's institutional strength is assessed as "high" based on the framework set by the Basic Law; relative to other sovereigns rated Aa by Moody's, Macao scores highly on regulatory quality and government effectiveness, while it is lower on control of corruption, rule of law and political stability.


Macao's government financial strength is deemed "very high," underpinned by the government's lack of debt -- the only such case out of the 119 governments rated by Moody's -- and large fiscal reserves.


Since 2000, Macao has posted fiscal surpluses every year.


Its surpluses averaged 21.7% of GDP over the past five years, which is significantly higher than any of its Aa- rated peers.


Expected further large fiscal surpluses indicate that the government will continue to add to its stock of financial assets, obviating any need to issue debt.


Macao's fiscal indicators and strong financial position -- including a banking system that is a large external creditor -- are stronger than most rating peers and could indicate a higher rating.


However, the SAR faces event risks that constrain the rating. First, as a region of China, Macao is exposed to events in the Mainland -- China's rating is also Aa3. Second, a major downturn in the gaming industry constitutes another risk, as the great majority of government revenue comes from that industry.


However, the Chinese government has shown its interest in maintaining the health of Macao's economy, even though it indicated that some diversification away from gaming is desirable.


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