Macao's economy is "doing very well" and has made "amazing" achievements in the past 15 years, but economic diversification, particularly into the non-gaming sectors, remains crucial for Macao's stable growth over the long term, according to an International Monetary Fund (IMF) expert。
IMPRESSIVE GROWTH
"Macao's economy is doing very well, and the outlook for the next few years is very strong," Murtaza Syed, IMF's Mission Chief to Macao, told Xinhua in a recent interview. "We think, in the next few years, the economy will continue to grow at 8 to 10 percent in real terms. That is very fast."
The IMF has just published the staff report of the Article IV consultation discussions with the Macao Special Administrative Region (SAR). This marks the first time that IMF has concluded such a consultation with Macao since the establishment of the Macao SAR in 1999.
It's a reflection of how far Macao has come in the last 15 years," said Syed, who led an IMF delegation to Macao for the Article IV consultation in April。
The Article IV Consultation is an annual economic and financial check-up held between the IMF and its member countries. The IMF conducts separate Article IV consultations with the Mainland, Hong Kong SAR and Macao SAR, under the membership of China。
It was a very different Macao that the IMF last visited. In 1998, it was a relatively smaller economy and its gaming sector was not well developed. But now Macao has overtaken Las Vegas as the largest gaming center in the world and become a big economy。
"The average income of citizens in Macao has grown six times in 15 years. That is an amazing achievement," Syed said, adding that the per capita gross domestic product (GDP) of Macao is almost 90,000 U.S. dollars today, compared with around 15,000 U.S. dollars in 1999.
Syed said Macao's impressive economic growth has a lot to do with the sound macroeconomic management of the Macao authorities, including prudent fiscal policy, large fiscal reserves, flexible labor markets and a stable financial system. The currency board pegged to the Hong Kong dollar has also served Macao very well and helped it weather external shocks, including the recent global financial crisis, he said。
PROBLEMS
While the outlook is bright, Macao, as a very small and open economy highly concentrated in tourism, is quite exposed to potential external shocks, Syed said。
For example, Macao's tourism business could slow down due to shocks in the Chinese Mainland or Hong Kong, where its tourists mostly come from。
But the unwinding of extraordinary loose monetary policy by the United States is "not necessarily a bad thing" for Macao, the IMF official noted。
On the one hand, Macao does not have the same problems of capital outflows as other emerging market economies, because it exports capital to the rest of the world. On the other hand, when interest rates start to rise, it can help contain imported inflation in Macao as the exchange rate appreciates with the U.S. dollar。
More importantly, Macao can benefit from an improving global economy and more tourists if the U.S. hikes interest rates because of a better domestic economy。
However, if interest rates rise sharply due to faster than expected withdrawal of unconventional monetary policy in the U.S., or it creates financial market volatility, it could put some pressure on Macao's economy, Syed said。
As the interest rates have to be the same in Macao and in the United States, mortgage borrowers in Macao would face increasing home loans costs when U.S. interest rates jump, which could put property prices under pressure, Syed explained。
Residential property prices in Macao are three times what they were five years, while household disposable incomes have increased by about 1.5 times over the same period. Thus, housing affordability has deteriorated。
The Macao authorities have been aware of this risk and have taken macro-prudential measures to try to cool property prices, such as set limits for bank lending to mortgage borrowers. These measures have worked to some extent, as transactions and the pace of home price increases in the first quarter have slowed notably。
ECONOMIC DIVERSIFICATION
Looking ahead, economic diversification -- particularly into non-gaming services -- remains crucial for Macao's stable growth over the long term, Syed said。
Macao's recent strong economic growth has been concentrated in the tourism sector, mainly related to the gaming industry, which accounts for four-fifths of exports, three-quarters of fiscal revenue, one-quarter of employment, and more than half of GDP in Macao. That leaves the city vulnerable to external disturbances。
Syed suggested that Macao authorities could firstly develop the services around the gaming industry, such as hotels, entertainment and retail sectors, to diversify the economy。
There is also some potential in the area of financial services, such as financing for small and medium enterprises, as there is no capital market in Macao and banks currently dominate the financial sector, Syed noted。
The Chinese mainland's economic rebalancing in the next few years could also provide opportunities for Macao's economic diversification。
As the mainland rebalances its economy toward households and private consumption, demand for services will start to rise. Macao can adapt itself to meet the new demands related to legal, education, accounting and other services coming from mainland residents, which will create new growth engines to bolster the economy's resilience, said Syed。
