IMF Executive Board Concludes 2022 Article IV Consultation Discussions with People’s Republic of China—Macao Special Administrative Region
April 12, 2022
Washington, DC: On March 29, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the People’s Republic of China—Macao Special Administrative Region (SAR) and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
Macao SAR has been hit hard by the COVID-19 crisis, but the strong policy response has helped stabilize employment and consumption, while preserving people’s health and safety. After a 54 percent of GDP decline in 2020, the economy have expanded by 18 percent in 2021 supported by the partial recovery of the gaming sector. Consumer prices were on average unchanged during 2021 relative to 2020, reflecting subdued domestic demand. Due to the still relatively low tourism receipts, the current account surplus in 2021 is estimated at less than half of its pre‑crisis level.
Macao SAR’s recovery is expected to continue. GDP is projected to grow by 15.5 percent in 2022 driven by the gradual return of foreign tourists and the recovery of domestic demand. Boosted by increasing investment linked to the issuance of new gaming concessions and further integration with the Guangdong‑Hong Kong-Macao Greater Bay Area (GBA), growth is expected to accelerate to 23 percent in 2023 before gradually converging to its long‑term potential of around 3.5 percent over the medium term. Headline inflation is projected to accelerate in 2022 and stabilize at around 2.5 percent over the medium term.
In the absence of rapid progress towards economic diversification, the current account balance is set to return to pre-pandemic levels when tourist arrivals to Macao SAR return to pre‑pandemic levels. While better-than-expected control of the pandemic and faster-than-envisaged integration with the GBA could contribute to stronger growth than currently envisaged, a re-intensification of the COVID‑19 pandemic, tighter regulation of the gaming industry, and an increase in Macao SAR’s financial sector stress could slow down the pace of the recovery. Due to its geographical location, Macao SAR’s high exposure to climate-related shocks poses long-term concerns.
Executive Board Assessment [2]
In concluding the 2022 Article IV consultation discussions with the People’s Republic of China–Macao Special Administrative Region (SAR), Executive Directors endorsed the staff’s appraisal, as follows:
Despite a strong policy response, the pandemic took a large toll on Macao SAR’s economy, highlighting the need for economic diversification. The government’s policy response helped to stabilize employment and consumption, while preserving people’s health and safety. However, the collapse of the economic activity, mostly on account of weak services exports, highlighted Macao SAR’s overreliance on the gaming industry. Macao SAR’s high exposure to climate-related disasters adds to the economy’s long-term challenges. The government’s diversification strategy, if implemented well, could reduce the economy’s vulnerability to shocks.
Macao SAR’s recovery is expected to continue going forward, but it will take time before the economy fully regains pandemic induced losses. The gradual return of foreign tourists and the strengthening of domestic demand will support the near‑term recovery, while increasing investment, linked to the issuance of new gaming concessions, and further integration with the GBA will boost medium term growth. However, given the depth of the economic losses during the pandemic, the level of GDP is expected to surpass its pre‑crisis level only in 2025. In the absence of rapid progress towards economic diversification, the current account balance is set to return to pre pandemic levels as tourists return to Macao SAR.
Large downside risks remain. A resurgence of the COVID‑19 pandemic could stall Macao SAR’s near‑term recovery and undermine the medium‑term viability of the gaming sector. Some uncertainty remains regarding the proposed amendments to Macao’s gaming law, which in combination with the recent ban on the gaming services’ marketing in the Mainland, clouds the outlook of the gaming sector. Potential large‑scale defaults in Mainland China’s real estate sector and a sudden growth slowdown in Mainland China pose risks to Macao SAR’s economy and financial system. The decline in households’ debt servicing capacity due to the pandemic induced income losses and pressures on non‑financial firms from tighter global financial conditions could negatively affect the banking system. Climate change is a long‑term concern for the economy.
In staff’s preliminary assessment, Macao SAR’s external position in 2021 was substantially stronger than warranted by medium term fundamentals and desirable policies. Macao SAR’s persistent saving investment gap, in part, is driven by high precautionary savings and subdued investments.
A mutually reinforcing near-term policy mix is needed to support the recovery. A safe reopening of the economy, underpinned by a further increase in vaccination rates and establishing additional travel corridors, will lay the ground for a strong recovery. Adjusting the fiscal policy stance from contractionary to neutral and changing its composition to support inclusion and growth would help the recovery. Banks’ monitoring of borrowers, including from the Mainland, should be strengthened, and conservative provisioning should be encouraged to guard against potential asset quality deterioration due to the pandemic and negative spillovers from Mainland China. The insolvency and debt resolution and restructuring frameworks should be enhanced, including through the use of special out‑of‑court solutions, to avoid overloading the court system and support growth. The residency‑based LTV capital flow management measure and macroprudential measure should be phased out. The implementation of countercyclical fiscal policy and maintenance of flexible labor markets, a healthy banking sector, and adequate reserve coverage will ensure the continued success of the exchange rate regime.
A multiprong package of structural reforms is needed to bridge the gap in skill composition and overcome barriers to economic diversification. Advancing the government’s diversification agenda will require investments in skill building and infrastructure, including for digital infrastructure, enhancing the effectiveness of public institutions, and improving business environment. The integration with the GBA provides opportunities for Macao SAR to access a larger pool of skilled labor and offshore some economic activities. It is important to balance the efforts to promote financial sector development with the need to preserve financial stability and integrity by further strengthening the regulatory and supervisory framework. The cooperation between different government agencies responsible for the diversification agenda should be strengthened to enhance the effectiveness of the government’s diversification efforts.
Climate adaptation measures should be strengthened. Public investments in key areas of climate related vulnerabilities should be scaled up and early warning systems to monitor and evaluate Macao SAR’s exposure to climate change risks further enhanced to mitigate climate related risks. Improving the understanding and management of financial risks due to climate change would help shield the financial system from climate related risks.
A well‑articulated medium term fiscal strategy is key for buttressing diversification and climate resiliency efforts. Increasing spending on education, healthcare, and climate resilient public infrastructure throughout the medium term will support the recovery now, while addressing bottlenecks for diversification and increasing the economy’s resilience to climate change going forward. A credible medium/long term fiscal framework provides necessary tools to effectively address trade‑offs from multiple demands on the fiscal policy, which would be hard to achieve within the current annual budget process.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
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Table 1. Macao SAR: Selected Economic and Financial Indicators, 2017-27 |
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|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
||||
|
Est |
Projections |
|||||||||||||
|
(Annual percentage change, unless otherwise specified) |
||||||||||||||
|
National accounts |
||||||||||||||
|
Real GDP |
10.0 |
6.5 |
-2.5 |
-54.0 |
18.0 |
15.5 |
23.3 |
18.6 |
9.8 |
5.1 |
3.5 |
|||
|
Total domestic demand |
-0.2 |
-1.7 |
-0.7 |
-10.1 |
3.0 |
5.8 |
3.3 |
3.9 |
4.0 |
4.0 |
4.9 |
|||
|
Consumption |
2.1 |
4.1 |
3.4 |
-7.2 |
4.6 |
6.0 |
2.5 |
2.5 |
2.8 |
2.9 |
3.2 |
|||
|
Investment |
-4.1 |
-6.1 |
-18.4 |
-17.2 |
-1.4 |
5.3 |
5.7 |
8.0 |
7.1 |
7.1 |
9.2 |
|||
|
Net exports 1/ |
10.0 |
6.2 |
-0.5 |
-49.0 |
15.8 |
10.0 |
20.7 |
16.1 |
7.6 |
2.9 |
0.9 |
|||
|
Exports |
16.8 |
9.8 |
-2.2 |
-65.1 |
69.9 |
16.1 |
32.2 |
20.7 |
11.1 |
5.8 |
3.2 |
|||
|
Imports |
7.8 |
4.9 |
-4.1 |
-14.7 |
47.2 |
6.1 |
12.5 |
6.5 |
6.1 |
5.3 |
4.3 |
|||
|
Gross fixed capital formation (In percent of GDP) |
19.8 |
16.7 |
13.8 |
25.9 |
23.0 |
21.6 |
18.5 |
16.7 |
16.2 |
16.5 |
17.3 |
|||
|
National savings (In percent of GDP) |
50.3 |
50.2 |
47.9 |
40.7 |
36.6 |
25.0 |
33.2 |
39.0 |
42.5 |
43.5 |
59.4 |
|||
|
Prices and employment |
||||||||||||||
|
Headline inflation (Average) |
1.2 |
3.0 |
2.8 |
0.8 |
0.0 |
2.8 |
2.7 |
2.6 |
2.6 |
2.5 |
2.5 |
|||
|
Terms of Trade |
0.2 |
-0.2 |
0.8 |
0.3 |
-0.4 |
-1.5 |
-0.2 |
-0.1 |
0.1 |
0.2 |
0.3 |
|||
|
Housing prices |
16.8 |
7.5 |
-0.8 |
-2.3 |
-47.7 |
… |
… |
… |
… |
… |
… |
|||
|
Median monthly employment earnings |
0.0 |
6.7 |
6.3 |
-11.8 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Unemployment rate (Annual average) |
2.0 |
1.8 |
1.7 |
2.6 |
3.0 |
2.6 |
1.8 |
1.8 |
1.8 |
1.7 |
1.7 |
|||
|
(In percent of GDP, unless otherwise specified) |
||||||||||||||
|
Fiscal accounts |
||||||||||||||
|
General government balance |
13.3 |
13.3 |
14.4 |
-21.2 |
-16.6 |
-10.2 |
5.0 |
11.7 |
12.2 |
12.1 |
13.9 |
|||
|
Budgetary Central Government Balance |
10.6 |
12.4 |
12.0 |
-21.2 |
-16.5 |
-9.9 |
4.4 |
9.7 |
10.2 |
10.1 |
10.9 |
|||
|
Revenue |
29.1 |
29.7 |
29.4 |
22.6 |
26.4 |
23.5 |
29.6 |
30.4 |
30.1 |
29.7 |
30.4 |
|||
|
Expenditure |
18.5 |
17.4 |
17.4 |
43.7 |
42.9 |
33.4 |
25.1 |
20.8 |
19.9 |
19.7 |
19.5 |
|||
|
Extra-budgetary funds balance |
1.0 |
0.1 |
0.6 |
-2.8 |
-0.5 |
-0.2 |
-0.4 |
0.6 |
0.6 |
0.6 |
1.6 |
|||
|
Social security funds balance |
1.7 |
0.8 |
1.7 |
2.9 |
0.4 |
0.0 |
0.9 |
1.4 |
1.4 |
1.4 |
1.4 |
|||
|
Balance of payments |
||||||||||||||
|
Current account |
30.8 |
33.0 |
33.8 |
15.2 |
13.8 |
3.5 |
14.9 |
22.4 |
26.3 |
27.1 |
26.2 |
|||
|
Goods |
-21.1 |
-19.6 |
-19.1 |
-30.1 |
-36.6 |
-34.5 |
-30.1 |
-26.1 |
-24.7 |
-24.3 |
-24.1 |
|||
|
Services |
67.3 |
69.0 |
69.8 |
32.4 |
49.0 |
53.2 |
61.5 |
65.8 |
67.5 |
67.3 |
66.3 |
|||
|
Income |
-15.4 |
-16.4 |
-16.8 |
12.9 |
1.4 |
-15.2 |
-16.5 |
-17.3 |
-16.4 |
-16.0 |
-15.9 |
|||
|
Financial account |
27.5 |
23.6 |
18.3 |
18.6 |
6.0 |
8.1 |
12.7 |
20.6 |
22.9 |
25.0 |
26.0 |
|||
|
FDI |
1.5 |
-3.2 |
-9.4 |
34.5 |
14.1 |
5.8 |
0.8 |
4.1 |
4.5 |
5.2 |
6.1 |
|||
|
Portfolio investment |
20.6 |
-8.0 |
28.3 |
23.7 |
23.9 |
23.4 |
22.7 |
22.0 |
21.4 |
21.0 |
20.5 |
|||
|
Financial derivatives |
-0.6 |
-0.6 |
-1.1 |
-1.4 |
-1.4 |
-1.4 |
-1.3 |
-1.3 |
-1.3 |
-1.3 |
-1.3 |
|||
|
Other investment |
6.1 |
35.4 |
0.5 |
-38.2 |
-30.7 |
-19.8 |
-9.5 |
-4.2 |
-1.8 |
0.1 |
0.8 |
|||
|
Errors and omissions |
-2.7 |
-9.9 |
-12.7 |
13.9 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
|
Reserve Asset |
0.4 |
-0.5 |
2.7 |
10.4 |
7.8 |
-4.6 |
2.2 |
1.8 |
3.5 |
2.1 |
0.2 |
|||
|
Foreign exchange reserves (In billions of U.S. dollars) 2/ |
20.2 |
20.3 |
22.2 |
25.1 |
26.7 |
… |
… |
… |
… |
… |
… |
|||
|
Gross external debt |
174.0 |
185.8 |
223.4 |
557.3 |
569.4 |
507.3 |
418.6 |
320.0 |
305.0 |
290.0 |
275.0 |
|||
|
(Annual percentage change) |
||||||||||||||
|
Financial sector |
||||||||||||||
|
Loans |
14.2 |
12.4 |
6.5 |
9.4 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Resident |
8.4 |
10.2 |
2.6 |
3.1 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Mortgages |
6.9 |
12.6 |
9.9 |
4.5 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Others |
9.2 |
9.1 |
-1.0 |
2.4 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Nonresident |
21.0 |
14.7 |
10.5 |
15.2 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Mortgages |
-1.6 |
-3.7 |
0.1 |
-1.8 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Others |
21.5 |
16.0 |
9.7 |
15.4 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Domestic credit to residents (In percent of GDP) |
113.2 |
113.2 |
116.3 |
261.4 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Domestic credit to non-residents (In percent of GDP) |
108.1 |
113.4 |
124.5 |
312.7 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Household domestic credit to residents (In percent of GDP) |
60.2 |
61.7 |
69.1 |
155.3 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Household domestic credit to non-residents (In percent of GDP) |
4.6 |
4.9 |
5.2 |
11.1 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Interest rates |
||||||||||||||
|
Discount window base rate (level, %, eop) |
1.8 |
2.8 |
2.0 |
0.5 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Saving deposit rate (level, %, average) |
0.0 |
0.0 |
0.1 |
0.0 |
… |
… |
… |
… |
… |
… |
… |
|||
|
MAIBOR 3-month (level, %, eop) |
1.3 |
2.4 |
2.4 |
0.4 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Tourism |
||||||||||||||
|
Visitor arrivals |
5.4 |
9.8 |
10.1 |
-85.0 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Gaming revenue |
19.0 |
14.0 |
-3.5 |
-79.2 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Exchange rate |
||||||||||||||
|
MOP per USD, period average |
0.4 |
0.6 |
0.0 |
-1.0 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Nominal effective exchange rate (average, +=appreciation) |
-0.1 |
-2.5 |
3.0 |
-0.2 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Real effective exchange rate (average, +=appreciation) |
-0.9 |
-0.9 |
0.1 |
1.1 |
… |
… |
… |
… |
… |
… |
… |
|||
|
Memorandum items: |
||||||||||||||
|
Nominal GDP (In millions of U.S. dollars) |
50,441 |
55,285 |
55,205 |
25,586 |
29,905 |
35,246 |
44,856 |
54,847 |
61,807 |
66,446 |
70,373 |
|||
|
Per capita GDP (In thousands of U.S. dollars) |
78 |
83 |
81 |
37 |
44 |
51 |
63 |
76 |
85 |
90 |
95 |
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|
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates. |
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1/ Contribution to annual growth in percentage points. |
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2/ Fiscal reserve fund was established on January 1, 2012 with a transfer from foreign exchange reserves. |
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