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Analyst
Lin Wenjie
linwenjie@dagongcredit.com
Sovereign Credit Rating
Local currency/outlook AA+/stable
Foreign
currency/outlook AA+/stable
Rating time October 2010
Rationale
Dagong assigns “AA+” on both local and foreign currency long term sovereign
credit rating for the Macao SAR of the People’s Republic of China (“Macao”). The
ratings are based on the overall evaluation of its improving government
management capability, its favorable economic prospects，as well as the sound
fiscal and foreign exchange strengths.
Macao government has no debt burden.
Moreover, it is almost unlikely for the Macao government to maintain any debt in
the short to medium term, in light of the repeated expansion of its scale of
government net assets and expected continuous surplus of balance of payment in
the future period.
Macao government has strong debt repayment capability, as
they are shown in the following aspects:
Government management capability is
growing. Macao is in a stable political and social environment, and since PRC
resumed the exercise of sovereignty over Macao, Macao government has run the
region actively, and promoted the rapid development of the local economy.
However, many new problems have emerged during this transition period, and
government needs to further improve its management capability to meet any new
challenges;
Since 2000，changes in economic structures, which is marked by the boom of the
casino and tourist industry, has brought about sustained rapid economic growth
of Macao. After the global financial crisis in 2008, supported by the good
economic development in Asia-pacific region, especially in mainland China,
Macao’s economy has moved into a rapid recovery track, which is expected to
continue in the future. However, Macao’ economy showed some vulnerability
because of its high dependence on the casino industry and external economic
environment;
In recent years, rapid development and improvement of efficiency and
soundness of the banking sector not only have helped maintain the overall
stability of the financial system, but also supported the growth of the real
economy;
The basis of government finance and foreign exchange operation is sound.
Macao has maintained large scale of fiscal surplus for many years and has
accumulated large amount of net assets, which can ensure the strong financial
strength of Macao government. Its sustained current account surplus, high
foreign exchange reserves, and large net external financial assets can all fully
guarantee the foreign exchange strength.
Outlook
The improvement of external economic environment has driven rapid recovery of
Macao’ casino and tourist industry, and Macao’s economy has experienced
continuous rapid growth since the third quarter 2009. Dagong expects the trend
of rapid growth of the casino and tourist industry will continue, given the fact
that the external economic situation is less likely to deteriorate sharply again
in the next 1 to 2 years despite the existing uncertainties. In this context,
the economic scale, fiscal revenue and export earnings will continue to expand.
In addition, the good prospects of economic development in mainland China will
provide favorable external environment in the foreseeable future. Therefore,
Dagong keeps a stable outlook for Macao government’s local and foreign currency
sovereign credit rating in the next 1-2 years.
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