People’s Republic of China—Macao Special Administrative Region: 2019 Article IV Consultation Discussions—Press Release; Staff Report; and Statement by the Executive Director for Macao SAR
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International Monetary Fund. Asia and Pacific Dept
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Publication Date:
06 May 2019
eISBN:
9781498313360
ISBN:
9781498313360
Language:
English
Keywords:
ISCR; CR; Macau; Macao SAR authority; asset; authority; Macao investment fund; fiscal policy; foreign exchange; banking sector; exchange rate; General government balance; Anti-money laundering and combating the financing of terrorism (AML/CFT); Asia and Pacific
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2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR

Abstract

2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR

Context and Recent Developments

1. Macao SAR is the largest casino center in the world and gaming tourism drives its growth. This small open economy has grown rapidly since its return to Chinese sovereignty in 1999 that brought a de jure gaming monopoly within China. In addition, the 2002 liberalization of the gaming sector attracted external investment and foreign competition, while the 2003 liberalization of tourist travel policies by China increased visitors. Over this expansive period, prudent macroeconomic policies have endowed the economy with large fiscal and foreign reserve buffers—standing at 121 and 40 percent of GDP respectively in 2017—with zero public debt. Macao SAR is part of the “Greater Bay Area” (GBA) plans for regional cooperation, linking it with Hong Kong SAR and the Mainland’s Guangdong province.

uA01fig01

China Greater Bay Area’s combined GDP is twice as big as San Francisco Bay Area’s

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, Tableau.

2. The economy returned to expansion in mid-2016. Gaming and tourism revenue returned to strong growth in 2017 and early 2018, after negative growth over 2014–16 following developments in Mainland China that reduced external demand from high-spending (VIP) visitors. (VIP gaming revenue, as opposed to “mass,” is derived from high-spending gamers.) The 2014–16 decline broadly mirrored developments in luxury spending elsewhere in the region (including in Hong Kong SAR) and followed the anticorruption campaign on the Mainland. Growth moderated in the second half of 2018, including from weaker investment and reduced VIP gaming linked to Mainland’s deleveraging effort and U.S.-China trade tensions. Growth recorded 4.7 percent in 2018 (from 9.7 percent in 2017). Inflation picked up over 2018 driven by housing, food, and energy prices. Credit continued to expand over 2018, while the lending interest rate slightly increased. Property prices recovered with the economic rebound, but they were flat in the second half of 2018. Unemployment remains low.

uA01fig02

Gaming revenue strengthened since 2017 driving growth

(In MOP billions)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC.
uA01fig03

Growth moderated in the second half of 2018

(Contribution to real GDP growth, in percentage points)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: CEIC; and IMF staff calculations.

3. Recent policies:

  • Fiscal. As the economy rebounded, the fiscal surplus increased in 2017 and 2018.

  • Housing. Measures were recently introduced to contain housing market risks, though loan-to-value limits for young first-time homebuyers were increased to help affordability.

  • Diversification efforts continue. Gaming and junket activities (i.e. VIP support and financing business, Box 1) still amount to almost half of GDP. The recently developed reclaimed land in Cotai and the newly opened Hong Kong-Zhuhai-Macao Bridge (HZMB) are supporting mass-market gaming and non-gaming tourism. To support financial sector development and diversification, the authorities have started facilitating banks’ involvement with issuance and local distribution of bonds from Mainland local governments and SOEs.

  • Overaii, recent policies broadly align with past staff advice (Annex VIII).

uA01fig04

Fiscal surplus increased Since 2017

(Output gap and change in GG Balance, in percent of Potential GDP and GDP, respectively)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: IMF staff estimates.

Outlook and Risks

4. Over the medium term, the economy will likely expand moderately, with surpluses in the fiscal and external current accounts. Progress with diversification efforts towards mass and non-gaming tourism, together with the important China gaming monopoly, are expected to deliver continued growth in the coming years.

  • Growth is projected at 4.3 percent in 2019 and to remain solid over the medium term at about 4 percent. While the outlook is more subdued than historical averages, it is also less volatile. The main driver of medium-term growth is tourism, with mass gaming and non-gaming tourism further expanding, but more subdued VIP gaming growth, in line with authorities’ diversification efforts towards more stable sources of growth. Investment is anticipated to remain weak, though improving over the medium term, partly due to the upcoming new gaming licenses. Unemployment is expected to remain low as the significant presence of foreign workers (under limited-term contracts) provides labor market flexibility.

  • Fiscal. More moderate growth in gaming will deliver less buoyant tax revenue, while social spending is expected to grow over time due to ageing and social pressures. Overall, fiscal surpluses (in percent of GDP) are expected to continue in the medium term, though of smaller magnitude.

  • Balance of Payments. Private and public savings are expected to decrease due to moderation in gaming revenues. Overall, current account surpluses are expected to continue, delivering further accumulation of foreign assets by the private and public sectors.

uA01fig05

The economy is expected to moderately expand over the medium term

(In percentage points)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: CEIC and IMF staff estimates.

5. Risks are tilted to the downside with the economy being particularly vulnerable to risks originating in Mainland China (Annex I):

  • Mainland China. Macao SAR’s small and open economy is highly vulnerable to economic, financial and policy developments in the Mainland. With most tourists coming from the Mainland, any policy that undermines their spending power abroad would negatively affect growth. The introduction of gambling in the Mainland or weaker than expected growth in the Mainland would also negatively affect growth. Main channels include shocks to gaming revenue, reduced investment, and banking sector exposures to Mainland.

  • U.S.-China trade tensions. Worsening of trade tensions between the U.S. and the Mainland could significantly impact Macao SAR, including via a fall in tourism inflows from the Mainland and reduced investment by the three U.S. casino operators. In addition, banking sector’s investments linked to global trade, including the Mainland’s, would be affected.

  • Sharp tightening of global financial conditions with unexpected Fed hikes. Given the indirect exchange rate peg to the U.S. dollar, the pataca would appreciate relative to the renminbi possibly reducing Macao SAR’s competitiveness and weakening gaming spending per visitor, though gaming revenue has been resilient to exchange rate movements. In addition, sharp increases in the cost of credit would reduce investment projects, potentially slow banks’ balance sheet growth, and it may abruptly cool the housing market.

  • Increased competition in the gaming industry. Emerging gaming centers in Asia could start diverting Mainland tourists from Macao SAR (i.e. Singapore, Philippines, Japan, Vietnam, South Korea).

  • On the upside: faster diversification progress and further land reclamation could boost sustainable growth by widening non-gaming tourism options and helping housing affordability.

uA01fig06

Macao SAR’s growth is highly affected by Mainland’s growth

(Real GDP growth in percent quarterly yoy annualized)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIQ Haver Analytics.
uA01fig07

VIP and mass gaming are highly correlated with mainland China’s property prices

(In percent, yoy)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Haver Analytics.
uA01fig08

Over 70 percent of visitors come from Mainland

(Visitor arrivals, in percent of total)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Haver Analytics.

6. Authorities’ Views. The authorities broadly agreed with staff’s baseline outlook. They confirmed that the China gaming monopoly will remain with Macao SAR for the foreseeable future and they shared the view that VIP-driven growth will be lower going forward but also more stable, including due to progress with diversification and an enhanced AML/CFT framework. They broadly agreed with highlighted risks, with U.S.-China trade tensions as one of the key factors, acknowledging the multiple exposures to China shocks. They highlighted Macao SAR’s reduced external vulnerabilities due to strong fiscal and foreign reserve buffers, a resilient banking sector, and the lack of domestic money or capital market instruments. They pointed out Macao SAR’s advantage as a “domestic tourism destination to Mainland China” shielded itself from increased competition from Asia. On the upside, they highlighted diversification potential from recent regional cooperation efforts (i.e. GBA), and the new high-speed Guangdong rail and the HZMB Bridge as boosting Macao SAR’s attractiveness to the Mainland and international tourists.

Fiscal Policy

A. Medium/Long-Term Fiscal Framework Including the Sovereign Wealth Fund

7. A comprehensive reform agenda to support prudent and efficient medium/long-term fiscal policymaking is needed. Macao SAR would benefit from a medium/long-term fiscal framework (MLTFF) for efficient use of gaming-dependent fiscal resources. Even though fiscal space is ample, with large fiscal reserves and no public debt, fiscal policy decisions are rather discretionary while following the conservative Basic Law mandate of balanced budgets. In addition to infrastructure development needs and social spending considerations, a key long-term spending pressure stems from the projected fast increase in the old-age dependency ratio that will boost pension and healthcare spending (with official projections showing a tripling in the number of old-age pensioners between 2021 and 2056).

8. A MLTFF will help increase efficiency in the use of fiscal reserves while helping ensure long-term fiscal sustainability and intergenerational equity in an aging society. Key pillars of the framework are a medium/long-term fiscal strategy and medium/long-term orientation within the annual budget process. This approach would entail developing (i) a medium/long-term macroeconomic framework, which would provide realistic multiyear projections of key economic variables; (ii) a MLTFF that would provide clear multiyear targets on aggregate fiscal variables; and (iii) a medium/long-term budget or expenditure framework, which would translate the overall budget envelope into a set of multiyear expenditure ceilings for main spending ministries. In the context of recent rapid accumulation of fiscal reserves with no public debt, the fiscal reserve-to-GDP ratio could be used as one possible fiscal anchor—though a view on optimal reserves would need to be formed—while any chosen anchor should be consistent with the MLTFF. The MLTFF should incorporate a counter-cyclical framework (discussed below) that can be layered over the fiscal targets from the MLTFF to account for needed cyclical adjustments. The authorities should start with producing a long-term fiscal sustainability report—Australia and New Zealand’s can serve as a model.

9. The authorities should ensure that their planned Sovereign Wealth Fund (SWF) is integrated into the MLTFF (Annex II). The authorities plan to establish a SWF in 2019 with the objectives of furthering Macao SAR’s development and enhancing its stability and fiscal buffers. Key considerations should include: integration of SWF within the MLTFF and annual budget including through clear but flexible inflow/outflow rules, and clear management guidelines and accountability following best practice as outlined in the “Santiago Principles” (designed by the International Working Group of Sovereign Wealth Funds).

10. Authorities’ Views. The authorities are not using an explicit medium/long-term fiscal framework to ground fiscal budget decisions. However, they may consider the cross-country cases and best-practice examples provided by staff. Regarding the planned Macao Investment and Development Fund (MIDF), the authorities took note of staff’s recommendation that the fund is integrated within a MLTFF and stated that a new independent public company is to lead the MIDF, following the Santiago principles.

B. Near-Term Fiscal Policy

11. An explicit counter-cyclical fiscal framework would also improve near-term budget preparation. Given the large output volatility due to external conditions affecting gaming, and given the substantial fiscal space, the economy can benefit from a more formal framework for counter-cyclical fiscal policy to smooth sharp private demand fluctuations. In recent years fiscal policy tended to be countercyclical, but an explicit counter-cyclical framework within budget preparation, including macro projections and improved estimates for fiscal outcomes, will help improve the calibration of the desirable discretionary fiscal response. Importantly, the counter-cyclical framework should be integrated with the MLTFF discussed above.

12. The projected 2019 fiscal policy stance is appropriate and could be made more expansionary if driven by priority spending under a medium/long-term fiscal plan. Overall fiscal tightening is projected for 2019 as the anticipated expansion of spending across several categories (including social spending) is more than compensated by a significant reduction in capital spending (partly due to one-off completion of projects). However, the fiscal policy stance—measured by the non-gaming structural balance in percent of potential non-gaming GDP—is appropriately supportive in light of a closing but still-negative output gap in 2019. Moreover, additional fiscal loosening in 2019 could be appropriate if driven by properly-targeted priority infrastructure and social spending (including education to boost needed human capital) that is desirable from a long-term perspective under the MLTFF.

uA01fig09

Overall fiscal tightening is expected for 2019 due to lower capex, but structural balance shows a supportive stance

(General Government Balance)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ Estimated by removing capital expenditure from non-gaming cyclically adjusted balanceSource: IMF staff estimates.

13. Social spending considerations. Because of its rapid growth, Macao SAR’s income per capita is one of the highest in the world. However, inequality is higher than the OECD average (Annex III). It is desirable to consider boosting targeted social spending to alleviate distributional concerns. Yet the largest social protection program (i.e. Wealth Partaking Scheme) is not targeted (Box 2). Housing affordability has been eroded, and the government should advance its efforts to increase access to housing for the vulnerable. Health and education spending are also comparatively low, suggesting that there is room to boost them in a targeted manner.

uA01fig10

Inequality is higher than the OECD average

(In Gini points, 2013, average across the region)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: SWIID Version 5.0; IMF WEO database; and IMF staff calculations.Note: ASEAN = Association of Southeast Asian nations; OECD = Organization for Economic Co-operation and Development. Data shown is disposable income gini index except for Macao SAR (gross income Gini).
uA01fig11

Social spending-to-GDP ratio is low when compared with Other countries

(General Government Social Spending, in percent of GDP) 1/

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ Social Spending = Social Protection + Health + Housing + EducationSource: Government Finance Statistics.
uA01fig12

Per capita spending has been increasing

(GG Expenditure by Function, thousand MOP per resident)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Government Finance Statistics.

14. Authorities’ Views. The authorities took note of staff’s proposal for a more formal countercyclical fiscal policy framework. They stated that the completion of large capital projects is driving the decline of the 2019 capital expenditure budget, while current expenditure is expected to grow based on the 2019 budget. The authorities shared the view that additional targeted spending to support diversification and social inclusion should be calibrated. Nevertheless, the authorities believed that the principle of keeping expenditure within its means to avoid deficits as stipulated by the Macao SAR Basic Law has served as an important policy anchor to safeguard Macao’s fiscal sustainability. To foster inclusion, the authorities noted that they are considering expanding the minimum wage to more sectors.

Financial Sector Policies and Housing

15. Balance sheets of the banking system continue to suggest that the sector remains sound, but ongoing attention to large short-term foreign liabilities and to the quality and liquidity of foreign assets is needed. Foreign banks are the bulk of the financial system—with 24 foreign branches and subsidiaries, and 4 local banks. The large scale of the banking system (about 400 percent of GDP in total assets) calls for continued supervisory caution. However, several factors moderate risks on the domestic and external side of the balance sheet.

  • Domestic operations remain strong regarding liquidity and asset quality, helped by moderate private sector leverage. Exposures to gaming remain large, though balance sheets of gaming operators remain strong.

  • The external side of the banking sector balance sheet shows large foreign liabilities, over 65 percent short-term, increasing funding risks (Annex IV). Moderating this risk, banks’ foreign assets far exceed liabilities, which increases banks’ ability to fund potential withdrawals—as long as the quality and liquidity of assets allow it. In addition, about 30 percent of the foreign liabilities of Macao SAR’s banks are due to related foreign banks—and the foreign banks provide some backing to the local branches. Regarding risks to foreign assets, given the significant bank exposure to the Mainland (about 30 percent of external assets), recent efforts by the Monetary Authority of Macao (AMCM) and People’s Bank of China (PBOC) to strengthen financial supervisory and regulatory cooperation, with plans to set up an information exchange framework, are welcome.

uA01fig13

Domestic real estate is over 40 percent of domestic lending to residents and over 10 percent of bank’s assets

(Domestic lending to resident private sector by sector, in percent of total, 2018Q4)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Government Finance Statistics.

Balance Sheet of the Banking Sector

article image
Memo:

Related parties’ share is 53 percent in 2018.

Related parties’ share is 71 percent in 2018.

Source: AMCM.

16. The AMCM could further strengthen the framework for sound Fintech adoption. Measures could be taken to further increase cyber resilience in financial institutions and Fintech firms, to promote RegTech to reduce regulatory costs, and incentivize Fintech firms to participate in a regulatory sandbox. Enhanced cross-border supervisory collaboration could help prevent regulatory arbitrage and avoidance. Recent financial regulation cooperation efforts by the AMCM and PBOC, including to coordinate work on Fintech and mobile payment regulation in Macao SAR, provide an opportunity for progress.

17. Steps to strengthen the AML/CFT framework are welcome and should be sustained. The AML/CFT framework was assessed in 2016 under the 2012 revised international standard. The assessment recognized Macao SAR’s progress in enhancing AML/CFT framework, including on preventive measures and supervision of the gaming sector, while noting the need for more improvements. Since the assessment, Macao SAR has further strengthened AML/CFT requirements in the gaming sector. Although it has intensified efforts to limit the number of junket promoters (Box 1), this needs to be complemented by strengthening the regulatory framework for market entry in line with the 2017 assessment. The oversight of junket promoters’ AML/CFT measures also needs strengthening. Ongoing efforts to enhance the sanctions regime—to hold casinos accountable for breaches of the junkets associated with them—should be taken forward. Macao SAR introduced a regulatory framework for monitoring cross-border movement of cash and bearer negotiable instruments in 2017 and is encouraged to ensure its effective implementation.

18. Authorities’ Views.

  • Financial system. The authorities highlighted the strength of the financial system with ample liquidity and sound asset quality. They noted continuous supervision of short-term foreign liabilities where they see contained funding risks due to the prominent funding from related foreign banks. With almost 70 percent of banks’ external assets in Hong Kong SAR and the Mainland, and almost 5 percent in BRI countries, they highlighted recent efforts to strengthen financial supervision and regulation cooperation across jurisdictions. The authorities reported on satisfactory results from regular stress tests on banks’ assets, including from shocks to the real estate portfolio and the Mainland exposure. They noted that the AMCM established a Fintech team, and is considering digitizing reporting and supervisory processes, and introducing a regulatory sandbox.

  • AML/CFT. They stressed the progress in strengthening the AML/CFT framework, including in the gaming sector, as reported by the 2017 report on international standards. The authorities are aware of the risks associated with junket promoters, including money laundering, and have taken steps to mitigate them including by limiting the number of junkets. They indicated that they are working on further steps, including strengthening the regulatory framework for market entry, intensifying AML/CFT oversight, and enhancing the sanction regime (for junkets’ compliance with AML/CFT requirements) to reinforce joint liability between a casino and its junket promoters.

A. Housing

19. The housing market has strongly recovered with the economic rebound that started in mid-2016, but the market appears to have cooled in the second half of 2018. After falling between mid-2014 and mid-2016, the residential property price index recovered fully between mid-2016 and mid-2018 (in real terms), though it stayed flat in the second half of 2018. Even though residential property prices remained below trend in 2018, they appear to remain somewhat overvalued, for smaller units in particular (Annex V).

uA01fig14

Property prices moderated in recent months

(3mma, 2011=100)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSECand IMF staff estimates.
uA01fig15

Prices of small properties continued to increase

(Average residential unit price by size of usable area, in percent year-on-year)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC.
uA01fig16

Macao SAR’s residential property price growth is in line with that in other cities in mainland, but higher than in other countries

(Property price index, 2016Q1= 100)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

20. The current housing macroprudential stance and related fiscal measures appear broadly appropriate. Measures were put in place in 2017 and 2018:

  • New measures were introduced to mitigate housing market risks via containment of demand. The loan-to-value limit for non-first-time homebuyers was tightened in May 2017. In February 2018, property tax exemptions on vacant properties were removed and a special stamp duty tax on the purchase of non-first residential property was introduced.

  • On the other hand, the AMCM eased loan-to-value limits for young first-time homebuyers to help affordability in February 2018 that may have unintentionally boosted demand and prices in this segment.

uA01fig17

Macroprudential measures in Macao SAR are somewhat looser than in Hong Kong SAR

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: IMF’s Annual Macroprudential Policy Survey.Note: Tighter policy measures are closer to the center.

Systemic risks in the housing market appear broadly contained. The authorities should continue monitoring residential property prices and the effects of recent housing market measures, as they may usually play out with a lag. Further actions should take into account evolving market conditions, including the recent growth deceleration and leveling off in residential property prices. In the event that residential property prices resume strong growth and may pose a risk to financial stability, the authorities could consider tightening macroprudential and/or fiscal-based measures.

uA01fig18

Most Macroprudential and Housing Fiscal Measures Were Recently Tightened

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ In Jun 2013, a new regulation for title transfer of uncompleted units was introduced. Real estate agency law, land law, the urban planning law and the cultural heritage protection law were also promulgated.2/ “Non-resident” refers to individuals without Macao SAR identity card.Source: CEIC, DSEC, Haver Analytics and IMF staff estimates.

21. The residency-based LTV is classified as a capital flow management measure and macroprudential measure (CFM/MPM) under the IMF’s Institutional View on capital flows (IV), and the authorities are encouraged to replace the residency-based differentiation feature of the LTV. The residency-based LTV was introduced in response to the surge of residential property transactions by nonresidents during the housing market boom in 2010–2011. The main objective was to put in place a preventive measure to strengthen banks’ risk management considering the spike in nonresident NPLs during the Asian Financial Crisis. In 2017, to curb financial stability risks from strong growth in residential property prices, the AMCM tightened LTV for residents and nonresidents simultaneously.

  • To attain the same policy objective without differentiating between residents and nonresidents, the authorities could examine whether they can protect against greater credit risk from lending to nonresidents through the existing multi-tiered-LTV structure but without the residency-based feature or by linking the differentiation in LTV limits directly to banks’ risk assessment of loans and borrowers, supported by additional measures such as enhancing information requirements and enforcement across borders and requiring banks to take into account country transfer or legal risk in their risk assessment. Further strengthening supervisory capacity of banks’ mortgage lending, broadly in line with FSAP recommendations (Annex VII), will be important to help ensure that these alternative measures are feasible.

22. A broader set of policies should support housing affordability, where continued efforts to boost housing supply will be key. The apparent cooling of the housing market is welcome and may contribute to improving housing affordability. However, remaining affordability concerns should be addressed by a broader set of supply policies:

  • Planning, zoning, and other reforms affect supply and prices only with long lags, and underlying demand for housing is expected to remain robust. Housing supply reforms should, therefore, not be delayed. Building on the government’s recent efforts to boost housing supply, plans should advance regulatory policy within a transparent framework that supports private sector supply and boosts well-targeted public housing supply, including via higher infrastructure spending.

  • A coordinated government strategy to foster public and private housing supply, including an urban planning framework and urban renewal plan, would help guide reform efforts. While completing needed environmental, design, transportation and other assessments, procedures should be expedited.

uA01fig19

Housing prices have grown faster than wage and inflation

(2011Q1=100)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, Haver Analytics and IMF staff estimates.

23. Authorities’ Views.

  • Housing market and policies. The authorities agreed that the housing market cooled in 2018 but remained somewhat overvalued. They noted that they stand ready to take further actions dependent on market conditions. They considered that the 2018 LTV loosening (for young first-time homebuyers) was effective in increasing credit for this group, but acknowledged its contribution to higher prices in the small-property segment. On the residency-based LTV, they took note of the recommendation to replace the differentiation between residents and nonresidents with alternative measures. They highlighted that the objectives of the LTV framework are to strengthen banks’ risk management, curb investment/speculation motives, and moderate risks to the financial sector. They explained that the LTV framework is key for Macao SAR’s stability in light of its open capital account and large spillovers from its real estate sector. They highlighted that the 2017 LTV tightening was not aimed at nonresidents as it was done for both residents and nonresidents. They may consider other alternative measures as suggested when appropriate.

  • Housing affordability. They agreed that boosting housing supply is key to address affordability concerns. In terms of public housing, they noted that ongoing projects will satisfy public housing needs by 2026 (by when they plan to add 50,000 public housing units) and they will carry on research analysis on public housing demand (including post-2026). They also noted measures under consideration to make public housing more targeted to the vulnerable. They explained that there are authorities which coordinate the strategy on public and private housing and noted that a draft master plan (to be completed in 2019) will support private housing development.

Diversifying Sources of Growth

24. The authorities have wide-ranging plans to enhance growth resilience by diversifying away from VIP gaming. The authorities are focusing on three areas:

  • From high-end VIP to mass-market gaming

  • From gaming tourism to non-gaming tourism

  • Bolstering the growth of the financial sector

uA01fig20

VIP share in gaming revenue has decreased aver the last year

(In percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC.
uA01fig21

The share of gaming value added in GDP has decreased since 2013

(In percent of GDP)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, DSEC and IMF staff estimates.

Some progress has been made in these areas, evidenced by a decrease in the VIP share of gaming (from 66 percent in 2013 to 49 percent in January). There is evidence of growth in non-gaming tourism, including due to the new HZMB Bridge. The authorities are also focusing on financial sector development—presently relatively low—through several channels: (i) financial intermediation between China and Portuguese-speaking countries (PSCs), (ii) financial partnerships with Mainland bond issuances, (iii) more financial services including financial leasing and wealth management, and (iv) participation in the Belt and Road Initiative (BRI).

uA01fig22

Macao SAR’s Financial Sector Development Lags Compared with Other Financial Centers

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ The assessment is based on two key features of a country’s financial sector: size and interconnectedness with financial sectors in other countries.2/ Calculated as value traded in percent of total stock market capitalization.3/ Measures information communication technology development from three dimensions: readiness (infrastructure and access), usage (intensity), and capability (skills).Source: 2013 IMF FSAP Board Paper, IMF financial development index (Svirydzenka, 2016), OECD, World Bank. Finstats database, WDI, UN ICT index,

25. Diversification policies should be guided by careful study of Macao SAR’s comparative advantage. Guiding principles should include:

  • Incentives for new concessions: With all six gaming concessions expiring in 2022, the authorities have the opportunity to further advance their growth strategy and should craft the new regulations with stronger incentives for operators to expand non-VIP tourism.

  • Infrastructure upgrades: To accommodate the higher number of tourists under a mass-market and non-gaming model, infrastructure plans should advance in order to ease supply-side bottlenecks. Some of these areas are expanded entertainment, convention and exhibition options, hotels and retail, including via integrated resorts and family-oriented facilities.

  • Financial sector policies: The China-PSCs niche is a natural area for financial sector growth, but potential gains hinge on the extent to which Mainland’s bilateral relationships reach PSCs. New investments in the Mainland should aim to diversify portfolio and risks, including, for example, among different Mainland issuers or regions. If expansion of financial services contributes to developing an offshore financial center, high standards for transparency of legal persons and trusts should be ensured. Policies should foster a highly educated workforce, ensuring that the educational system delivers the skills for financial services provision, and attract foreign talent as needed. Careful analysis of specific potential growth areas for Macao SAR and high project quality and transparency would be important regarding BRI participation.

uA01fig23

Hong Kong-Zhuhai-Macao Bridge (HZMB)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Transport and Housing Bureau of Hong Kong SAR.

26. Authorities’ Views. The authorities agreed with the guiding diversification principles proposed by staff and highlighted recent progress that will support Macao SAR’s success. They noted that within the recently unveiled GBA plans for regional cooperation, Macao SAR has the role of promoting cooperation with PSCs and promoting its example as a multicultural Chinese city that is a World Centre of Tourism and Leisure. They noted large potential gains from plans to facilitate the movement of people and goods inside GBA. They noted that the tourism industry development master plan was completed in 2017, and that MICE events (meetings, incentives, conferences, and exhibitions) grew five-fold between 2002 and 2017 (gross value added of MICE activities constituted 0.9 percent of total 2017 gross value added). They highlighted growth potential in the Chinese medicine sector (with exports to PSCs), with the progressive development of “Guangdong-Macao Cooperation Industrial Park” in Hengqin. They also highlighted that the recent investment agreement, as well as the economic and technical cooperation agreement under CEPA (Closer Economic Partnership Arrangement) with the Mainland are expected to boost FDI and trade in goods and services.

External Sector Stability

27. Macao SAR’s external position is assessed as substantially stronger than medium-term fundamentals and desirable policies, and infrastructure investment and social spending should be boosted (Annex VI). The current account (CA) surplus is estimated at 35 percent of GDP in 2018, down from a peak of 41 percent in 2011, but higher than the 25 percent in 2015. Under the assumption that the gaming monopoly is not temporary, the CA is assessed as substantially stronger than fundamentals and desirable policies. The real effective exchange rate depreciated by 1 percent annually in 2017 and in 2018, but it appreciated on a monthly basis since July 2018 in line with renminbi depreciation, standing at a level assessed to be broadly consistent with fundamentals and desirable policies. Overall, structural distortions including bottlenecks to investment and policies that cause excessive savings, such as low social spending—and not the exchange rate—are assessed as the reasons that prevent the external balance from adjusting to equilibrium.

uA01fig24

Annual REER depreciated in 2017 and 2018

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources; IMF staff estimates.Note: REEK and NEER equal to 100 in 2010, An increase in each series indicates pataca appreciation.
uA01fig25

REER appreciated since July 2018 in line with renminbi depreciation

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources; Haver Analytics and IMF staff estimates.Note: REER and NEER equal to 100 in 2010. An increase in each series indicates pataca appreciation.

28. The peg to the Hong Kong dollar continues to serve Macao SAR well. The pataca has been pegged to the Hong Kong dollar since 1977 and set at 1.03 patacas per Hong Kong dollar since 1983. The peg has provided a credible nominal anchor, as inflation expectations remain broadly anchored. This success is largely driven by steady application of the necessary supportive policies of prudent fiscal policy, flexible labor markets, liquid and well-capitalized banking sector, and adequate reserve coverage. Continuation of these policies will maintain the support to the exchange rate regime.

29. Authorities’ Views. The authorities took note of staff’s CA assessment and agreed with the recommended boost in infrastructure investment (to support diversification plans) and public social spending to help deliver a CA in line with the level consistent with fundamentals and desirable policies. They acknowledged bottlenecks to investment due to land scarcity while noting continuous reclamation efforts. They continue to view the currency board as critical for the stability of the economy. They agreed that the policy framework continues to provide the needed credibility for the exchange rate regime to be a lasting nominal anchor.

Staff Appraisal

30. Macao SAR returned to expansion since mid-2016 and is expected to expand moderately—at about 4 percent—over the medium term. Gaming and tourism revenue returned to strong growth in 2017 and early 2018. Growth moderated in the second half of 2018, including due to spillovers from Mainland’s deleveraging effort and U.S.-China trade tensions. Over the medium term, the economy is expected to grow moderately at about 4 percent. The outlook is driven by tourism and more subdued VIP gaming growth in line with diversification efforts towards more stable sources of growth. Risks are tilted to the downside, mainly emanating from Mainland China. Prudent macroeconomic policies and high reserves provide strong buffers against shocks.

31. A comprehensive reform agenda to support prudent and efficient medium/long-term fiscal policymaking is needed. A MLTFF will help increase efficiency in the use of fiscal reserves while helping ensure long-term fiscal sustainability and intergenerational equity in an aging society. The authorities should start with producing a long-term fiscal sustainability report and should ensure that their planned SWF is integrated into the MLTFF.

32. The projected 2019 fiscal policy stance is appropriately supportive in light of the recent growth deceleration. Accounting for the one-off completion of capital projects in 2018, the policy stance is appropriately supportive. However, an explicit counter-cyclical fiscal framework—integrated with the MLTFF—is needed to improve near-term budget preparation and smooth domestic demand. The 2019 policy stance could be made more expansionary if driven by priority spending under a medium/long-term fiscal plan. This priority spending would include properly-targeted priority infrastructure and social spending (including education spending to boost needed human capital) to support the diversification agenda and foster inclusion.

33. The financial sector remains sound. However, the large scale of the banking system calls for continued supervisory caution. Large short-term foreign liabilities warrant ongoing attention, while strengthened supervisory and regulatory cooperation across jurisdictions over the quality and liquidity of foreign assets is welcome. The AMCM could further strengthen the framework for sound Fintech adoption. Steps to strengthen the AML/CFT framework, particularly for the gaming sector, should be sustained. Efforts to limit the number of junket promoters need to be complemented by strengthening the regulatory framework for their market entry, and strengthening the oversight of AML/CFT measures in this sector. In addition, ongoing efforts to enhance the sanctions regime—to hold casinos accountable for breaches of the junkets associated with them—should be taken forward.

34. The current housing macroprudential stance and related fiscal measures appear broadly appropriate. With new measures in place in 2017 and 2018, systemic risks in the housing market appear broadly contained. Further actions should take into account evolving market conditions, including the recent growth deceleration and leveling off in residential property prices. In the event that residential property prices resume strong growth and may pose a risk to financial stability, the authorities could consider tightening macroprudential and/or fiscal-based measures. The authorities are encouraged to replace the residency-based differentiation in the LTV framework with alternative measures. Housing affordability concerns should be addressed by a broad set of supply policies including advancing regulatory policy within a transparent framework that supports private sector supply and boosts well-targeted public housing supply, including via higher infrastructure spending.

35. Diversification policies should be guided by careful study of Macao SAR’s comparative advantage. Guiding principles include: (i) new regulations for gaming concessions should support diversification with stronger incentives for non-VIP tourism expansion, (ii) infrastructure plans should advance to ease supply-side bottlenecks and support a higher number of tourists under a mass-gaming and non-gaming model, and (iii) in support of financial sector development plans, policies should foster a highly educated workforce, ensuring that the educational system delivers the skills for financial services provision, and attract foreign talent as needed.

36. Macao SAR’s external position is assessed as substantially stronger than medium-term fundamentals and desirable policies, and infrastructure investment and social spending should be boosted to reduce external imbalances. The exchange rate peg continues to serve Macao SAR well and should be maintained including via prudent fiscal policy, sound financial sector, and adequate reserves.

37. It is proposed that the next Article IV consultation discussions take place on the standard 24-month cycle.

Junket Finance in Macao SAR1

VIP gaming plays a big role in Macao SAR’s economy. For example, in 2017, the value added from gaming and junket activities was close to 50 percent of GDP, and the game of VIP Baccarat alone accounted for around 55 percent of all gross gaming revenue.

VIP gaming activities are mostly facilitated by junket promoters (“junkets”). Junkets provide complementary facilities to VIP patrons including transportation, accommodation, meals, entertainment, and financing. In exchange for attracting VIP patrons to Macao SAR’s casinos, junkets are remunerated by casinos. Junkets are locally incorporated companies or local legal persons, and need an annually-renewed license from the Gaming Inspection and Coordination Bureau (DICJ).

A key service provided by junkets is the extension of credit to VIP patrons. The extension of credit to VIP patrons is mainly to facilitate patrons to gamble without bringing large amounts of cash to Macao SAR. By law, junket gaming credit is extended in the form of unconvertible casino chips. When VIP patrons gamble and win, they collect chips that are convertible to cash, and when they lose, the junket credit becomes collectible debt.

Junkets have been subject to anti-money laundering and combating financing of terrorism (AML/CFT) obligations since 2006. Under the regulations, casinos are liable to ensure compliance with AML/CFT obligations of their associated junkets. Requirements were strengthened in 2016 to align the framework with the revised international standard. In recent years there have been more instances of revocation of junket licenses by DICJ. However effective implementation of existing measures remains a challenge.

uA01fig26

Number of Active Junkets

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DICJ
uA01fig27

Stock Market Performance of Two Listed Junkets

(Both series = 100 for 1/1/2009)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Thomson Reuters

Following changes in business environment and strengthened regulation, the junket industry has consolidated over the last six years. Peaking in 2013 with 235 approved licenses, the number of junkets has declined to 100 in 2019.2 In parallel, several junkets have shown poor performance in the stock market. In line with the consolidation in the sector, the market share of the top five junkets has increased from 65 percent in 2014 to 80 percent in 2018.3

As the economy diversifies away from VIP gaming, the junket segment is expected to contract further. Staff projects the observed decline in the number of junkets to continue under the government diversification plans where economic activity is expected to move towards mass-market gaming and non-gaming tourism, and away from VIP gaming.

1 Prepared by Sakai Ando (STA). 2 End-January figures for each year as published in “Approved Licensed Junket Promoter List.” 3 “Equities Hotels Restaurants & Leisure, Macau Gaming,” HSBC Global Research, October 2018.

Universal Cash Transfers: Wealth Partaking Scheme1

Macao SAR adopted a universal cash transfers program in 2008. Macao SAR’s level of government spending and social spending are below OECD’s average. However, Macao SAR has a universal cash transfers program. Within social spending, the universal cash transfers program—Wealth Partaking Scheme (WPS)—accounts for one third of social protection and 16 percent of social spending. A remarkable feature of WPS is that it is a universal basic income program (UBI) as it transfers an equal amount of cash to all permanent residents.

uA01fig28

Government Expenditure

(In percent of GDP)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source; Government Finance Statistics
uA01fig29

Social Spending in 2017

(In percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: GFS, Macao SAR Financial Services Bureau

Cash transfers under the program amount to 5 percent of median annual income. The amount received by each permanent resident was 9,000 patacas in 2017, amounting to 5 percent of annual median income. The transfer is scheduled to increase to 10,000 patacas in 2019, representing a 34 percent increase in real terms of the initial amount of 5,000 patacas in 2008.

WPS is the second oldest ongoing UBI program. Several countries have implemented or studied UBI programs recently, such as Finland, Iran, and India.2 However, most UBI programs are short-lived. WPS is one of only two ongoing programs that have lasted more than 10 years, together with the pioneering Alaska Permanent Fund (APF) that started in 1982. WPS and APF are similar in generosity, with 2017 benefits around 1.5 percent of GDP per capita in both cases.

uA01fig30

Amount of Basic Income per capita

(In percent of GDP per capita)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: Staff estimates.
1 Prepared by Sakai Ando (STA). 2 In Finland, to study a potential UBI, 2,000 randomly selected unemployed individuals received 17 percent of GDP per capita in 2017 and 2018, and the program will be ended in 2019. In Iran, over 90 percent of Iranians received 6.5 percent of GDP per capita between 2011 and 2015, and the program was ended in 2016. India plans to take a step toward UBI in 2019 by distributing 6,000 rupees to farming family with less than 2 hectares.
Figure 1.
Figure 1.

Macao SAR: Real Sector

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, DSEC, Haver Analytics, and IMF staff calculations.
Figure 2.
Figure 2.

Macao SAR: External Position

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, DSEC, Haver Analytics, and IMF staff calculations.
Figure 3.
Figure 3.

Macao SAR: Banking Sector Developments

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, DSEC, Haver Analytics, and IMF staff calculations.
Figure 4.
Figure 4.

Macao SAR: Fiscal Outlook

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, DSEC, Haver Analytics, Macao Financial Serices Bureau, IMF GFS database, and IMF staff calculations.
Table 1.

Macao SAR: Selected Economic and Financial Indicators

article image
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates.

Contribution to annual growth in percentage points.

Fiscal Reserve was established on January 1, 2012 with a transfer from foreign exchange reserves.

Table 2.

Macao SAR: Medium-Term Macroeconomic Framework

article image
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates and projections.

Contribution to annual growth in percentage points.

BPM6 methodology.

Table 3a.

Macao SAR: General Government Accounts (million MOP)

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Fiscal Reserve was established on January 1, 2012 with a transfer from foreign exchange reserves.

Sources: Financial Services Bureau and IMF staff estimates.
Table 3b.

Macao SAR: General Government Accounts (percent of GDP)

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Fiscal Reserve was established on January 1, 2012 with a transfer from foreign exchange reserves.

In percent of potential non-gaming GDP

Includes Social Protection, Health, Housing, and Education from spending categories by function. Sources: Financial Services Bureau; and IMF staff estimates.

Table 4.

Macao SAR: Balance of Payments 1/

article image
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates and projections.

BPM6 methodology.

Table 5.

Macao SAR: Indicators of External Vulnerability

article image
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates and projections.

BPM6 methodology, Data for 2013 are IMF staff estimates.

Excluding AMCM.

Table 6.

Macao SAR: Financial Soundness Indicators

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Sources: AMCM and IMF FSI database. * Core indicators ** Encouraged indicators

Locally incorporated banks only.

Annex I. Risk Assessment Matrix

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Note: Downside risks are marked with a red arrow and upside risks with a green arrow.

Annex II. Medium and Long-Term Fiscal Framework and Sovereign Wealth Fund: Some Case Studies1,2

1. Macao SAR has kept government expenditure within the limits of revenues every year. The prudent fiscal policy follows Macao SAR’s Basic Law and has contributed to zero public debt and large foreign and fiscal reserves (with 40 and 121 percent of GDP respectively in 2017). In addition, using the growing fiscal reserves, Macao SAR plans to establish a sovereign wealth fund in 2019 (Macao SAR Investment and Development Fund, MIDF).

2. Alternatively, the adoption of a MLTFF in Macao SAR will help ensure efficient use of fiscal resources, long-term fiscal sustainability and intergenerational equity in an aging society. Some countries have adopted such formal arrangements:

  • In Australia, the Charter of Budget Honesty Act (1998) requires an Intergenerational Report to be produced every five years. The reports assess the long-term sustainability of current government policies and how changes to Australia’s population size and age profile may impact economic growth, workforce and public finances over the following 40 years.

  • In New Zealand, the Fiscal Responsibility Act (1994) requires that the Fiscal Strategy Report (FSR) be presented to Parliament yearly, describing the government’s long-term objectives and its short-term fiscal plans. The FSR is also required to include projections for key fiscal aggregates for a period of 10 or more years and an explanation of how these projections accord with the principles of responsible fiscal management. The FSR must also assess the consistency of the long-term objectives with those announced in the government’s budget policy statement to the House of Representatives.

  • In France, the Organic Budget Law (LOLF, 2001) requires the government to submit the draft annual budget law to the Parliament with a report on the national economic situation, including (i) macro-economic projections, (ii) medium-term developments, covering at least four years following the year of the draft budget, (iii) medium-term projections of revenues and expenditures, and (iv) the main orientations of economic and budgetary policies.

  • In the United Kingdom, the Code for Fiscal Stability (CFS, 1998) requires the government to state and explain its fiscal policy objectives over the life of the Parliament. The CFS specifies that the annual economic and fiscal strategy report by H.M. Treasury at the time of budget submission include (i) the government’s long-term economic and fiscal strategy, including any long-term objectives for key fiscal aggregates, (ii) an assessment of recent short-term outcomes against this long-term strategy, (iii) illustrative projections of the outlook for the key fiscal aggregates for a period not less than the next 10 year, and (iv) analysis of the impact of the economic cycle on key fiscal aggregations, including estimates of the cyclically adjusted position.

  • In Azerbaijan, the Organic Budget Law requires the preparation of a budget for the upcoming year as well as for the 3 following years. The government prepares medium-term economic forecasts that include the government priorities and the public investment plan, which are updated annually.

  • In Mexico, the Fiscal Responsibility Law (FRL, 2006) mandates the inclusion of 5-year quantitative projections and costing for new fiscal measures in the budget documents. It also envisages a balance-or-surplus rule and the use of a reference oil price to smooth expenditures.

  • In Russia, the parliament approves a full-fledged rolling 3-year federal budget since 2006. Russia’s Budget Code mandates a target of the non-oil deficit of 4.7 percent of GDP. To capture the full effect of spending decisions and to create stability in the budget process, Russia has introduced rolling 3-year budget plans, where existing policy is explicitly linked to key macro-economic parameters, and a specific fiscal space available for new policies is determined before the start of each round of budget preparation.

3. The planned SWF (MIDF) should be integrated into the MLTFF. The principles of the MIDF are “preserving and enhancing the capital value” and “benefiting Macao’s economic stability and development.” Given the potential economic impact of MIDF and the long-term nature of the principles, integrating MIDF into the MLTFF will help avoid the risks of fragmentation in policymaking. Several countries have integrated SWF into MLTFF as follows:

  • In Timor-Leste, the Petroleum Fund Law (2005) establishes the country’s petroleum fund as the repository for all petroleum revenues and specifies how the fund is integrated with the state budget. The law includes a formula—based on the permanent income hypothesis—that derives the estimated sustainable income from petroleum and guides transfers from the petroleum fund to the budget.

  • In Alaska (United States), the Alaska Permanent Fund was established in 1976 by the Alaska State constitution. The fund receives 50 percent of mineral revenues and pays annual dividends to the population based on a fraction of the fund’s realized earnings, as a safeguard against pressures to spend the oil revenue.

  • In Chile, the Fiscal Responsibility Law (FRL, 2006) institutionalized key aspects of the structural balance rule framework and complemented the fiscal framework with the introduction of two funds: the Economic and Social Stabilization Fund (FEES) and the Pension Reserve Fund (FRP). Under the structural balance rule, government expenditures are ex-ante budgeted in line with estimated structural revenues. The FEES receives as inflows the actual central government surplus, and its funds can be drawn on according to needs defined in the law.

  • In Norway, the fiscal guidelines were introduced in 2001 that hold the structural non-oil central government deficit over time to 4 percent of the assets in the Government Pension Fund-Global (GPF-G), formerly the Petroleum Fund. The structural non-oil deficit targeted by the fiscal guidelines excludes the budget’s oil-related revenues and expenditures. Several factors have contributed to the success of the fiscal guidelines of Norway: simplicity to be understood well by the public, flexibility in relation to the fiscal policy, high level of transparency, broad political consensus and commitment, and strong fiscal institutions/governance/accountability.

  • In Mongolia, the Fiscal Stability Law (FSL) was enacted in 2010 to insulate the fiscal spending path from fluctuations in mineral revenue through numerical fiscal rules: (i) 2 percent of GDP ceiling of the structural deficit, (ii) expenditure growth ceiling within non-mineral GDP growth, and (iii) public debt ceiling of 40 percent of GDP. The Fiscal Stabilization Fund (FSF) was created using actual mineral revenue exceeding structural mineral revenue. To promote a minimum savings effort by the government, the FSL requires the fund to be greater than 5 percent of GDP from 2018 onward, with excesses invested with a longer-term perspective.

Annex III. Inequality: Trends and Drivers1

1. Macao SAR’s income per capita is one of the highest in the world, but inequality is higher than the average among OECD and advanced economies. As of 2017, Macao SAR’s per capita GDP (in PPP terms) is the second highest in the world after Qatar, but inequality is higher than the OECD and advanced economies’ averages. In fact, the Gini index, Palma ratio, and Quintile ratio indicate that the income distribution in Macao SAR, while more equitable than in Asian emerging economies and Hong Kong SAR, is less equitable than the average in OECD and advanced economies.2

uA01fig31

Regional comparison: income inequality level

(In Gini points, 2013, average across the region)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: SWIID Version 5.0; IMF WEO database; and IMF staff calculations.Note: ASEAN = Association of Southeast Asian nations; OECD = Organization for Economic Co-operation and Development. Data shown is disposable income gini index except for Macao SAR (gross income Gini).
uA01fig32

Inequality measure comparison

(Ratio; Gini points)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ Palma and quintile ratios are consumption based.Source: DSEC, PovcalNet database, WIID, OECD stats, and IMF staff estimates.

2. Latest data show a relatively stable income distribution between 2013 and 2016 in Macao SAR. While the economy was booming in 2013, it started contracting in 2014 and troughed in 2016. Along the contraction in economic activity, somewhat surprisingly, 2016 data does not show a significant increase in the share of households in the low-income brackets.3

uA01fig33

Number of households by income group

(Share in surveyed households, in percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSEC 2013 Population Census, 2016 By-Census.

Regarding poverty, official data on the number of resident households receiving financial assistance show a decrease between 2013 and 2016.4

3. The economic structure of Macao SAR is heavily dependent on low-wage services employment which contributes to inequality. Even though average income per capita is very high, Macao SAR’s economy relies significantly on low-wage services jobs concentrated in hotels, restaurants, retail, real estate, and domestic work sectors. The wage differential between those services jobs and other higher-wage employment helps explain inequality in the economy.5

uA01fig34

Employment by Sectors in Macao SAR

(Share in employment, in percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSEC Employment Survey.
uA01fig35

Foreign Employment in G7, Qatar, and Macao SAR, 2017

(In percent of total employment)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Note: For France, Italy, UK, Germany, and Qatar, share is calculated as employed persons holding foreign citizenship in percent of total employment ages 15–64 years old. For US, share is calculated as foreign-born civilian employment in percent of total civilian employment ages 16 years and older. For Canada, share is calculated as landed immigrants (who have been granted the right to live in Canada permanently) employment in percent of total employment ages 15 years and older. For Macao SAR, share is calculated as employed persons without Macao SAR identity card living in Macao SAR and abroad in percent of total employment.Source: Haver Analytics, DSEC Employment Survey, JILPT.

4. Migration provides an inflow of low-wage workers to Macao SAR, contributing to inequality and poverty in the economy. For example, Borjas (1997) finds that while immigration and trade with less developed countries explains less than 10 percent of overall wage inequality in the U.S., immigration from less developed countries can explain up to 50 percent of the declining relative wage of low-skilled labor. Nonresident workers living in Macao SAR (NRLMs) account for over 20 percent of total employment in 2017. The fraction of foreign employment increases to almost 40 percent of total employment when adding nonresident workers commuting to Macao SAR (NRCMs), which is relatively high when compared with other advanced economies. NRLMs and NRCMs are not eligible for government assistance and they are subject to work restrictions that limit their occupations and wages, likely contributing to a higher poverty incidence in this group. For example, in 2018 Q2, about half of low-income workers are NRLMs (NRCMs are excluded from the stats). Notably, while almost all NRLM low-income workers work full time, 94 percent of low-income residents work part time voluntarily, suggesting that residents have other resources/savings and are therefore not actually in poverty.

Low-income Employment by Employment Type

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Source: DSEC Employment Survey.

5. There has been an increase in foreign workers, mainly flowing into lower-income employment. NRLMs increased from 91,000 in 2013 to 100,000 in 2017. In addition, labor market statistics show signs of polarization between residents and NRLMs’ employment income. From 2013 to 2017, the share of residents in low-income brackets decreased, while the share of residents in higher-income brackets increased. Meanwhile for NRLMs, there was an overall increase in the lower-income brackets.

uA01fig36

Share of Employment by Income Bracket: 2013–2017

(Change in share of employment population, in percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSEC Annual Employment Survey.
uA01fig37

Number of Employed Person by Income Group (2017)

(No. of people, in thousands)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSEC Annual Employment Survey.

6. If commuters were to be counted, poverty in Macao SAR may be higher. Available income statistics do not capture NRCMs. NRCMs have increased significantly between 2014 and 2018 (from 53,000 in 2014 to 80,000 in mid-2018).6 Most of NRCMs are employed in hotels, restaurants and the construction industry. As NRCMs concentrate in low-wage sectors, overall poverty for the working population in Macao SAR (including NRCMs) may be higher than estimated.

uA01fig38

Labor Force Composition

(In percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: DSEC Employment Surveys.

Annex IV. External Sector Debt Sustainability Analysis

Macao SAR’s external debt is sustainable. Even though external debt is high at about 180 percent of GDP in 2018, risks are mitigated by Macao SAR’s positive net asset position and the fact that much of the liabilities are obligations of banks to related parties. While external debt (as a percentage of GDP) has recently decreased due to the economic recovery, foreign borrowing will continue to rise as Macao SAR expands its role as an international financial center.

1. Background—As of end-2018, Macao SAR had an estimated US$99 billion in external debt (182 percent of GDP). There is no public external debt. The private external debt includes US$86 billion in bank liabilities and US$14 billion in nonbank liabilities.

  • Bank—The largest category of external liabilities is nonresident interbank liabilities (60 percent of banking sector external liabilities). Within nonresident interbank liabilities (excluding NCDs), 82 percent are short term (i.e. less than one-year maturity). About 70 percent of “other interbank liabilities” are to related parties. In addition, nonresident deposits amount to 35 percent of banking sector external liabilities – with most of it short term. In terms of overall currency composition, 54 percent of gross external liabilities are in U.S. dollar, and nearly 30 percent are in Hong Kong dollar (pegged to the U.S. dollar) to which the pataca is pegged.

  • Nonbank—External debt by nonbank firms in Macao SAR is about 15 percent of the external debt by banks. Dealogic data suggest that the gaming sector is the main issuer of bonds and receiver of loans. As in the case with banks, a significant portion reflects related party obligations.

External Debt

(end of 2018)

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Source: AMCM, IMF staff estimates

External Liabilities of Banking Sector

(end of 2018)

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Source: AMCM

2. Projection—The underlying dynamics of Macao SAR’s external debt are healthy. First, structurally high savings rates and limited domestic investment opportunities result in consistent double-digit current account surpluses and large foreign asset accumulation (banks have net foreign assets of about 100 percent of GDP). Second, potential growth remains positive at around 4–5 percent. And third, the average de facto nominal interest rate according to the balance of payments is low at roughly 2 percent, reflecting the large deposit liabilities. These factors are projected to increase Macao SAR’s net external position. Gross external debt is nonetheless expected to grow mostly because of the banking sector as Macao SAR expands its role as an international financial center.

3. Risks—In general, the headline debt level likely overstates risks due to the significant foreign external assets that increase the ability of banks to fund withdrawals without relying on AMCM’s foreign exchange reserves. In addition, significant related-party foreign liabilities reduce the probability of a run, including on the large fraction of short-term liabilities. Also, the currency risk in bank’s funding is moderate because of its currency composition mostly pegged (directly or indirectly) to the pataca. That said, it is important to continue to monitor the maturity of nonresidents nonbank deposits in the banking system and the liquidity and quality of the assets that back them.

External Position of Banking Sector

(end of 2018)

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Source: AMCM
Figure 1.
Figure 1.

External Debt Sustainability: Bound Test 1/ 2/

(External debt in percent of GDP)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2018.
Table 1.

External Debt Sustainability Framework, 2013–2023

(In percent of GDP; unless otherwise indicated)

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Derived as [r – g – r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Annex V. Real Estate Market in Macao SAR: Overvaluation, Policies, and Affordability1

1. Residential property prices are assessed to be 8–9 percent overvalued—for smaller units in particular—when compared with per capita GDP and rent. Deviations from the Hodrick-Prescott filter trend suggest that, as of 2018Q4, prices are below trend by 2–11 percent (with the degree of trend-deviation dependent on the chosen smoothing parameter). On the other hand, deviations from historical price-to-income ratios to capture potential overvaluation (using market price and per capita GDP) suggest that market prices are 9 percent overvalued as of 2018Q4. In addition, deviations from historical price-to-rent ratios (assuming a stable relationship between property prices and rent) suggest an 8 percent overvaluation as of 2018Q4. A complementary analysis by property unit size indicates that smaller units may face higher overvaluation than larger units.2

Residential Property Market Overvaluation Estimates

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Source: CEI and IMF staff estimates.

2. Since 2010, five rounds of housing market macroprudential measures have been implemented. Macroprudential policies were last tightened in 2017 with reduced loan-to-value ratios (LTV) for non-first-time homebuyers. The measures are somewhat tighter for nonresidents and for equitable mortgages.3 In February 2018, the LTV framework was eased for young first-time homebuyers, making Macao SAR’s housing macroprudential policies somewhat looser than Mainland’s and Hong Kong SAR’s.

uA01fig39

Macroprudential Measures: International Comparison

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: IMF’s Annual Macroprudential Policy Survey.Note: Tighter policy measures are closer to the center.

LTV Macroprudential Framework

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3. In addition to above-mentioned macroprudential measures, some fiscal measures have been used to moderate the buoyant housing market. In Macao SAR, all buyers must pay a stamp duty tax (SD) of 1–3 percent of the property value, except for intermediate transfers (that pay 0.5 percent). In 2010, the exemption for intermediate transfers was annulled. A special stamp duty tax (SSD) was introduced in 2011 targeting market speculators: 20 percent for sellers of properties within one year of purchase, and 10 percent if within two years of purchase. The SSD was extended to commercial properties and parking spaces in 2012. Also in 2012, a flat rate of 10 percent buyers’ stamp duty tax (BSD) was introduced on buyers of residential properties who are legal persons, individual entrepreneurs, or nonresidents. A new SSD was imposed on non-first residential property purchases in February 2018: a 5 percent SSD is applicable on acquisition of the second residential property, and a 10 percent SSD is applicable for the third property and above. Lastly, the previous exemption of housing tax for vacant residential property was removed in February 2018.

uA01fig40

Residential Property Market: Macroprudential and Fiscal Measures

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

1/ In Jun 2013, a new regulation for title transfer of uncompleted units was introduced. Real estate agency law, land law, the urban planning law and the cultural heritage protection law were also promulgated.2/ “Non-resident” refers to individuals without Macao SAR identity card.Source: CEIC, DSEC, Haver Analytics and IMF staff estimates.

Housing Affordability Concerns and Housing Supply:

4. Housing affordability has deteriorated with the economic recovery that started in mid-2016. While wages have gradually increased, property prices have risen by 33 percent since the low point in 2016Q1, reaching almost three times their 2011 level. The growth of Macao SAR’s property price index is only second to Hong Kong SAR, surpassing all other Tier I cities in Mainland China.4 Relative to other economies, Macao SAR’s property price growth is higher than many metropolitan areas in the world including Greater London, Korea, Singapore, Sydney, Tokyo and the aggregate for top-ten U.S. metro regions.

uA01fig41

Domestic housing affordability

(2011Q1= 100)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC, Haver Analytics and IMF staff estimates.

5. Recent macroprudential policy easing for young first-time homebuyers may have unintentionally worsen housing affordability in this segment. As mentioned, in February 2018, LTV was eased for young first-time homebuyers.5 The continued increase in the price of small properties over 2018 is likely related to the demand boost from young first-time homebuyers who benefited from the macroprudential easing in early 2018. In fact, smaller properties, historically the most affordable in the economy (in terms of average price per square meter), became the most expensive type of property in Q3 2018.

uA01fig42

Average residential unit price by size of usable area

(in percent, year-on-year)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC.
uA01fig43

Average residential unit price by size of usable area

(MOP per square meteres)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: CEIC.

6. Boosting housing supply will be key to support housing affordability. Private housing construction has been sluggish while there is an excess demand for public housing in the near term:

  • Private housing. As of 2016, there are over 171,000 private housing units. About 50,000 private sector units have been built between 2003 and 2016—which is significantly below the earlier (pre-2000) pace.

  • Public housing. Only 18 percent of resident households rely on public housing in Macao SAR, while it reaches 45 percent of households in Hong Kong SAR. Macao SAR’s public housing program consists of social and economic housing (with economic housing accommodating 64 percent of households in public housing).6 Since 2003, the government has added more than 6,000 social units and around 14,000 economic units. As of 2016, there were almost 48,000 public housing units and, at the moment, 50,000 public housing units are under construction or planned. However, official projections anticipate significant excess demand for public housing in the near term.7

uA01fig44

Construction of public and private housing units

(No. of units, in thousand; in percent)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: 2017 Public Housing Demand Research Report.
uA01fig45

Public housing stock

(No. of units, in thousands)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Source: IHM.

Annex VI. External Sector Assessment

Staff assess Macao SAR’s external position to be substantially stronger than medium-term fundamentals and desirable policies. There is scope for (i) more domestic absorption in terms of infrastructure investment, (ii) boosting public social spending, and (iii) closer monitoring of the quality and liquidity of external assets.

1. Foreign Asset and Liability Position—Official international investment position data are not available. As an alternative, staff estimate Macao SAR’s net foreign assets by calculating the cumulative sum of financial account flows starting in 2002. (The estimate is imperfect as it excludes valuation changes.) Consistent with measured Macao SAR’s large current account surplus since 2002, this approach suggests a large net foreign asset position of 236 percent of GDP for end-2017—up from 200 percent of GDP in 2015 due to lower liabilities. Similar to other financial centers, Macao SAR is estimated to have a large gross external position driven by the banking sector, as they hold 51 percent of the foreign assets and 66 percent of the liabilities. Another large asset holder is the fiscal reserve, accounting for 27 percent of foreign assets. In addition, Dealogic data suggest that another large holder of foreign liabilities is the gaming sector. The estimated large net foreign assets suggest limited grounds for concern about medium-term external solvency, but ongoing attention is necessary to the quality and liquidity of foreign assets in the event of a sudden fall in external liabilities.

Estimated International Investment Position

(In percent of GDP, end of 2017)

article image
Source: AMCM, Haver, IMF staff estimates.

2. Current Account—In 2018, Macao SAR is estimated to have a current account surplus of 35 percent of GDP, up from the trough of 25 percent in 2015 when gaming exports contracted following developments in the Mainland that reduced external demand from high-spending (VIP) visitors. Large current account surpluses are expected to continue in the medium term as Macao SAR continues to benefit from China’s gaming monopoly, while the small domestic market is unable to absorb the scale of the gaming monopoly profits. However, there is scope to increase investment and reduce savings by removing structural distortions including bottlenecks to investment and policies that cause excessive savings. For example, infrastructure bottlenecks are holding up the expansion of non-VIP gaming and tourism. Moreover, there is scope to increase needed targeted public social spending that is currently at levels much below those in other countries and is causing excessive savings. The revised EBA-lite current account regression model estimates that the 2018 current account gap is 19 percent of GDP. Notably, the CA gap is largely unexplained by the model, reflecting the difficulty in properly capturing Macao SAR’s volatile current account due to the gaming sector and the lack of a measure for the structural policy gap. The model identifies a policy gap of 6 percent (out of the 19 percent CA gap) mainly driven by a fiscal policy gap due to a fiscal surplus above its desirable level (assumed to be the benchmark fiscal balance of zero percent under the Basic Law). Based on available data and model estimates, staff assess that the CA is substantially stronger than fundamentals and desirable policies. Higher domestic investment and lower savings will contribute to reducing the estimated current account gap.

Revised EBA-lite: CA and REER Model, 2018

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Source: IMF staff estimates.

3. Assumptions and CA Assessment—Importantly, without actual IIP data it is difficult to confirm that the measured CA properly captures changes to residents’ net wealth and the size of the domestic savings-investment balance. IIP data could indicate that CA may be overstated and inaccurately assessed if, for example, some income is currently recorded as pertaining to residents when it should be recorded as nonresidents. In addition, computing IIP could improve the income account as it would provide rates of return that can be checked against international benchmarks. Thus, availability of IIP data may change the assessment. Moreover, if the gaming monopoly were to be viewed as temporary by the authorities, observed high savings could be appropriate for intergenerational purposes and wouldn’t represent a distortion, also changing the CA assessment.

4. Real Exchange Rate—The real effective exchange rate depreciated by 0.9 percent annually in 2017 and in 2018, but it appreciated on a monthly basis since July 2018 in line with renminbi depreciation. The fact that the Macao SAR’s exchange rate is pegged to the Hong Kong dollar (and in turn the U.S. dollar) even though over 70 percent of visitors are from Mainland may pose competitiveness issues if renminbi were to depreciate significantly and prices were not to adjust. However, there is no empirical relationship between REER and CA for Macao SAR, and, thus far, there is no evidence of overvaluation, with prices contributing to adjustments to shocks. The EBA-lite Index REER model estimates a 3.8 percent REER gap for 2018, with a negative policy gap (of 1 percent). The small REER gap is consistent with staff’s view that the REER is broadly in line with fundamentals.

5. Financial Accounts—Macao SAR’s balance of payments can be characterized by two basic dynamics. First, strong tourism sector exports generate large current account surpluses which are invested abroad, driving large net capital outflows and the accumulation of foreign assets. Further accumulation of foreign assets is expected as the planned sovereign wealth fund expands foreign portfolio investment. Second, as an international financial center, banks acquire large foreign liabilities which are then reinvested abroad. This results in large two-way gross financial account flows. The size of gross capital flows reflects in part the fact that the financial account is fully liberalized. Significant foreign assets (including contingent support from Mainland parent banks) and prudent financial regulation limit risks from potentially volatile capital flows.

uA01fig46

Balance of Payments

(In USD billions)

Citation: IMF Staff Country Reports 2019, 123; 10.5089/9781498313360.002.A001

Sources: Haver Analytics, IMF staff estimates.

6. FX Intervention and Reserves Level—Because Macao SAR has a currency board arrangement, international reserves have been built up in a nondiscretionary way. The stock of foreign exchange reserves is about US$20 billion (37 percent of GDP) as of end-2018. In terms of import coverage, foreign exchange reserves are estimated to be a comfortable 13 months of imports at end-2018. Regarding M2 coverage, its ratio has been declining since it peaked in 2011 (at 352 percent of M2) to 82 percent at end-2018, but international reserves remain adequate for precautionary purposes. Macao SAR also holds significant fiscal reserves (US$64 billion or 116 percent of GDP as of November 2018) in foreign exchange (of which about US$18 billion was funded out of reserves in 2012). These can be an additional buffer but are primarily intended for investment (domestically and abroad) rather than supporting the exchange rate regime.

Annex VII. Key 2011 FSAP Recommendations

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Annex VIII. Main Recommendations of the 2016 Article IV Consultation Discussions

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1

Prepared by Sakai Ando (STA).

2

The included case studies comprise some advanced economies and resource-rich economies that have adopted formal arrangements for MLTFF and/or SWF within MLTFF. Macao SAR’s high share of gaming value added in GDP is comparable to the high resource dependence in resource-rich countries, where MLTFF can help link government spending decisions to longer-term policy objectives (while insulating spending plans from short-term externally driven fluctuations).

1

Prepared by Jacqueline Jiayi Zhang (APD).

2

Palma (Quintile) ratio is gross income received by the richest 10 (20) percent of the population over gross income of the bottom 40 (20) percent. Both measures are more sensitive to the tails of the income distribution than Gini index (Cobham and Sumner, 2013). Palma and Quintile ratios for Macao SAR are estimated on a household basis with household gross income from latest available Household Budget Survey (2013), including employment income, employee income, self-employment income, employer income, property income, monetary transfers, government subsidies, pension, contributions/subsidies from charities, tuition/stationery subsidies, remittances, scholarships, non-monetary transfers etc.

3

Income in 2013 is measured by monthly household income including all transfers, per the 2013 Household Budget Survey. Income in 2016 is measured by monthly household employment income per the 2016 By-Census. Both statistics include nonresidents living in Macao SAR.

4

In the absence of an official poverty line, the official Minimum Subsistence Index (MSI) is used as a proxy as it was established to determine residents’ eligibility for public financial assistance. The household poverty line is estimated with the MSI for a family of three (which is the average household size in the 2013 Household Budget Survey), at 10,250 MOP per month.

5

The Employment Survey (2018 Q2) shows that 42 percent of employment is concentrated in hotel/restaurant, wholesale/retail, real estate, and domestic work.

6

Data correspond to Employment Survey (2018 Q3 issue). There are also about 9,600 Macao SAR residents who work in Macao SAR but reside elsewhere. This group is excluded from the Employment Survey sample.

1

Prepared by Jacqueline Jiayi Zhang (APD).

2

According to Macao SAR’s 2018 Private Construction and Real Estate Transaction Report, 40 percent of real estate transactions deal with properties of less than 50 square meters.

3

Equitable mortgages are granted to properties under construction. On average, equitable mortgages amount to 11 percent of the value of newly approved residential mortgage loans over 2012–18. Nonresident refers to individuals without Macao SAR identity card. The share of nonresidents in the aggregate value of residential units purchased was 3 percent in the first eight months of 2018.

4

Tier I cities are Beijing, Shanghai, Guangzhou, and Shenzhen.

5

In 2018 Q3, young first-time homebuyers account for 60 percent of the value of newly approved mortgages for residents. In terms of housing market share, young first-time homebuyers account for 45 percent in 2017 and 82 percent in 2018 (out of all buyers in the residential market).

6

Social housing is owned by the government and leased to low-income families. Economic housing is financed and built by the government, and then sold to Macao SAR’s residents of certain income and saving levels at affordable prices. In 2011, the Economic Housing Law extended to 16 years the minimum time period for free market resale of economic housing (it was 6 years before).

7

According to the “2017 Public Housing Demand Research Report” (prepared by Macao Public Governance Research Center), while public housing will satisfy demand in the long-term, new demand for public housing will reach over 30,000 units by 2021 yet the supply of public housing will expand only by over 9,000 units by then.

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Cover IMF Staff Country Reports
People’s Republic of China—Macao Special Administrative Region: 2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2019: Issue 123
Publisher:
International Monetary Fund
ISBN:
9781498313360
ISSN:
1934-7685
Pages:
67
DOI:
https://doi.org/10.5089/9781498313360.002
  • View in gallery

    China Greater Bay Area’s combined GDP is twice as big as San Francisco Bay Area’s

  • View in gallery

    Gaming revenue strengthened since 2017 driving growth

    (In MOP billions)

  • View in gallery

    Growth moderated in the second half of 2018

    (Contribution to real GDP growth, in percentage points)

  • View in gallery

    Fiscal surplus increased Since 2017

    (Output gap and change in GG Balance, in percent of Potential GDP and GDP, respectively)

  • View in gallery

    The economy is expected to moderately expand over the medium term

    (In percentage points)

  • View in gallery

    Macao SAR’s growth is highly affected by Mainland’s growth

    (Real GDP growth in percent quarterly yoy annualized)

  • View in gallery

    VIP and mass gaming are highly correlated with mainland China’s property prices

    (In percent, yoy)

  • View in gallery

    Over 70 percent of visitors come from Mainland

    (Visitor arrivals, in percent of total)

  • View in gallery

    Overall fiscal tightening is expected for 2019 due to lower capex, but structural balance shows a supportive stance

    (General Government Balance)

  • View in gallery

    Inequality is higher than the OECD average

    (In Gini points, 2013, average across the region)

  • View in gallery

    Social spending-to-GDP ratio is low when compared with Other countries

    (General Government Social Spending, in percent of GDP) 1/

  • View in gallery

    Per capita spending has been increasing

    (GG Expenditure by Function, thousand MOP per resident)

  • View in gallery

    Domestic real estate is over 40 percent of domestic lending to residents and over 10 percent of bank’s assets

    (Domestic lending to resident private sector by sector, in percent of total, 2018Q4)

  • View in gallery

    Property prices moderated in recent months

    (3mma, 2011=100)

  • View in gallery

    Prices of small properties continued to increase

    (Average residential unit price by size of usable area, in percent year-on-year)

  • View in gallery

    Macao SAR’s residential property price growth is in line with that in other cities in mainland, but higher than in other countries

    (Property price index, 2016Q1= 100)

  • View in gallery

    Macroprudential measures in Macao SAR are somewhat looser than in Hong Kong SAR

  • View in gallery

    Most Macroprudential and Housing Fiscal Measures Were Recently Tightened

  • View in gallery

    Housing prices have grown faster than wage and inflation

    (2011Q1=100)

  • View in gallery

    VIP share in gaming revenue has decreased aver the last year

    (In percent)

  • View in gallery

    The share of gaming value added in GDP has decreased since 2013

    (In percent of GDP)

  • View in gallery

    Macao SAR’s Financial Sector Development Lags Compared with Other Financial Centers

  • View in gallery

    Hong Kong-Zhuhai-Macao Bridge (HZMB)

  • View in gallery

    Annual REER depreciated in 2017 and 2018

  • View in gallery

    REER appreciated since July 2018 in line with renminbi depreciation

  • View in gallery

    Number of Active Junkets

  • View in gallery

    Stock Market Performance of Two Listed Junkets

    (Both series = 100 for 1/1/2009)

  • View in gallery

    Government Expenditure

    (In percent of GDP)

  • View in gallery

    Social Spending in 2017

    (In percent)

  • View in gallery

    Amount of Basic Income per capita

    (In percent of GDP per capita)

  • Figure 1.
    View in gallery
    Figure 1.

    Macao SAR: Real Sector

  • Figure 2.
    View in gallery
    Figure 2.

    Macao SAR: External Position

  • Figure 3.
    View in gallery
    Figure 3.

    Macao SAR: Banking Sector Developments

  • Figure 4.
    View in gallery
    Figure 4.

    Macao SAR: Fiscal Outlook

  • View in gallery

    Regional comparison: income inequality level

    (In Gini points, 2013, average across the region)

  • View in gallery

    Inequality measure comparison

    (Ratio; Gini points)

  • View in gallery

    Number of households by income group

    (Share in surveyed households, in percent)

  • View in gallery

    Employment by Sectors in Macao SAR

    (Share in employment, in percent)

  • View in gallery

    Foreign Employment in G7, Qatar, and Macao SAR, 2017

    (In percent of total employment)

  • View in gallery

    Share of Employment by Income Bracket: 2013–2017

    (Change in share of employment population, in percent)

  • View in gallery

    Number of Employed Person by Income Group (2017)

    (No. of people, in thousands)

  • View in gallery

    Labor Force Composition

    (In percent)

  • Figure 1.
    View in gallery
    Figure 1.

    External Debt Sustainability: Bound Test 1/ 2/

    (External debt in percent of GDP)

  • View in gallery

    Macroprudential Measures: International Comparison

  • View in gallery

    Residential Property Market: Macroprudential and Fiscal Measures

  • View in gallery

    Domestic housing affordability

    (2011Q1= 100)

  • View in gallery

    Average residential unit price by size of usable area

    (in percent, year-on-year)

  • View in gallery

    Average residential unit price by size of usable area

    (MOP per square meteres)

  • View in gallery

    Construction of public and private housing units

    (No. of units, in thousand; in percent)

  • View in gallery

    Public housing stock

    (No. of units, in thousands)

  • View in gallery

    Balance of Payments

    (In USD billions)

China Greater Bay Area’s combined GDP is twice as big as San Francisco Bay Area’s

Gaming revenue strengthened since 2017 driving growth

(In MOP billions)

Growth moderated in the second half of 2018

(Contribution to real GDP growth, in percentage points)

Fiscal surplus increased Since 2017

(Output gap and change in GG Balance, in percent of Potential GDP and GDP, respectively)

The economy is expected to moderately expand over the medium term

(In percentage points)

Macao SAR’s growth is highly affected by Mainland’s growth

(Real GDP growth in percent quarterly yoy annualized)

VIP and mass gaming are highly correlated with mainland China’s property prices

(In percent, yoy)

Over 70 percent of visitors come from Mainland

(Visitor arrivals, in percent of total)

Overall fiscal tightening is expected for 2019 due to lower capex, but structural balance shows a supportive stance

(General Government Balance)

Inequality is higher than the OECD average

(In Gini points, 2013, average across the region)

Social spending-to-GDP ratio is low when compared with Other countries

(General Government Social Spending, in percent of GDP) 1/

Per capita spending has been increasing

(GG Expenditure by Function, thousand MOP per resident)

Domestic real estate is over 40 percent of domestic lending to residents and over 10 percent of bank’s assets

(Domestic lending to resident private sector by sector, in percent of total, 2018Q4)

Property prices moderated in recent months

(3mma, 2011=100)

Prices of small properties continued to increase

(Average residential unit price by size of usable area, in percent year-on-year)

Macao SAR’s residential property price growth is in line with that in other cities in mainland, but higher than in other countries

(Property price index, 2016Q1= 100)

Macroprudential measures in Macao SAR are somewhat looser than in Hong Kong SAR

Most Macroprudential and Housing Fiscal Measures Were Recently Tightened

Housing prices have grown faster than wage and inflation

(2011Q1=100)

VIP share in gaming revenue has decreased aver the last year

(In percent)

The share of gaming value added in GDP has decreased since 2013

(In percent of GDP)

Macao SAR’s Financial Sector Development Lags Compared with Other Financial Centers

Hong Kong-Zhuhai-Macao Bridge (HZMB)

Annual REER depreciated in 2017 and 2018

REER appreciated since July 2018 in line with renminbi depreciation

Number of Active Junkets

Stock Market Performance of Two Listed Junkets

(Both series = 100 for 1/1/2009)

Government Expenditure

(In percent of GDP)

Social Spending in 2017

(In percent)

Amount of Basic Income per capita

(In percent of GDP per capita)
Figure 1.

Macao SAR: Real Sector
Figure 2.

Macao SAR: External Position
Figure 3.

Macao SAR: Banking Sector Developments
Figure 4.

Macao SAR: Fiscal Outlook

Regional comparison: income inequality level

(In Gini points, 2013, average across the region)

Inequality measure comparison

(Ratio; Gini points)

Number of households by income group

(Share in surveyed households, in percent)

Employment by Sectors in Macao SAR

(Share in employment, in percent)

Foreign Employment in G7, Qatar, and Macao SAR, 2017

(In percent of total employment)

Share of Employment by Income Bracket: 2013–2017

(Change in share of employment population, in percent)

Number of Employed Person by Income Group (2017)

(No. of people, in thousands)

Labor Force Composition

(In percent)
Figure 1.

External Debt Sustainability: Bound Test 1/ 2/

(External debt in percent of GDP)

Macroprudential Measures: International Comparison

Residential Property Market: Macroprudential and Fiscal Measures

Domestic housing affordability

(2011Q1= 100)

Average residential unit price by size of usable area

(in percent, year-on-year)

Average residential unit price by size of usable area

(MOP per square meteres)

Construction of public and private housing units

(No. of units, in thousand; in percent)

Public housing stock

(No. of units, in thousands)

Balance of Payments

(In USD billions)