Moody’s downgrades outlook for Macau ratings

Because of Macau SAR’s close ties to China, which has also seen a downgrading, Moody’s Investors Service has reduced the city’s ratings from stable to negative.

The downgrade is in line with Moody’s assessment of the “tight political, institutional, economic, and financial linkages between Macau and the mainland,” which maintains the one-notch rating gap between the SAR and China.

Because Macau has a sizable tourism and casino industry and because its financial system is susceptible to cross-border claims to the mainland, Moody’s highlighted the extent of Macau’s dependence on China. Deeper institutional and political linkages have developed recently, even though Macau’s policy autonomy has generally been preserved under the tenet of “One Country, Two Systems.”

While Macau’s Aa3 credit rating was affirmed by Moody’s, the SAR is seen to possess important credit attributes such as a very high per capita income and no outstanding government debt. Large fiscal and external reserves in Macau provide the economy with robust buffers against long-term negative trends like the structural slump in mainland China.

The agency expects Macau’s fiscal buffers to be large and ample for the next few to several years. On the other hand, if Macau’s growth prospects worsen, there’s a chance that these buffers may eventually disintegrate. Fiscal and current account balances might be negatively impacted by less economic activity, especially in the casino sector, which would reduce government revenue and service exports. Reducing expenditures or significantly diversifying the SAR’s economy are two examples of mitigants that might lessen these dangers.

Related Article About: Moody’s Investors Service

Original story by: IAG