Gaming Dependence Exposes Macau Economic Vulnerabilities, Says Fitch

Posted on: April 21, 2020, 09:34h. 

Last updated on: April 21, 2020, 10:31h.

As gaming cash dries up and visitation to the Special Administrative Region (SAR) remains scant, Macau is vulnerable to significant economic turbulence due to its dependence on casino revenue, says Fitch Ratings.

Fitch Says Macau Too Dependent On Gaming
Macau is too dependent on gaming money, putting its economy at risk, says Fitch. (Image: Nikkei Asian Review)

The research firm affirmed the SAR’s credit rating at AA – one of the highest investment-grade marks – but did so with a “negative” outlook, while forecasting a massive contraction for the local economy this year because of the coronavirus pandemic.

Macau’s concentration on gaming tourism exposes its economy to substantial disruptions from lockdown measures imposed to contain the coronavirus pandemic,” said the credit rater in a note obtained by “As a result, Fitch expects Macau to experience a much deeper economic contraction in 2020 than other ‘AA’ rated peers whose economies are less dependent on tourism.”

The lone Chinese territory where gambling is legal depends on gaming and related tourism to drive roughly 80 percent of annual government receipts, putting it in a tenuous spot at a time when analysts and operators have little visibility regarding when business will return to pre-virus levels.

Significant Shrinkage

With gross gaming revenue (GGR) already tumbling and widely expected to post one of the worst annual performances on record this year, Macau’s economy will shrink for a second consecutive year. But this year’s decline will likely be jaw-dropping.

“Fitch projects Macau’s economy will shrink for a second year by 24% in 2020, based on our assumption for a drop in gross gaming revenue of roughly 40%, after a 4.7% contraction in 2019,” said the ratings agency. “Macau’s overwhelming dependence on gaming tourism constitutes one of its principal rating constraints. Macau is one of the world’s biggest gaming tourism hubs.”

Gaming accounts for more than half of the peninsula’s economic output and 22 percent of employment. With license renewal discussions expected to commence later this year, operators are unlikely to lay off workers, although many are bleeding millions of dollars per day just to keep casinos open for a sparse number of gamblers.

Some Good News

Fitch echoes the sentiment that Macau GGR could bounce back next year, while highlighting the SAR’s strong fiscal position, which includes no debt.

“Fitch expects fiscal buffers to remain considerable in the medium term. Macau remains the only Fitch-rated sovereign without any government debt, whereas general government debt for the ‘AA’ median stood at 40% of GDP in 2019,” said the research firm.

While the government there is resisting a second round of integrated resort closures following a 15-day shutdown in February, the SAR needs to diversify its economy, particularly as output on mainland China – the peninsula’s primary source of gamblers – declines.

“Macau could benefit from a moderate economic diversification from the gaming industry and a shift towards a more stable growth model over time,” said Fitch. “At the same time, Macau remains susceptible to potential changes in China’s broader policy environment.”