Portugal
Recent Economic Developments
Author:
International Monetary Fund
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Publication Date:
19 May 1999
eISBN:
9781451824636
Language:
English
Keywords:
ISCR; CR; Macau; government; proceeds; goods; firm
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This paper reviews economic developments in Portugal—Macau during 1997–99. It highlights the way in which Macau’s economic development evolved over the years. The paper discusses developments in prices, wages, and employment, and sheds light on how the product and labor markets adjusted to external shocks—in particular to the Asian crisis as well as the increased competition faced by the economy in recent years (1997–99). The paper also reviews the budgetary process and budgetary developments and highlights structural problems that are inherent in the fiscal system.

Abstract

This paper reviews economic developments in Portugal—Macau during 1997–99. It highlights the way in which Macau’s economic development evolved over the years. The paper discusses developments in prices, wages, and employment, and sheds light on how the product and labor markets adjusted to external shocks—in particular to the Asian crisis as well as the increased competition faced by the economy in recent years (1997–99). The paper also reviews the budgetary process and budgetary developments and highlights structural problems that are inherent in the fiscal system.

I. Introduction

1. Macau was established as a Portuguese trading post in the sixteenth century and is situated on the southern coast of China and 60 km from Hong Kong SAR. The territory consists of Macau City, joined to the Chinese province of Guangdong by a narrow isthmus, and the islands of Taipa and Coloane linked together by a causeway and a bridge. Macau has very little natural resources outside of its strategic location as an entrepot to China, has a population of 422,000 (1997 estimate), and has a per capita GDP of about US$17,500 (approximately two thirds that of Hong Kong SAR). A joint declaration on the future of Macau was signed between Portugal and China in 1987, and Macau is to become a Special Administrative Region (SAR) of the People’s Republic of China on December 20, 1999.

2. The report is organized as follows. Section II highlights the way in which Macau’s economic development evolved over the years and major characteristics of the present economic structure. Section III discusses recent developments in prices, wages, and employment, and sheds light on how the product and labor markets adjusted to external shocks—in particular to the Asian crisis as well as the increased competition faced by the economy in recent years. Section IV reviews the budgetary process and recent budgetary developments and highlights structural problems that are inherent in the present fiscal system. The role of monetary policy has been limited because of the pegged exchange regime in place under the currency board arrangement (CBA). This arrangement and banking sector developments are discussed in Section V. Sections VI and VII discuss the pivotal role that the external sector plays in Macau’s economic performance and highlight the main characteristics of Macau’s free trade and exchange regimes. A select number of relevant issues are included as Appendices. Appendix I describes the transition of sovereignty over Macau to China. Appendix II provides a description of the structure of the government, while Appendix III reviews the monetary institutions and the CBA. Appendix IV provides information on the gambling monopoly and its associated business activities; and the main features of the statistical system are covered in Appendix V.

II. Developments in the Real Sector

A. Structure of the Economy

3. Macau’s economy has undergone structural changes over the last three decades, owing largely to its open external sector and the vibrant and adaptable private enterprise sector. In the 1970s, export-oriented industrial enterprises in Hong Kong SAR, particularly in textiles and garments, relocated to Macau when quota restrictions imposed by industrial countries started to exert binding constraints on exports from Hong Kong SAR. To companies facing labor and land shortages in Hong Kong SAR, relocating to Macau offered significant cost advantages (such as lower wage rates, duty free imports, and low taxes), as well as a similar cultural environment with a common language and, in many cases, family ties. In the early 1980s, there was a trend of industrial diversification due to investment from Hong Kong SAR in non-textile exports, such as toys, artificial flowers, leather manufactures, and electronic products. However, during the second half of the 1980s and the 1990s, the diversification in Macau’s manufacturing did not last, as much of the non-textile production relocated out of the territory, owing to lower labor costs in China and Southeast Asia. As a result, manufacturing again became dominated by the textile and garment industry protected by quota controls and country origin rules under the multi-fiber arrangement (MFA), while the rest of the economy has become increasingly dependent on tourism, particularly on gambling. In the meanwhile, China’s opening-up of the economy has made Macau’s nascent services sector (including gambling) an important potential growth sector.

4. No detailed data on the production/income side of GDP are available, but it is estimated that, in 1997, gambling accounted for one third of GDP (compared with less than a quarter in 1989) and contributed around half of government revenues. Overall tourism (including gambling) accounted for 40 percent of GDP, while manufacturing exports (mostly textiles and garments) contributed about 30 percent of GDP in 1997.2 Services, trade, and construction probably accounted for the remaining activities. Fishing remained an important food source but made a negligible contribution to GDP.

5. On an expenditure basis, Macau, like Hong Kong SAR, is heavily dependent on the external sector, with an exports/GDP ratio of 72 percent, an imports/GDP ratio of 36 percent in 1997, and a net external sector surplus of 36 percent of GDP (Tables 1 and 2). Macau’s large traded goods and services sector is supported by the liberal external trade and payments system. Nevertheless, domestic demand has also been an important component of economic activity, with private consumption accounting for 35 percent of GDP and private investment for 16 percent to GDP. Government consumption and investment accounted for 10 percent of GDP and 3 percent of GDP, respectively, in 1997. About 80 percent of government consumption spending was on wages and salaries.

Table 1.

Macau: Expenditures on Gross Domestic Product, 1990-97

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Source: The Census and Statistics Department, Yearbook of Statistics (various issues).
Table 2.

Macau: Composition of Exports and Imports, 1990-97

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Source: The Census of Statistics Department, Yearbook of Statistics (various issues).

B. Growth Performance

6. Overall economic growth, which averaged 16 percent during 1971–81, slowed to about 7.5 percent during 1982–91, as the manufacturing base built in the 1970s began to relocate to China. At the same time, the economies of Macau and China became increasingly more integrated as investment and trade flows between the two countries expanded steadily. During 1992–94, there was a construction boom in residential and commercial property development financed by capital inflows from Hong Kong SAR and Chinese public entities looking for investment opportunities. This boom was also attributable to the strategy of Macau to diversify its economy by promoting major infrastructural projects and public works, notably the large land reclamation project for the new airport that opened in 1995. Despite a temporary surge in output growth in 1992, real GDP growth averaged 7.7 percent during 1992–94 (table below). Subsequently, investment in relation to GDP fell from 32 percent in 1995 to 20 percent in 1996 during this period to about 24 percent during 1995–96, following the completion of major infrastructure projects, the collapse of the property market, and a resultant sluggishness in construction activity (Table 3). As a result, output growth fell further to 4.6 percent in 1994 and to 3.6 percent in 1995, and the level of output contracted by 0.5 percent in 1996 (Chart 1).

Table 3.

Macau: Construction Activities, 1990-97

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Sources: The Census of Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.
chart 1
chart 1

macau: OUTPUT AND DEMAND, 1990–98

Citation: IMF Staff Country Reports 1999, 041; 10.5089/9781451824636.002.A001

Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and staff estimates.

Macau: Sources of Real GDP Growth, 1991–98

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Exports of goods and nonfactor services

7. Economic performance over the period 1997–98 continued to be lackluster. This performance was attributable to both sluggish domestic demand, largely reflecting the decline in investment, and weakening external demand for service exports, which was in turn adversely affected by sluggish tourism.3 In 1997, the external sector surplus declined by 4.6 percent in real terms, for the first time in six years. Similarly, the external surplus declined further by 7.3 percent in 1998 as the Asian crisis deepened.4

III. Prices and Labor Market Developments

A. Prices

8. The consumer price index (CPI) is based on the 1995/96 Household Expenditure Survey (Table 4). The components of the index are assigned fixed weights, with 47.7 percent for “non-tradable” goods; 43.1 percent for “tradable” goods; and 9.2 percent for goods under administrative control.5 The major components of non-tradable goods include fees or prices for: kindergartens, primary and secondary education; medical, dental, general clinical and hospital services; restaurants; fast food; tailoring; insurance and maintenance; repair services; and laundry and dry-cleaning. Those of tradable goods include prices for: rice, fish, meat, vegetables, and fruits; clothing and footwear; alcohol and beverages; electrical and non-electrical appliances; household products; medicine and cosmetics; and travel. Prices of goods subject to administrative control include those for: water and electricity charges; fares of public transportation by land; and postage, telephone and cellular phone services. Rents constitute about a quarter of the household expenditure basket, but because of rent controls, the CPI does not incorporate rents.6

Table 4.

Macau: Consumer Price Index (CPI), 1990-98 1/

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Source: Data provided by the Macau authorities.

This table is recalculated, using the new CPI base period (July 1995-June 1996 = 100) adopted since the beginning of 1998. Figures in bold and italic are calculated under the previous base period (Oct. 1988-Sep. 1989 = 100).

9. According to the overall price index, the annual rate of consumer price inflation averaged 9.7 percent during 1990–93, fueled largely by rapid increases in prices of non-traded goods, averaging 13.5 percent per anum. Such increases in turn reflected strong domestic demand in the wake of the property market boom supported by strong investment in infrastructure projects. In subsequent years, pressures on prices gradually eased considerably, with the overall rate of inflation declining to 6.6 percent per anum during 1994–96, reflecting sluggish domestic demand.

10. During 1997, inflationary pressures continued to ease, reflecting further weakening in economic activity and a softening in prices of tradable goods. As a result, the rate of CPI inflation dropped from nearly 5 percent in 1996 to 3.5 percent in 1997 as a whole, the lowest rate recorded in the previous ten years. The growth in prices of tradable goods declined from 4.2 percent in 1996 to 2.7 percent in 1997, mainly reflecting a slowdown in inflation in Hong Kong SAR and China (Chart 2). The rate of increase in prices of non-tradable goods slowed by more than 1 percentage point to 4.1 percent in 1997, owing mainly to the weakness in the household sector’s disposable income and generally depressed domestic demand. Prices of goods and services under administrative control increased by 3.7 percent, as the government increased prices of electricity charges.

chart 2
chart 2

macau: PRICES AND LABOR MARKET INDICATORS, 1990–98

Citation: IMF Staff Country Reports 1999, 041; 10.5089/9781451824636.002.A001

Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and staff estimates.1/ Include China, Hong Kong SAR, Japan, France, Germany, the United States; and the United Kingdom.2/ For 1998, the second quarter compared with the second quarter of 1997.3/ For 1998, October.

11. In 1998, the overall annual rate of inflation continued to decline to 0.2 percent. However, the declining trend was accentuated in the course of the year, and some prices actually fell. In the year to the fourth quarter of 1998, the CPI declined by 1.6 percent, with traded goods prices declining by 3.8 percent, reflecting significant declines in prices of imports from countries in the Asian region. Inflation in terms of prices of non-tradable goods continued to moderate, with the year-on-year rate declining to 0.8 percent by the fourth quarter, reflecting mainly further weakening in economic activity. Administratively determined prices declined by 2 percent in the year to the fourth quarter, mainly on account of reduction of mobile phone rates.

B. Labor Market Developments7

12. The unemployment rate, after trending downward to 3.2 percent (average rate) in 1997, rose sharply to 4.2 percent in the first half of 1998,8 reflecting the worsening of economic conditions (Table 5). While unemployment rose across all occupations, the increase was relatively high in the trade, tourism, and construction sectors. Contributing to the rising unemployment in 1998 was an upturn in labor force growth, which reached 1.2 percent in the first half of the year, led by the entry into the job market of school-leavers. Despite this growth in labor force, the participation rate fell marginally in the first half of the year.

Table 5.

Macau: Labor Force, Employment and Unemployment, 1992-98 1/

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Sources: Census and Statistics Department; Yearbook of Statistics (various years); and the Macau authorities.

Data not available before 1992.

Based on data for the first half

Wholesale, retail, restaurants and hotels.

13. With regard to the structure of employment, manufacturing has exhibited a secular decline in the share of employment over the first half of the 1990s, but has been approximately constant since 1996, at a level of about 20.5 percent of employment. The share of construction employment has fallen sharply reflecting the weakness in the property market, falling from 9.5 percent of total employment in 1995 to 7.5 percent in 1996, to 7.2 percent in 1997, and further to about 6 percent in the first half of 1998. The falling employment in construction has been offset by growth in trade and tourism and in public, social, and private services.

14. Wage data, which are available only through the first half of 1998, indicated that nominal wage growth has moderated since 1997 and that, in most sectors, median monthly employment income fell in 1998 (Table 6). Overall, the median monthly income in nominal terms fell by about 1 percent (year-on-year) in the second quarter of 1998, after having risen by 6.4 percent in 1997. In this period, median monthly income declined in the manufacturing, trade, and tourism sectors, while the income in the financial services sector increased. Median monthly income in the overall economy fell by 1.3 percent (year-on-year) in real terms in the second quarter of 1998, after rising by 2.8 percent in 1997.

Table 6.

Macau: Median Monthly Employment Income by Industry, 1992-98

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Source: Census and Statistics Department, Annual Statistical Yearbook (various issues); and staff estimates.

Based on data for the second quarter.

Wholesale, retail, restaurants and hotels.

Deflated by the CPI index.

15. The focus of recent labor policy initiatives has been to assist the unemployed to rejoin the workforce as soon as possible and to ensure that their employ ability is sustained in the longer term. In 1996, job training was restructured and the system of vocational certificates and apprenticeships was reformed. New training centers were created, including a special Training Center, extending the fields for which training was offered to include adult training, apprenticeships, up-grading and training for new jobs.

16. In July 1998, in the face of rising unemployment, the government allocated MOP50 million (about 0.1 percent of GDP) for: (i) training the unemployed; (ii) providing financial incentives for companies to hire unemployed workers who are difficult to be placed; (iii) providing financial incentives for companies to train the trainers for retraining programs; and (iv) providing financial incentives for companies to hire first-time job seekers. It is expected that these policies will be extended in 1999.

17. In addition, policy towards contracting labor from abroad has been revised to provide greater opportunities for the employment of residents.9 On the basis of new legislation passed in July 1998, the handling of requests for importing non-resident labor is to be improved bearing in mind the social and employment situation of residents.

IV. Public Finance

A. Overview

18. Fiscal policy in Macau has traditionally followed a noninterventionist approach, aimed at maintaining a small and efficient government and supporting private sector activity. The tax system is characterized by low tax rates on most types of economic activities, the absence of taxes on certain types of income (e.g., residents’ foreign-source income, domestically generated interest, royalties, and capital gains), and the absence of a general consumption tax. Government revenue is dominated by direct taxes on gambling and revenue from land leases. Government spending in relation to GDP has been kept low, and a record of fiscal prudence is evidenced by the realization of budget surpluses in many years (Chart 3).

chart 3
chart 3

macau: FISCAL INDICATORS, 1990–98

Citation: IMF Staff Country Reports 1999, 041; 10.5089/9781451824636.002.A001

Sources: Census and Statistics Department, Yearbook of Statistics (various issues); Selected Economic and Financial Indicators, 1994-98; and the Macau authorities.

19. Public services in Macau can be divided into three major groups in terms of the applicable administrative and financial regime: (i) individual or integrated services, which do not enjoy administrative or financial autonomy (being directly controlled by the Finance Department); (ii) services with administrative autonomy, which do not have their own income but are able to manage the funds granted from the budget, subject to control by the Finance Department; and (iii) autonomous bodies and funds, including the municipalities, which have their own budgets and accounts, enjoy administrative and financial autonomy, and may own their own assets. There are currently 33 autonomous bodies and funds, covering community support (two local authorities and the health service), education and research (tertiary educational institutions), activities of a commercial nature (shipyards and the post and telecommunications company), and support for economic and social policies (including the AMCM, the Social Security Fund, the Tourism Fund, the Social Education Action Fund, and the Macau Housing Institute).10

20. Following the transfer of sovereignty in December 1999, fiscal policy in Macau SAR will be guided by the Basic Law. Article 105 of the Law states that Macau SAR shall follow the principle of keeping expenditure within the limits of revenue in drawing up its budget, strive to achieve a fiscal balance, avoid deficits, and keep the budget commensurate with the growth rate of its gross domestic product. Although the precise interpretation of this Article will be determined by the government of Macau SAR after the handover, in spirit it represents a continuation of current policy as laid out in the Organic Law of Macau and other statutes, which specify that budgeted revenue should cover budgeted expenditure and that current revenue should at least cover current expenditure.

B. Recent Budgetary Developments

21. Conservative budgetary policies throughout the 1990’s, reinforced by statutory requirements for a balanced budget,11 led to budget surpluses for most years and the resultant accumulation of a sizable fiscal reserve, which at the end of 1998 stood at MOP2.8 billion (5 percent of GDP) in government accounts and a further MOP8.5 billion (15 percent of GDP) in the Land Fund12 (Table 7). Surpluses declined sharply after 1994, however, driven mainly by the fall in land lease revenue resulting from the ending of the construction boom. The government owns over 95 percent of the land in Macau 13 and, between 1989 and 1992, land lease revenue rose from 15 percent of total government revenue to almost 40 percent (from 2 percent of GDP to 8¼ percent), before leveling off at about 25 percent of revenue (5 percent of GDP) in 1993 and 1994. During 1995–97, however, cash revenue from land lease fell sharply, averaging only 6 percent of revenue (1 percent of GDP), reflecting lower lease prices, reduced supply of new land, and a buildup of arrears.14 To reduce the stock of unoccupied housing units, the government introduced in 1996 a program of preferential interest rates for home-buyers.15

Table 7.

Macau: Government Finance, 1990-98

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Sources: Data provided by the Macau authorities; and staff estimates.

Excluding transfer to Land Fund.

Does not include Land Fund.

22. Budgetary performance was strong in 1997, due largely to buoyant revenue. Revenue increased by 17.5 percent in 1997, mainly reflecting the retroactive collection of gambling revenue in connection with the renegotiation of gambling concession contracts.16 However, land lease revenue remained weak, falling by about 30 percent from the previous year. On the expenditure side, total expenditure rose by about 14 percent, mainly on account of current expenditure growth of 18½ percent; capital expenditure declined slightly from the previous year. Current expenditure growth was led by an increase of 28 percent in current transfers in the form of allocations to a several autonomous bodies and funds being bolstered during the transition of the territorial administration. Wages and benefits, the next largest current expenditure category after current transfers (and representing 38 percent of current expenditure), rose by 9 percent, after having risen by almost 11 percent the previous year. The budget recorded a surplus of about 1 percent of GDP, approximately double the level recorded in 1996.

23. For 1998, although the budget was framed to be approximately balanced, the outturn was a deficit of 1½ percent of GDP, due mainly to a revenue shortfall, in particular lower-than-expected receipts from both land leases and gambling, which in turn reflected the continuing weakness in the property market and the slowdown in tourism. Total revenue fell by 11.7 percent, led by a fall of 18.7 percent in direct taxes from gambling. While land-lease revenue showed a marginal increase from 1997, the realization fell far short of the budgeted amount. In response to the revenue shortfall, the government limited expenditures below budgets amounts in a number of areas, including the wage bill and budgeted current expenditures, transfers, and capital spending, with total expenditure growing by just 3.6 percent for the year, against a budgeted growth of 9.6 percent. Wages for civil servants were frozen for 1998, and the number of employees was reduced through attrition, limiting overall wage and benefit growth to 6.5 percent. Overall, current expenditure grew by 2.8 percent, the lowest growth rate since 1995 and less than half the budgeted growth rate. While expenditure under the public investment plan fell short of the budgeted amount, it grew by almost 12 percent, and the outturn, at almost 3 percent of GDP, represented a historically high level.

C. Infrastructure Projects

24. Through the 1980s and the 1990s, Macau has invested heavily in infrastructure projects. An international airport, a new ferry terminal, a border checkpoint, and new container and fuel terminals have been built. At present, a road bridge to mainland China is under construction. In addition, a flag carrier airline, Air Macau, has been put into operation. The road network has been significantly extended and overhauled with a new bridge from Macau City to the islands.

25. There have also been large capital expenditures in the area of social services. Health care has benefited from the construction of various clinics and health centers, and the two hospitals have been renovated and expanded. In the area of education, a number of schools at all levels have been built. The premises of the University, Polytechnic Institute, Tourist Training college, the Conservatory of Music, and the Institute of European Studies have all been extended. There have also been expenditures on sports and cultural facilities.

D. Housing Policy

26. The main goal in housing policy over the last decade has been to provide the poor with adequate living facilities replacing the sub-standard housing stock. This goal has been pursued through the construction by the government of housing units and also through the promotion of the private sector construction of social housing. There are currently about 2,000 apartments provided by the government, whose rent is means-tested, and a further 1,600 units are planned under this program. 17

27. Private construction of social housing units has been promoted through “Housing Development Contracts.” These are special contracts for granting land, under the terms of which concessionaires undertake to hand over to the government a portion of the units built as a premium for the land concession. These apartments are either rented out to low and middle income households as social housing or are sold at controlled prices. The remaining units are sold by the concessionaire at prices that are also controlled by the government. Over the last decade, over 24,000 apartments have been completed under this scheme, of which about ¼, or 6,300 units, reverted to the government. It is expected that a further 4,200 units will be built under this scheme over the next two years.

V. Money, Credit, and Banking

28. Within the framework of the pegged exchange rate system, the primary objective of monetary policy in Macau has been to maintain currency stability. With free capital movements, monetary aggregates, interest rates, and prices adjust to be consistent with the pegged exchange rate. Moreover, given the dominance of the Hong Kong dollar that co-circulates widely in Macau with the pataca, the role of the monetary authorities in conducting independent monetary policy has been limited. This section describes the institutional arrangements of the banking system and monetary policy instruments, and reviews recent developments in monetary and credit aggregates, as well as movements in interest rates.

A. Institutional Arrangements

29. The banking sector in Macau comprises a monetary authority (Monetary and Foreign Exchange Authority of Macau, or, in its Portuguese acronym, AMCM), 22 commercial banks, and a government-owned postal savings bank (the Post Office Savings Department). Of the 22 commercial banks, 9 banks are locally incorporated, while the remaining 13 banks are branches of banks abroad. One of these banks has a license to conduct offshore business; however, offshore activity has been very low. These banks form a bankers association, the Bankers Association of Macau, with a view to exchanging views on banking related issues and also to setting indicative interest rates on deposits and loans.

Monetary and Foreign Exchange Authority of Macau (AMCM)

30. The AMCM was established in 1989, assuming the responsibilities for supervising Macau’s banking and insurance industries from its predecessor institution, the Instituto Emissor de Macau (IEM). The AMCM acts as an independent agent of the Macau Government.

31. The AMCM operates as a quasi-central bank. Its functions are laid out in the Financial Systems Act of 1993, which consolidates all previous rules and regulations relating to the banking sector. Its main duties are to supervise, coordinate, and inspect the money, financial, and foreign exchange markets as well as credit institutions, financial intermediaries, and other financial institutions.

32. In its capacity as the supervisory body of the banking sector, the AMCM is responsible for promoting the general stability and effective working of the financial system. Its duties are defined as:

  • ensuring compliance with all the legal provisions which govern the authorized institutions and the working of the financial, money, and foreign exchange markets;

  • taking all reasonable steps to ensure that institutions under supervision are operated in a sound and prudent manner;

  • implementing and encouraging the adoption of correct standards of ethical conduct and sound business practices; and

  • eradicating practices incompatible with the nature of the institutions and situations liable to adversely affect the proper functioning of the markets.

33. In exercising its regulatory power, the AMCM may issue executive orders, decisions, notices, and circulars to govern the money, financial, and foreign exchange markets and the activities of the institutions under supervision in order to maintain the soundness of the financial system.

Currency board arrangement (CBA)

34. Since 1977, Macau has been operating under a CBA, and the pataca has been pegged to the Hong Kong dollar. To issue the pataca notes, the Banco Nacional Ultramarino (BNU) and the Bank of China, two note-issuing banks, are required to submit Hong Kong dollars to the AMCM in return for noninterest-bearing certificates of indebtedness, which serve as legal backing for the note issue. Under the CBA, 100 percent of the local currency must be backed by foreign assets. The two note-issuing banks have the right to exchange certificates of indebtedness for foreign currency at the official exchange rate at the AMCM, and vice versa.

Policy instruments

35. The AMCM has only two policy instruments, reserve requirements and monetary bills issuance. Reserve requirements are currently set at 3 percent on demand deposits, 2 percent on time deposits up to 3 months, and 1 percent on time deposits of over 3 months. However, these requirements are used mainly for prudential purposes and not for changing monetary policy stance. The monetary bills carry sovereign guarantee and have competitive yields vis-a-vis interbank rates in Hong Kong SAR and are bought from and sold to commercial banks, depending on liquidity conditions in the banking system. The AMCM often sells the monetary bills to absorb excess pataca liquidity, thereby help maintain the pegged exchange rate system. At end–September 1998, the AMCM’s outstanding monetary bills reached MOP 11.1 billion or about 13 percent of broad money (Table 9).

Table 8.

Macau: Growth in Government Revenue and Expenditure, 1991-98.

(Annual percentage change)

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Source: Data provided by the Macau authorities; and staff estimates.
Table 9.

Macau: Monetary Bills, 1992-98

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Source: The Monetary and Foreign Exchange Authority of Macau.

For 1998, September.

Interbank and other financial asset markets

36. Macau’s interbank market is small. While data on the volume of transactions are not available, the total amount of interbank loans averaged about one fifth of the outstanding stock of the AMCM’s monetary bills in recent years.

37. Since the Macau Government has no sovereign debt (domestic or external), there is no bond or treasury bill markets.

B. Money and Credit Developments

Monetary liabilities

38. Developments in monetary aggregates during 1997 and thus far in 1998 were influenced by currency market turbulence in Hong Kong SAR and resultant fluctuations in interest rates. Broad money increased by 4.8 percent during 1997 (7.9 percent during 1996), largely reflecting the slowdown in economic activity (Chart 4). The impact of the Asian crisis on monetary aggregates was felt more markedly in 1998. Owing to sharp increases in real interest rates, broad money increased by 10 percent in the year to November 1998 (Table 10).

chart 4
chart 4

macau: MONETARY INDICATORS, 1990–98

Citation: IMF Staff Country Reports 1999, 041; 10.5089/9781451824636.002.A001

Sources: Census and Statistics Department, Yearbook of Statistics (various issues); Selected Economic and Financial Indicators, 1994-98; and IMF: IFS database.
Table 10.

Macau: Monetary Survey, 1992-98

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Sources: The Monetary and Foreign Exchange Authority of Macau; and staff estimates.

39. The increases in interest rates during 1997 and 1998 led to a shift from demand deposits into time and savings deposits. As a result, narrow money declined by 7.3 percent during 1997 and by 0.5 percent in the year to November 1998. On the other hand, quasi money increased by 9.4 percent during 1997 and by 13.5 percent in the year to November 1998.

40. Despite several speculative attacks on the Hong Kong dollar during 1997 and 1998, there were only slight shifts in the currency composition of deposits. The pataca-denominated component of broad money increased from 30.5 percent in 1996 to 30.9 percent in 1997, but declined to 29.8 percent in November 1998 (Table 11). On the other hand, the share of the Hong Kong dollar fell from 54.9 percent in 1996 to 53.1 percent in 1997, and to 52.7 percent in November 1998. The lack of any significant shifts in the currency composition of broad money reflected the firmness of the AMCM’s policy to maintain the pegged exchange rate.

Table 11.

Macau: Money Indicators, 1992-98

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Sources: DSEC: Yearbook Statistics (various issues), Macau Economic Services, Economic Bulletin (various issues); and the Macau authorities.

Net foreign assets (NFA)

41. Since mid–1990s, the NFA of the banking system has been on a rising trend, reflecting the strength of the external sector. Nevertheless, during 1997, the banking sector’s NFA declined by 0.9 percent, mainly reflecting outflows of bank deposits to Hong Kong SAR; in the second half of the year, many depositors thought that the banks were safer in Hong Kong SAR than in Macau. In the year to November 1998, NFA increased by 19.9 percent, primarily on account of a significant increase in the commercial banks’ NFA (Tables 12 and 13). This in turn reflected re-flows of deposits to the commercial banks in Macau as interest rates increased and depositors’ renewed confidence in the banks in Macau.

Table 12.

Macau: Balance Sheet of the AMCM, 1992-98

(In millions of patacas; end of period)

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Source: The Monetary and Foreign Exchange Authority of Macau.
Table 13.

Macau: Balance Sheet of the Commercial Banks 1/ 1992-98

(In millions of patacas; end of period)

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Source: The Monetary and Foreign Exchange Authority of Macau.

Including a postal savings banks.

Domestic assets

42. Reflecting the economic stagnation since 1995, commercial banks became somewhat cautious in their lending decisions. During 1997, the growth of domestic credit rose slightly to 6.2 percent, with an increase of 9.9 percent in credit to the private sector partially offset by a further increase in government deposits with the banking system. The growth of domestic credit declined further to only 0.5 percent in the year to November 1998, reflecting a further weakening in economic activity; outstanding credit to the private sector at end–November 1998 declined by 0.2 from a year earlier.

Sectoral distribution of bank loans

43. Since the mid–1990s, about one fourth of commercial bank loans was accounted for by loans to individuals for house purchases (Tables 14 and 15). Loans to individuals for house purchases, which were boosted by the government’s interest subsidy program for small to medium residential units (started in mid–1996), grew by 10.5 percent during 1997 and its share in total bank loans increased slightly to 24.6 percent at year–end (Table 16). Total loans in this category increased further during the first nine months of 1998, but the share in the total remained virtually unchanged at 24.7 percent at end–September.

Table 14.

Macau: Sectoral Distribution of Banks’ Loans 1/, 1992-98

(In millions of patacas)

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Source: The Monetary and Foreign Exchange Authority of Macau.

Credit granted by the banking system less financial investments.

Table 15.

Macau: Sectoral Distribution of Banks’ Loans 1/ - Credit Structure, 1992-98

(In percent)

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Source: The Monetary and Foreign Exchange Authority of Macau.

Credit granted by the banking system less financial investments.

Table 16.

Macau: Sectoral Distribution of Banks’ Loans 1/ - Annual Growth Rates, 1992-98

(In percent)

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Source: The Monetary and Foreign Exchange Authority of Macau.

Credit granted by the banking system less financial investments.

44. The next dominant category was loans for construction and public works. Lending recovered somewhat in 1997, but stagnated during the first nine months of 1998, mainly on account of a further weakening in the property market. As a result, the share in total bank loans declined slightly from 18.5 percent at end–1997 to 18 percent at end–September 1998.

45. Loans for trade, like loans for construction and public works, recovered during 1997, but declined somewhat in 1998, reflecting further weakening economic activity. As a result, its share in total bank loans declined from 16.7 percent at end–1997 to 15.5 percent at end–September 1998.

46. Loans extended to the manufacturing sector accounted for only about 8.5 percent at end–1996, reflecting the relatively small size of the sector in the economy. The total amount increased by 4.9 percent during 1997, supported by the recovery in textiles and clothing manufacturers. However, demand for bank loans weakened in the course of 1998, primarily reflecting the sluggish loan demand from exporters of textiles, toys, artificial flowers, and other light manufactures. The share in the total bank loans declined from 8.1 percent at end–1997 to 7.4 percent at end–September 1998.

C. Interest Rate Developments

47. The pegged exchange rate, together with the freedom from controls on capital movements, implies a close relation between pataca interbank interest rates and the corresponding Hong Kong dollar interest rates. Nevertheless, for interest bearing assets of the same maturity, interest rates in Macau tend to be slightly lower than those in Hong Kong SAR, creating a small spread, which in turn reflects transaction costs in Macau being somewhat higher than those in Hong Kong SAR. However, as the efficiency of the banking system in Macau has improved over time, the spread between pataca and Hong Kong dollar interbank rates has virtually disappeared (Chart 4).

48. Until August 1997, the indirect pegging of the pataca to the U.S. dollar through the Hong Kong dollar pegged to the U.S. dollar led interest rates developments in Macau to follow closely those in Hong Kong SAR and the United States. However, with the start of the Asian crisis and speculative attacks on the Hong Kong dollar, interest rates in Hong Kong SAR and hence in Macau started to incorporate a risk premium and became subject to high volatility (Chart 4). Following the speculative attacks on the Hong Kong dollar in August and October 1997, the interest rates rose sharply and, by mid–October 1997, the three–month MAIBOR reached 11.2 percent, rising by almost 5 percentage points. In January 1998, and again in the summer of 1998, the three-month MAIBOR reached 13 percent and 10–12 percent, respectively (Table 17).

Table 17.

Macau: Interbank Offered Rates (MAIBOR), 1992-98

(In percent)

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Source: The Monetary and Foreign Exchange Authority of Macau.

49. During 1997, reflecting the market’s liquidity conditions and following increases in interest rates in Hong Kong SAR, the Bankers Association of Macau (ABM) increased its indicative rates twice (Table 18). The first increase was in April, following a similar increase in the indicative rates in the U.S. dollar money market. The second increase occurred in October, when the Hong Kong dollar was under intense speculative attacks.

Table 18.

Macau: Interest Rates on the Pataca-Deposits, 1990-98

(In percent)

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Source: Associado de Bancos de Macau.

50. In 1998, with the renewed turmoil of the Southeast Asian currencies during January and the increase in Hong Kong SAR’s prime interest rates by 0.75 percentage points to 10.25 percent, the ABM raised its indicative rates by the same amount on January 12. However, when Hong Kong SAR interest rates declined by 25 basis points on March 30, the ABM also followed the suit.

51. In the summer of 1998, liquidity conditions tightened, and commercial banks were faced with higher borrowing costs. Against this background, when U.S. banks reduced interest rates in September, banks in Hong Kong SAR and thus in Macau did not follow the suit primarily because the commercial banks in Hong Kong and Macau competed aggressively for customer deposits. Indeed, weighted average interest rates on deposits and loans, quoted by three sample banks in Macau, remained unchanged or increased in September, compared with June (Table 19).

Table 19.

Macau: Weighted Average Rates for Three Sample Banks 1/, 1992-98

(In percent)

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Source: The Monetary and Foreign Exchange Authority of Macau.

The three sample banks are: Banco Nacional Ultramarino, S.A.; Comercial de Macau; and The Hong Kong and Shangkai Banking Corporation.

Interest rates on pataca time deposits (under HK$100,000) less CPI inflation.

Prime rates on discounted bills (denominated in pataca) less CPI inflation.

52. Real interest rates have increased significantly since early 1990s, reflecting a combination of a downward trend in the rate of inflation and a generally upward trend in nominal interest rates. Real interest rates on deposits were generally negative in the first half of 1990s. However, during 1997–98, as the rate of inflation declined, real interest rates rose markedly (Tables 19 and 20). For example, the average interest rate on pataca time deposits in real terms increased from negative 3.1 percent in 1992 to negative 1.8 percent at end–1995 and further to 8.4 percent in September 1998. During 1992–95, the average lending rate for prime customers increased from negative 0.1 percent to 2.4 percent in real terms. However, as the rate of inflation declined steadily, the real interest rate increased further to 8.3 percent at end–1997 and to 12.3 percent at end–September 1998. Such sharp increases in the real lending rate have had a dampening effect on economic activity.

Table 20.

Macau: Interest Rates on Monetary Bills, 1992-98

(In percent)

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Source: The Monetary and Foreign Exchange Authority of Macau.

Interest rates on monetary bills (3-month) minus 12-month rate of inflation measured by CPI index.

D. Banking Sector Soundness and Supervision

53. Currently, there are 23 banks (including the postal savings bank) operating in Macau. The longest operating financial institution is the Banco National Ultramarino, established in 1902, followed by the Caixa Economica Postal, established in 1935. Six of the banks were established in 1970s, six in the 1980s, and nine banks were licenced in the 1990s, of which one is an offshore branch of a Portuguese bank. Thirteen banks are branches of foreign banks and account for 68 percent of total assets of the banking system. Eight banks are majority foreign-owned and account for 26 percent of total assets. The Bank of China, Macau branch, which was licenced in 1986, is currently the largest bank with a share of over one third of deposits. In addition, there are 2 nonbank credit institutions in Macau (Table 21).

Table 21.

Macau: Banking Sector Selected Indicators, 1993-98 1/

(In percent, unless otherwise specified)

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Source: The Monetary and Foreign Exchange Authority of Macau (AMCM).

This table excludes one government-owned postal savings bank.

54. Total assets of the commercial banking sector of Macau grew rapidly and increased from 207 percent of GDP in 1995 to 295 percent in September 1998. Foreign currency denominated assets accounted for about four fifths of the total assets in 1997–98. Credit to the private sector increased from 70 percent of GDP in 1995 to 84 percent in September 1998. On the liability side, total deposits increased from 117 percent of GDP 1995 to 144 percent in September 1998.

55. The banking sector in Macau exhibited a relatively good degree of financial strength. Banks continued to maintain high risk-weighted capital adequacy ratios (capital/asset ratio) which rose from 12.4 percent in 1994 to 15.7 percent in September 1998. This level was well in excess of the level mandated by the Bank of International Settlements (8 percent). Among the nine locally incorporated financial institutions, the capital adequacy ratio (CAR) ranged between 10 percent and 70 percent. These conservative levels of the CAR were maintained despite a recently deteriorating asset quality and increasing loan provisioning.

56. The quality of assets of the banking sector has recently deteriorated. As the share of non-performing loans (NPLs) in total loans increased from 1 percent in 1993–94 to 4 percent in 1997, and doubled by September 1998 to 9 percent. This was mainly caused primarily by weakness in the property market that increased problem loans. The ratio of loan-loss provisions to nonperforming loans declined from 2½ in 1994 to about ½ in September 1998. However, in light of the high CAR which provides an adequate cushion to back up those nonperforming loans, the risks of NPLs to the banking system liquidity or solvency seems to be moderate.

57. The banks’ exposure to the property and construction sectors has accounted for about 42 percent of total outstanding loans in recent years (Table 15). However, about two thirds of these loans are for residential mortgages and the remainder for other nonresidential concerns. Nonetheless, the banking supervisors of the AMCM have recently been concerned about the quality of the loan portfolio exposed to commercial construction projects and investment property purposes, which has been about 12 percent of total banking sector loans. This category of loans is currently subject to ongoing on-site and off-site inspections since January 1998.

58. With respect to profitability of the commercial banks, the average return on total assets fell from around 1.5 percent in 1994 to about 1 percent in 1995–97 and to 0.8 percent in September 1998 (Table 21). Nonetheless, banks’ cash flow (including depreciation and provisions) was maintained at about 2 percent of turnover for several years, indicating that the recent increase in banks’ provisioning was another main factor for the fall in profits. Part of the decline in banks’ profit margins could also be explained by the decline in average lending spreads (lending-deposit rates), which fell from 4.7 percent in 1995 to 2.4 percent in 1997 and further to 1.8 percent in September 1998. The stock market crash in Hong Kong SAR in August 1998 pushed up the rates offered to depositors on time deposits. As Macau followed suite, depositors shifted into deposits with longer maturities, thereby helping banks’ liquidity positions. Thus, banks cash reserves were maintained at around 2.5 percent of total liabilities, well in excess of the weighted average minimum required reserves averaging 2 percent.

59. With regard to bank supervision, the supervision department of the AMCM has a staff strength of 15 professionals, of which 12 are currently filled. Macau’s banking supervision system is operated in line with international standards and is based on off-site analysis on a monthly basis and on-site examinations performed annually or biannually, depending on the analysis of quality of assets. Banks submit monthly reports to the AMCM for purposes of bank supervision, which cover capital adequacy, loan-loss classification, provisions, earnings, and liquidity reserves. Bank supervisors pay particular attention to the submissions on the quality of assets and the classification of over due loans which should adhere to the following scheme.

Macau: Asset quality criteria and Provisioning Rates

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60. The AMCM has signed agreements with the Central Bank of Portugal, the People’s Bank of China, and the Honk Kong Monetary Authority to share bank supervision information on the reports of head offices of bank branches operating in Macau.

61. The first guidelines on the prevention of money laundering were issued in June 1996. These were followed by the enactment of two legal instruments in 1997–98 covering organized crime and preventive measure over the conversion and transfer of illegitimate properties. A draft of the revised anti-money laundering is under preparation and is expected to be issued in 1999. In addition, the AMCM alerted financial institutions in Macau to adhere to the year 2000 supervisory guidelines issued by the Basil Committee in mid–1998.

VI. External Sector

62. With the liberal exchange system in place, the government has not required the private sector to report on its external income and transfer flows nor on foreign capital transactions on external debt obligations. As a result, balance of payments data are seriously incomplete, placing significant limitations to the analysis of the external sector. However, main developments in the external trade sector could be discerned from the trade data that are available (Tables 1, 2, and 22–26). During 1990–98, the current account was continuously in surplus, and this surplus contributed at least one-third of GDP. This mainly reflected the strength of the external sector, aided by the open environment of Macau’s economy.

Table 22.

Macau: Summary of Exports and Imports, 1990-97 1/

(In millions of MOP)

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Sources: The Census of Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.

On January 1, 1996 a reformulation was done to the legislation that regulates the external trade operations in Macau, which has resulted a set of significant modifications to the methodology of data compiling. For the full explanation on the new definitions of trade statistics and the comparability of the trade series before and after that date, please see the explanatory notes on pages 246-247 in the Yearbook of Statistics 1997 published by the Census and Statistics Department of Macau.

For January-June 1998 estimate.

Excludes temporary exports and temporary imports.

A. Current Account

63. Macau’s current account remained in surplus during the first half of the 1990s and peaked in 1996, when it reached US$2.7 billion (37.4 percent of GDP). From then onwards, the current account surplus gradually declined to US$2.4 billion (33.8 percent of GDP) in 1998. The balance on merchandise trade has generally shown small deficits, averaging an annual deficit of about US$0.2 billion (or about 3½ percent of GDP) during 1991–98. Thus, the strength of Macau’s current account during the 1990s by and large mirrored the trend in the services account surplus.

64. During 1990–96, merchandise exports, which were highly concentrated on textiles and garments, registered an average growth of 2.7 percent per year (Table 23 and Chart 5). Merchandise exports increased by 7.7 percent in 1997, although this increase was not sustained fully in the first half of 1998. This rapid growth was attributable to the fact that the textile and garment industry was benefitting from MFA quotas and was not affected by the Asian crises; exports of textiles and garments increased by 15.4 percent in 1997. On the other hand, Macau’s competitiveness on exports of nontextiles continued to slip, particularly aggravated by the appreciation of the pataca relative to the currencies of its Southeast Asian competitors. Latest annual data indicate that nontextile exports fell by 11.7 percent in 1996 and by 19.3 percent in 1997. The contraction in 1997 was across the board, involving light manufacturing (down by 5 percent), leather goods (down by 78 percent), and toys (down by 65 percent), owing primarily to competition, mainly from the neighboring countries

Table 23.

Macau: Exports of Goods by SITC Classification, 1990-98

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Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.

Excludes temporary exports.

chart 5
chart 5

macau: EXTERNAL INDICATORS, 1990–98

Citation: IMF Staff Country Reports 1999, 041; 10.5089/9781451824636.002.A001

Sources: Census and Statistics Department, Yearbook of Statistics (various issues); Selected Economic and Financial Indicators, 1994-98; IMF: Information Notice System.1/ Actual for January–July, at an annual rate.

65. Macau’s export performance has been greatly influenced by the regional pattern of trade and the composition of exports. Data for 1997 and the first half of 1998 indicate that exports continued to exhibit a high degree of market concentration. The main markets have continued to be the United States, which absorbed 45 percent of Macau’s exports, and the European Union (EU) absorbed 33 percent (Table 24). About 8 percent of total export went to Hong Kong SAR and some 6 percent to China. Nonetheless, the appreciation of the pataca appears to have eroded Macau’s competitiveness with respect to the unprotected portion of textile exports, toys and other light manufacturers. As for the composition of exports, over three quarters of the total exports have been accounted for by textiles and garments, which have been governed by quota controls and origin rules as applied by these two major destinations.

Table 24.

Macau: Exports by Destination, 1990-98

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Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.

Excludes temporary exports.

66. During 1990–94, the annual growth of imports fluctuated between about 20 percent and about 3 percent (Table 25). However, imports declined in 1995 and 1996 as economic activity weakened in the wake of the collapse of the property market. In 1997, imports rebounded somewhat primarily reflecting increases in machinery and transport equipment as well as mineral fuels and related materials. In 1998, imports again were subdued on account of the weakness in aggregate demand.

Table 25.

Macau: Imports by SITC Classification, 1990-98

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Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.

Excludes temporary and re-imports.

67. As regard the country of origin of imports, about four fifths of total imports came from Asian countries in recent years (Table 26). An indication of the greater integration with China is the increase in China’s share of Macau’s imports from 18 percent in 1990 to 29 percent in 1997. Thus, dependance on Hong Kong SAR was reduced from about 42 percent of total imports in 1990 to 25 percent by 1997. Macau has in recent years imported most of its food from Southern China, and its raw materials and capital goods from the OECD countries.

Table 26.

Macau: Imports by Country Origin, 1990-98

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Sources: Census and Statistics Department, Yearbook of Statistics (various issues); and the Macau authorities.

Excludes temporary and re-imports.

68. The external services account has been rapidly gaining in importance, with the share of exports of services in total earnings from exports of goods and nonfactor services increased from 40 percent in the 1980s to 47 percent in 1990 and further to 59 percent in 1997–98, equivalent to 40 percent of GDP. Over the last several years, Macau has been running a surplus in the services account in the order of 35 percent of GDP, which mainly came from the tourism industry centered around gambling.

69. Tourism inflows grew rapidly in the early 1990s, growing on average at 6.5 percent per year during 1991–95. However, tourism receipts declined starting in 1996 and has since fallen by about 10 percent per year during 1997–98. Currently, about 63 percent of visitors are from Hong Kong SAR, 13 percent from Taiwan province of China, 7.5 percent from mainland China, and 6.7 percent from Japan and Southeast Asia. The number of visitors declined from 8.2 million in 1996 to 7 million in 1997, and it declined further in 1998 although in the latter half of the year, there were signs of increases in tourist arrivals. Reflecting these developments, the hotel occupancy rate dropped from 64 percent in 1996 to 52 percent in 1997 (Table 27), and further declined to about 51 percent in 1998. Two factors could have been behind this decline. First, there was a sharp drop in tourist arrivals in Hong Kong SAR, particularly after the 1997 handover, and Macau, being a favorite destination for those visiting Hong Kong SAR, experienced a parallel reduction. Second, demand for tourism in the region generally declined, owing to the effects of the Asian financial crisis. Since about two thirds of visitors’ spending in Macau during 1997–98 was on gambling, Macau’s earnings from tourism was severely affected by the weakness in tourism in the region.18

Table 27.

Macau: Indicators of Tourism, 1990-98

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Sources: Census and Statistics Department, Yearbook of Statistics (Various Issues) and the Macau authorities, as staff estimates.

First 11 months

B. Overall Balance, International Reserves, and Imputed Capital Outflows

70. As there are no comprehensive data on Macau’s balance of payments, particularly the capital account, the level of capital outflows could be gauged by the residual of the current account surplus after deducting the buildup of official international reserves (table below).

Macau: Main Features of the Balance of Payments. 1991–98

(In billions of US dollars)

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Estimates.

71. The level of residual capital outflows was about US$2.4 billion in 1998, equivalent to about one third of GDP. This was almost equal to the total stock of official reserves of the AMCM. This illustrates the high degree of openness of Macau’s economy, its limited absorptive capacity of the economy due to its smallness, and thus the limited opportunities for investments within the territory. One third of gambling receipts is paid in taxes, and a large portion of the remaining two thirds after expenses would represent most of the imputed capital outflows. The highest level of official international reserve buildup by the AMCM occurred in 1992, the year with peak economic growth (over 13 percent), followed by a reasonably good buildup of reserves during 1992–95. As the economy slowed in the period 1996–98, the buildup of reserves also slowed, but no loss of reserves occurred. By 1998, the level of the AMCM’s reserves stood at US$2.5 billion, equivalent to about 12 months of import over. Macau has no external debt obligations, except for a small amount of guarantees to the airport.

C. Exchange Rate Regime and Developments

72. On April 9, 1977, the exchange rate of Macau’s currency, the pataca, was formally de-linked from the Portuguese escudo and linked to the Hong Kong dollar at a central rate of MOP 107.5 = HK$100, and the transaction rates were allowed to deviate from this rate as long as they were within a band of plus one percent and minus one percent of the central rate. Effective January 2, 1979, the central rate of the pataca was set at MOP 100.25 = HK$100, and the transaction rates were to take place within a band not exceeding 4 percent on either side of the central rate. This arrangement continued through May 10, 1987. Since May 11, 1987, the Monetary and Foreign Exchange Authority has maintained its commitment to transact with local banks at MOP 103.1 = HK$100 for selling patacas and at MOP 102.9 = HK$100 for buying patacas, which fall within the legal fluctuation band.

73. The nominal and real effective exchange rates of the pataca have remained broadly stable since 1990 (Table 28 and Chart 5). Between the onset of the Asian crisis in mid–1997 and end–1998, the nominal and real effective rates appreciated by less than 1 percent, reflecting the large weights of the Hong Kong dollar and the Chinese renminbi in the calculation of the effective exchange rates.

Table 28.

Macau: Effective Exchange Rates

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Source: Staff calculation

VII. Trade and Exchange Systems

A. Trade System and Policy

74. Macau became a GATT contracting party in 1991 and was given full autonomy in the conduct of external commercial relations by the government of Portugal. Macau is a founding member of the WTO, and the Final Act embodying the results of the Uruguay Round of multilateral trade negotiations was adopted (officially gazetted in Macau in February 1996). Under the 1987 Joint Declaration, Macau will remain a member of WTO (as a separate customs territory) after the handover of sovereignty to China in December 1999. About four fifths of Macau’s exports are protected with textile export quotas under the multi-fiber arrangements (MFA). These exports have not yet been affected much by the initial stages of the phasing-out of the MFA, being implemented under the Uruguay Round Agreement on Textiles and Clothing, because of the heavy end-loaded phasing-out of MFA quantitative restrictions, which would only extend to Macau’s products at the last stage at end–2004.

75. Macau has no specific sectoral trade policies, except in the context of participation in the MFA. The Territory has never applied customs duties or any other customs fees on imports. In principle, imports from any source may enter Macau on a duty free basis (zero tariffs) and with minimum controls. Such controls take the form of import licensing (except for perishable goods). Licences are issued automatically and at no charge. Licencing is usually for statistical purposes, but prior authorization is required for imports affecting public safety (arms and ammunition), or health and environmental protection (live animals, fuels, chemicals), or strategic products (radio transmitters and power supply products), and to monitor imports of precious metals and motor vehicles. Imports of textiles and clothing are also subject to prior authorization for surveillance purposes, as a back-up to Macau export control system. The only other restriction on imports applies to second hand motor vehicles, due to local environmental and safety considerations.

76. Similarly, goods leaving Macau are subject to export licencing (again with the exception of perishable goods). Temporary exports and re-exports require prior authorization, as do textile products that are subject to quota. This system is in place to ensure compliance with Macau’s responsibilities under textile bilateral agreements in accordance with the MFA. Prior authorization is also required for purposes of environmental protection (chemicals and endangered flora and fauna). Macau applies no rules of origin on incoming goods but has to observe origin rules imposed by countries to which goods are exported (such as textile exports under the bilateral agreements and for purposes subject to Generalized System of Preferences treatment). For this purpose, the Macau authorities issue certificates of origin, at minimal fees. In the context of the MFA, Macau has bilateral agreements with the United States, EU, Austria, Canada, Finland, and Norway. Macau is also a party to a trade and cooperation agreement with the EU, which is a non-preferential agreement under which the parties accord each other most favored nation treatment as per GATT provisions.

B. Exchange System

77. There are no restrictions on the making of payments for current or capital international transactions. However, to encourage local currency circulation, exporters of goods are required to convert 40 percent of their proceeds into patacas through the banking system, acting as agents of the AMCM. This provision does not apply to the gambling proceeds, which are governed by a contract with the gambling concession, under which taxes on gambling are paid in Hong Kong dollars to the AMCM, which in turn credits the government accounts with the pataca equivalent net of a transaction fee.

2

Rough estimates of industrial production value added indicate that contribution declined from 15 percent of GDP in 1990 to 8 percent of GDP in 1997, largely reflecting a decline in manufacturing (whose share fell from 87 percent of industrial value added in 1990 to 74 percent during 1997), while value added of the “electricity, gas, and water” sector almost doubled during 1990–97.

3

Value-added in tourism in real terms, which had been growing by 6½ percent per year during 1991–95 and accounted for about 40 percent of GDP, started to decline in 1996, and became progressively weaker as it dropped by 9.7 percent in 1997 and 10.9 percent in 1998.

4

During 1997–98, the sharp decline in nonfactor services was partially cushioned by the good performance of the merchandise trade sector, which remained relatively strong as garment exports continued to grow while import demand fell in real terms.

5

Due to the break in the series, the overall index and its components after 1997 are not strictly comparable to those in earlier years. Nevertheless, general movements are broadly in line. For further detail, see Table 4.

6

In 1998, the authorities started to compile data on rents.

7

The principal labor-related legislation is the Labor Relations Ordinance, which specifies basic employment conditions for resident workers. Other ordinances ban child labor, limits working hours, and prescribe paid maternity and annual leave. However, the government does not interfere in the wage determination process and there is no minimum wage legislation. Labor policies are coordinated and implemented by the Labor and Employment Department, which is responsible to the Secretary for Health and Social Affairs. The Department is advised by the Standing Committee for Social Co-operation, which represents employer and labor interests.

8

The corresponding figure for the second quarter of 1997 was 3.7 percent.

9

The authorities consider the contracting of non-resident workers as an important instrument in the management of the labor market, in particular in cases of resident labor shortages. All recruitment of non-resident labor must be approved in advance. Unskilled labor is provided by recognized suppliers, who are also responsible for accommodation and repatriation; skilled labor may be recruited directly by the employer. The number of non-resident workers remained relatively stable throughout 1997 at around 29,500 (14.7 percent of total employees), but rose to stand at 30,400 (15.1 percent of the total) at end–June 1998.

10

The Finance Department exercises financial control over the execution of the budget of the autonomous bodies and funds, based on quarterly budget execution submissions.

11

The Organic Law of Macau and Law no. 41/83M specify that budgeted revenue should cover budgeted expenditure and that current revenue should at least cover current expenditure. The authorities have interpreted these provisions to mean inter alia that the deficit in any year should not exceed accumulated surpluses in government accounts. Macau currently has no public debt in the form of bonds, although it has guaranteed part of the domestic and external debt for the new airport.

12

As specified by the Joint Declaration of 1987, the Land Fund, similar to that for Hong Kong SAR, receives one half of revenue from new and renewed leases on government-owned land, for use by Macau SAR after sovereignty over Macau is transferred to China.

13

Through land reclamation projects, the size of the Territory has increased by 40 percent since 1986, from 17 square kilometers to 24 square kilometers.

14

Land lease arrears totaled MOP2.5 billion (4½ percent of GDP) at end–1998. About half of these arrears have been rescheduled.

15

The mortgage interest program subsidizes interest costs on approved housing loans; thus far about MOP2.5 billion has been borrowed from banks under the scheme.

16

Under the new contract, the government share of revenue was raised by 1.8 percentage points, to 31.8 percent, effective January 1996. In addition, a further 1.6 percent, which had previously been paid into a foundation headquartered in Portugal, now was transferred into the budget, in anticipation of it being transferred to a new foundation established in Macau that was created in the context of the revision of the gambling contract. In the absence of these new provisions, total revenue would have grown by just over 4 percent in 1997.

17

About 4,300 families live in rented social housing, of which over half pay rent of less than MOP200 per month (about 4 percent of a median monthly income of an employee in the economy in 1997), and 70 percent pay less than MOP400.

18

While the opening of Macau’s airport started to contribute to external sector earnings, these are currently modest. It is expected that direct flights to Macau from various airports in the region will continue to increase the potential for Macau’s tourism.

APPENDIX I Transfer of Sovereignty

China and Portugal began talks on the future of the territory of Macau in May 1985, and signed a Joint Declaration on April 13, 1987. According to the Joint Declaration, China will resume sovereignty over Macau on December 20, 1999. The agreement provides that Macau will be governed by a Basic Law on the Macau Special Administrative Region (SAR), which will preserve the present social and economic system of Macau SAR for 50 years until 2049, within the framework of the Chinese formula of “one country, two systems.”1 Macau SAR, administered by the Macau SAR Government, will remain a free port and a separate customs territory. Capital will continue to flow freely and the Macau currency, the pataca, will remain legal tender and be freely convertible. Macau SAR will run its own finances independently and the central Government of China will not levy taxes in Macau SAR.

Macau SAR will possess executive, legislative, and independent judicial powers and will conduct its own external relations in the fields of economy, education, science, technology and culture and can conclude agreements with other countries and international organizations in these areas. It can also issue its own travel documents. Only foreign and defense affairs will be the responsibility of the central Government in Beijing. Portuguese and Chinese will both be official languages of Macau SAR.

The political structure of Macau SAR will comprise: The Chief Executive; an Executive Council, a consultative body which must be heard by the Chief Executive before important decisions are taken; a Government, headed by the Chief Executive and responsible to the legislative body; an Legislative Assembly composed of 8 directly elected members and 8 indirectly elected members, as well as seven members appointed by the Chief Executive.

The implementation of the Joint Declaration is overseen by a Sino-Portuguese Joint Liaison Group—a liaison, consultation and information-exchange body, which was created at the time of the Joint Declaration and will remain in operation until January 2000. As foreseen in the Basic Law, a Preparatory Committee under Chinese jurisdiction was established in mid–1998 to prepare for the selection of the administration of Macau SAR.

In addition, a Sino-Portuguese Land Group was set up to deal with land concession contracts and other related matters in Macau. The functions of this group are: to decide upon the total area of land concession to be granted beyond 20 hectares (the Governor has the exclusive right to decide up to a limit of 20 hectares per year); to decide upon the use of net revenues thereby obtained, divided equally between the current administration and the future administration of Macau SAR; and to prepare a proposal for the future use of land revenues, which, after 1999, will belong to Macau SAR.

APPENDIX II Structure of the Government

In accordance with the autonomy consecrated in the Organic Statute of Macau, promulgated by the Portuguese Parliament in 1976 and revised in 1990 and in 1996, the Governor of Macau has both executive and legislative authority. Legislative authority is shared with the Legislative Assembly. The Governor is Portugal’s representative in Macau and is accountable to the President. The Legislative Assembly is a body of mixed representation; eight deputies are directly elected by the people, another seven deputies are appointed by the Governor from among those residents held in high esteem by the community, and eight deputies are elected by functional constituencies.1

The Governor is appointed by the President of Portugal, after consultation with the Legislative Assembly and bodies representing local interests in Macau. In exercising the executive and legislative functions, the Governor is assisted by the Consultative Council, which consists of five members appointed by the Governor and five who are indirectly elected. The Governor ensures political coordination with the help and advice of seven undersecretaries, who are nominated by the President of Portugal at the Governor’s recommendation.2

The unicameral Legislative Assembly comprise 23 deputies elected for four-year terms.3 The duties of the Legislative Assembly include: to ensure that constitutional and statutory norms and laws are complied with; to make recommendations and propose alterations to the Organic Statute of Macau; to legislate on matters falling within its jurisdiction, to grant legislative authorization to the Governor and ratify or modify any bill proposed by the Governor on matters which are not the Governor’s exclusive responsibility; to authorize the Governor to raise loans; to appraise the actions of the Governor, the undersecretaries and the administration; and, on the basis of detailed justification, to veto government actions.

With regard to the judicial system, Portuguese law operates; the territory is part of the judicial system of Portugal although it operates its own court of first instance and the power of final adjudication is now vested in the Supreme Court of Macau.

APPENDIX III Monetary Institutions and Arrangements

  • The Monetary and Foreign Exchange Authority of Macau (AMCM, Autoridade Monetaria e Cambial de Macau) was established in mid-1989 as the successor institution of the Instituto Emissor de Macau (IEM). The Financial Systems Act of 1993 consolidated all previous rules and regulations relating to the banking and related sectors. Under the Act, the AMCM’s main functions are to: assist the Governor in the formulation and conduct of monetary, financial, exchange-rate policies; monitor and supervise the banking and insurance markets; act as a central depository of gold reserves and other foreign assets; and promote the use of the local currency—the pataca.

  • The Banco Nacional Ultramarino (BNU), a Portuguese bank with a long tradition in Macau, was for 75 years the sole issuer of pataca banknotes. In 1995, the Bank of China was also permitted to issue pataca banknotes. Under the currency-board arrangement, these two banks are required to surrender to the AMCM the foreign exchange equivalent of the pataca banknotes it issues. Since 1977 the pataca has been pegged to the Hong Kong dollar, which also circulates widely in Macau and accounts for around one-half of measured broad money.

  • The AMCM supports the use of the pataca by promoting its liquidity in a number of ways: by issuing monetary bills that allow banks to invest their excess liquidity in patacas; by conducting foreign exchange operations and currency swaps that enable smaller banks to obtain local currency; and by entering into repurchase agreements in monetary bills. In addition, AMCM has offered banks involved in large infrastructure projects medium- and long-term currency swaps.

  • There are currently 22 registered banks with 132 branches; 9 are locally incorporated while the rest are branches of banks with head offices abroad, including one offshore banking unit; in addition, there are 3 finance companies authorized and supervised by the AMCM.

  • Macau’s interbank money market is characterized by a high degree of liquidity, but relatively low turnover. Interest rates in the interbank market (Maibor) closely parallel corresponding interbank rates in the Hong Kong SAR market, where many of Macau’s banks transact intensively.

  • There are no exchange controls in Macau, nor restrictions on capital flows. However, exporters are required to sell to banks 40 percent of foreign exchange proceeds from merchandise exports.

APPENDIX IV Gambling Monopoly and its Associated Business Activities

  • The Government of Macau granted monopoly rights to all casino-style gambling in Macau for the first time in 1934. The gambling monopoly was passed on to the Sociedade de Tourismo e Diversoes de Macau (STDM), a privately held corporation, in 1962. The STDM’s contract was renewed several times with the latest signed in 1996, which runs through 2001. The STDM expanded the gambling business and currently operates nine casinos in Macau while a tenth is under construction. The majority of gamblers come from Hong Kong SAR for the weekend.

  • The key elements of the current contract are as follows. The STDM must: (1) pay to the government a special tax equivalent to about 32 percent of gambling receipts; (2) guarantee the operations of the marine transport; (3) cover the cost of several public works including clearing and drudging the river and developing the public facilities in the reclaimed zones in the vicinity of the port; (4) match any government spending in tourism promotion; (5) contribute 1.6 percent of gambling proceeds to the Cultural Center (operated by an academic, social, and cultural foundation); and (6) ensure the viability of the marine vessel maintenance facilities at the terminal. In return, the STDM is exempt from taxes on all operations related to gaming in Macau and on the non-gambling activities included in its contract.

  • The STDM is a major shareholder in the airport, the marine terminal, and the electricity company, and has recently taken over a supermarket chain. The STDM has shares in all the major hotels, a bank, and several real estate ventures. There is no published information on the total value of STDM’s assets or its business turnover.

  • In 1998, government revenue from gambling accounted for 60 percent of current revenue. Gambling activity spills over to other tourism services such as hotel and restaurant activities. Overall tourism is estimated to contribute about 40 percent to GDP, with gambling currently contributing around one third of GDP, compared with about a quarter of GDP in 1989.

APPENDIX V Statistical System and Issues

A. Statistical System

The System of Statistical Information of Macau (SIEM) was established in 1984, to provide the government of the Territory and the public with relevant statistical data. According to the Law 62/96/M of October 14, 1984 the SIEM is comprised of the Consultative Committee for Statistics (CCE) and statistical production units.

The CCE is a committee that serves as a link between suppliers, producers, and users of the statistical data. Apart from supervising the activities of the System, the CCE is also responsible for: (a) evaluating all the major policies on the statistical production; (b) reviewing the plans and programmes prepared by the respective statistical production units; and (c) overseeing the adoption of international nomenclatures that are applicable to the Territory. The CCE is headed by the Director of the Census and Statistics Department of Macau (DSEC).

The DSEC and the Monetary and Foreign Exchange Authority of Macau (AMCM) are the two main production units of statistics in Macau. The former is the main producer that coordinates all the statistical activities and is responsible for recording, verifying, processing, analyzing and disseminating the statistical information on demography, economy, and the environment, while the latter is responsible for statistics on finance, monetary, foreign exchange and insurance. Dissemination of any statistical information is subject to prior approval of DSEC.

B. Statistical Issues

Real sector, prices, labor, and social indicators

GDP estimates are made by DSEC through the analysis of a variety of sector-by-sector sources of economic, social, and public finance statistics. However, GDP estimates are only published broken down by the major categories of expenditure, as value added information on the production side is not readily available except for some sectors (such as manufacturing). DSEC collects and publishes data on key economic activities in Macau, namely: tourism, distributive trades, and construction. Data are also published covering prices and employment. Price series include the consumer price index (monthly), wholesale and retail price indices (annual), and a wage index (quarterly). The weights in the CPI basket were revised to take account of the 1993/94 household budget survey; however about a quarter of the basket relating to residential rentals is not updated because of rent controls.

Social and demographic statistics are mainly collected from the administrative records. In addition, DSEC’s important statistical operations include the Population and Housing Census and the Bycensus which are conducted every 10 years; the Household Expenditure Survey, every 5 years; and the Construction Survey and Industry Survey, conducted annually. Accordingly DSEC publishes a number of statistical indicators, for example: Demographic Indicators, estimates of resident population, and Labor Statistics.

External sector

There are extensive data on exports and imports of goods, direction of trade. Data on trade in services are also readily available, although with less detail. However, there have been recent revisions to the trade data and the definitions making the distinction between trade with Macau and transit trade are not clear. The services balance shows a large surplus that is heavily influenced by transfers of nonresidents for tourism and gambling. Macau however does not produce balance of payments statistics, and no information on capital account transactions is available. There is only sketchy information on external debt published by the authorities, although the public and publicly guaranteed debt is negligible.

Monetary accounts

The AMCM compiles detailed data on banks and other financial institutions. A significant portion of M2 is composed of non-pataca deposits, as currency cocirculation of the Hong Kong dollar is widespread; which makes the weakness in applying the residency criteria used for bank reporting of particular significance. Furthermore no effort is made to estimate non-pataca currency in circulation, which affects the measurement of reserve money and broad money supply. The Land Fund (which is a blocked account for use by Government after the transition) is not included in monetary statistics. No information on bank soundness is published. Interest rate data and credit distribution by sector are readily available.

Government finance

The budget estimates are produced annually (fiscal year is the same as the calender year). The budget classification does not follow the standard government financial statistics (GFS) methodology. On the revenue side the surplus funds carried forward are classified as a source of current year revenues. On the expenditure side tax expenditures due to discretionary exemptions, particularly to investors, are not accounted for in the budget; neither are quasi- fiscal activities arising from interest rate subsidies. Budgetary data include the consolidated accounts of autonomous bodies, but they are not readily consistent with monetary statistics and other macroeconomic accounts.

C. Statistical Publications and Dissemination

The attached table summarizes the frequency and availability of statistical publications of Macau. In addition to the official publication, core data are posted fortnightly in the AMCM web site (amcm.macau.gov.mo). These include monthly data on: inflation and unemployment rates; government budget balance and its components; official reserves of AMCM; exports and imports; money supply, interest rates, and other monetary indicators; selected indicators on tourism, real estate, banking, and insurance; and annual estimates of GDP. DSEC also occasionally makes available to the public documents in Portuguese and Chinese on classification and methodology.

Macau: Plan of Statistical Publications, 1998

article image
Source: Census and Statistics Department, Macau; also available at their web page www.dsec.gov.mo LANGUAGE: P-Portuguese C-Chinese E-English Issue: Y-Yearbook B-Bulletin BR-Brief Report R-Report O-Other
1

The Basic Law of the Macau SAR, approved by the National People’s Congress of China in March, 1993, is to function as a mini-constitution which containes the statutes concerning the territory’s autonomy, the exclusive powers of the Chinese central authorities, the statute on rights of permanent residents of the Macau SAR, the political structure and the economic, cultural and social affairs of the region

1

The functional constituencies represent economic, labor, professional, cultural, educational, and social interests.

2

Portfolios comprise: Administration, Education, and Youth; Communications, Tourism, and Cultural Affairs; Economic Affairs; Health and Social Affairs; Justice; Public Security; and Public Works.

3

The next election is scheduled for September 2000.

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Portugal: Recent Economic Developments
Author:
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Volume/Issue:
Volume 1999: Issue 041
Publisher:
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ISBN:
9781451824636
ISSN:
1934-7685
Pages:
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DOI:
https://doi.org/10.5089/9781451824636.002
chart 1

macau: OUTPUT AND DEMAND, 1990–98
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macau: PRICES AND LABOR MARKET INDICATORS, 1990–98
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macau: FISCAL INDICATORS, 1990–98
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macau: MONETARY INDICATORS, 1990–98
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macau: EXTERNAL INDICATORS, 1990–98