The International Monetary Fund (IMF) concluded the 2016 Article IV Consultation with Macao Special Administrative Region (Macao SAR) and published its Staff Report today (14 February, 2017, US time; 15 February, 2017, Macao time). This comprehensive report reinforces the IMF Staff Mission’s preliminary assessment of Macao’s macroeconomic and financial positions in the end-of mission statement released by the IMF on 15 November, 2016.
The IMF Mission commended Macao SAR’s strengthening fiscal and external financial positions, credible linked exchange rate system, strong financial system, and remarkable macroeconomic resilience. Macao SAR is entering a transition to a more diversified economic model from a position of strength with large fiscal and external buffers. On economic outlook, the Mission concluded that the SAR economy had bottomed out and upwardly revised its forecast to 2.8% for 2017 from its previous forecast of 0.2%. Macao SAR is well-positioned to achieve relatively stable growth of low to mid-single digits in the medium term.
The IMF recognised a strengthening position of Macao SAR’s fiscal and external financial buffers. On the fiscal side, the SAR has zero gross public debt and sizable Fiscal Reserve, due mainly to the Macao SAR Government’s prudent fiscal policy. On the external financial front, the SAR is a net foreign creditor. The Mission estimated that Macao SAR’s net foreign assets were equivalent to about 280% of GDP at end-2015. As a result, the Mission concluded that these buffers would continue to underpin Macao SAR for a transition to a new and more diversified economic model.
The Mission concurred the SAR Government’s plan to diversify the sources of economic growth over the medium term, sensibly via setting three types of diversification objectives: 1) from high-end VIP gaming business to mass-market gaming business, 2) from gaming tourism to non-gaming tourism and 3) from tourism to financial services.
The IMF reaffirmed its support for the linked exchange rate between the MOP and the HKD under a credible currency board regime, which continues to serve Macao SAR well. The success of the currency board is in large part due to steady application of the necessary supportive policies: adequate foreign exchange coverage, a liquid and well-capitalised banking sector, prudent fiscal policy and flexible labour markets. In addition, the downward tourist price flexibility, as displayed recently by the hotel sector, has warranted the SAR’s external competitiveness and has been increasingly important alongside the strengthening of the MOP.
The IMF complimented Macao SAR’s sound financial sector, reflecting the prudence of regulations. The financial soundness indicators regarding asset quality, earnings, and liquidity remain remarkably robust. There is no clear need to loosen macroprudential regulations with respect to the real estate market based on the current information, such as healthy bank balance sheets and recovering housing prices.
The Mission also noted Macao SAR’s solid macroeconomic resilience, hence, the spillover of the economic contraction, especially over employment, in recent years had been limited. Unemployment is around 2.0%, close to the historical low in 2014. Meanwhile, in the financial sector, the nonperforming loan ratio is largely unchanged at around 0.1%. In particular, the resilience in the tourism sector’s demand for labour has helped contain the fall in domestic consumption and deterioration in bank asset quality.
The IMF Mission visited Macao SAR during 3-14 November, 2016 to conduct the 2016 IMF Article IV Consultation and its end-of-mission press release was published on 15 November 2016. The Staff Report was considered and endorsed by the IMF Executive Board on 13 February, 2017. The next IMF Article IV Consultation with Macao SAR will take place on the standard 24-month cycle.
Links to the relevant press release and Staff Report of the 2016 Article IV Consultation with Macao SAR, as endorsed by the IMF Executive Board, are listed below:
- Staff Report of the 2016 Article IV Consultation with Macao SAR:
http://www.imf.org/en/Publications/CR/Issues/2017/02/14/People-s-Republic-of-China-Macao-Special-Administrative-Region-2016-Article-IV-Consultation-44661
- Press release of the IMF Executive Board conclusion:
http://www.imf.org/en/News/Articles/2017/02/14/PR1748-Macao-IMF-Executive-Board-Concludes-2016-Article-IV-Consultation
Under Article IV of the IMF’s Articles of Agreement, the international organisation holds bilateral macroeconomic discussions with individual members on a regular basis. A staff team visits the member country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to the headquarters, the staff prepares a report, which forms the basis for discussion and conclusion by the IMF Executive Board. The IMF conducts separate Article IV Consultation with the Mainland, Hong Kong SAR and Macao SAR under the membership of China.