IMF Executive Board Concludes 2022 Article IV Consultation Discussions with People’s Republic of China—Macao Special Administrative Region
IMF News, April 12, 2022
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- Published: April 12, 2022
Overview and context
- Executive Board concluded the Article IV consultation with the People’s Republic of China—Macao Special Administrative Region (SAR) on March 29, 2022 and endorsed the staff appraisal on a lapse-of-time basis.
- Macao SAR was "hit hard by the COVID-19 crisis," and the government’s strong policy response "helped stabilize employment and consumption, while preserving people’s health and safety."
- The pandemic highlighted Macao SAR’s overreliance on the gaming industry and high exposure to climate-related disasters.
Economic performance and projections
- After a "54 percent of GDP decline in 2020," the economy "expanded by 18 percent in 2021" supported by the partial recovery of the gaming sector.
- Consumer prices were "on average unchanged during 2021 relative to 2020."
- Current account surplus in 2021 is estimated at "less than half of its pre‑crisis level" due to still relatively low tourism receipts.
- GDP projections:
- 2022: "15.5 percent" growth driven by gradual return of foreign tourists and recovery of domestic demand.
- 2023: "23 percent" growth boosted by investment linked to issuance of new gaming concessions and further GBA integration.
- Medium term: gradual convergence to long‑term potential of "around 3.5 percent."
- Headline inflation projection: accelerate in 2022 and "stabilize at around 2.5 percent over the medium term."
- Timing to surpass pre‑crisis GDP level: "only in 2025" given depth of pandemic losses.
- Table 1 selected annual percentage-change entries (2017–2027, Est/Projections):
- Real GDP: 2017 "10.0", 2018 "6.5", 2019 "-2.5", 2020 "-54.0", 2021 "18.0", 2022 "15.5", 2023 "23.3", 2024 "18.6", 2025 "9.8", 2026 "5.1", 2027 "3.5".
- Total domestic demand: 2017 "-0.2", 2018 "-1.7", 2019 "-0.7", 2020 "-10.1", 2021 "3.0", 2022 "5.8", 2023 "3.3", 2024 "3.9", 2025 "4.0", 2026 "4.9".
- Consumption: 2017 "2.1", 2018 "4.1", 2019 "3.4", 2020 "-7.2", 2021 "4.6", 2022 "6.0", 2023 "2.5", 2024 "2.8", 2025 "2.9", 2026 "3.2".
- Investment: 2017 "-4.1", 2018 "-6.1", 2019 "-18.4", 2020 "-17.2", 2021 "-1.4", 2022 "5.3", 2023 "5.7", 2024 "8.0", 2025 "7.1", 2026 "9.2".
- Net exports (contribution): 2017 "6.2", 2018 "-0.5", 2019 "-49.0", 2020 "15.8", 2021 "20.7", 2022 "16.1", 2023 "7.6", 2024 "0.9".
- Headline inflation (Average): 2017 "1.2", 2018 "0.8", 2019 "0.0", 2020 "2.7", 2021 "2.6".
- Nominal GDP (In millions of U.S. dollars): 2017 "50,441", 2018 "55,285", 2019 "55,205", 2020 "25,586", 2021 "29,905", 2022 "35,246", 2023 "44,856", 2024 "54,847", 2025 "61,807", 2026 "66,446", 2027 "70,373".
- Per capita GDP (In thousands of U.S. dollars): 2017 "78", 2018 "83", 2019 "81", 2020 "37", 2021 "44", 2022 "51", 2023 "63", 2024 "76", 2025 "85", 2026 "90", 2027 "95".
- Foreign exchange reserves (In billions of U.S. dollars): 2017 "20.2", 2018 "20.3", 2019 "22.2", 2020 "26.7".
- Gross external debt: 2017 "174.0", 2018 "185.8", 2019 "223.4", 2020 "557.3", 2021 "569.4", 2022 "507.3", 2023 "418.6", 2024 "320.0", 2025 "305.0", 2026 "290.0", 2027 "275.0".
- Current account (In percent of GDP): 2017 "30.8", 2018 "33.0", 2019 "33.8", 2020 "15.2", 2021 "14.9", 2022 "22.4", 2023 "26.3", 2024 "27.1", 2025 "26.2".
- Services contribution to current account (In percent of GDP): 2017 "67.3", 2018 "69.0", 2019 "69.8", 2020 "32.4", 2021 "49.0", 2022 "53.2", 2023 "61.5", 2024 "65.8", 2025 "67.5", 2026 "66.3".
Risks and vulnerabilities
- Large downside risks cited:
- Resurgence of the COVID‑19 pandemic could stall near‑term recovery and undermine medium‑term viability of gaming sector.
- Uncertainty regarding proposed amendments to Macao’s gaming law and the ban on gaming services’ marketing in the Mainland cloud the gaming sector outlook.
- Potential large‑scale defaults in Mainland China’s real estate sector and a sudden growth slowdown in Mainland China pose risks to Macao SAR’s economy and financial system.
- Decline in households’ debt servicing capacity from pandemic income losses and pressures on non‑financial firms from tighter global financial conditions could negatively affect the banking system.
- Macao SAR’s high exposure to climate-related shocks poses long-term concerns.
- External position assessment (staff preliminary): "substantially stronger than warranted by medium term fundamentals and desirable policies."
- Persistent saving-investment gap partly driven by high precautionary savings and subdued investments.
Policy recommendations and priorities
- Near-term policy mix:
- Implement a "safe reopening of the economy" supported by further increase in vaccination rates and establishing additional travel corridors.
- Adjust fiscal policy stance from "contractionary to neutral" and change composition to support inclusion and growth.
- Strengthen banks’ monitoring of borrowers (including from the Mainland) and encourage "conservative provisioning."
- Enhance insolvency and debt resolution and restructuring frameworks, including use of "special out‑of‑court solutions."
- Phase out the residency‑based LTV capital flow management measure and macroprudential measure.
- Maintain exchange rate regime success via countercyclical fiscal policy, flexible labor markets, a healthy banking sector, and adequate reserve coverage.
- Structural reform priorities for diversification:
- Invest in skill building and infrastructure, including digital infrastructure.
- Enhance effectiveness of public institutions and improve business environment.
- Leverage integration with the Guangdong‑Hong Kong‑Macao Greater Bay Area (GBA) to access a larger pool of skilled labor and offshore economic activities.
- Balance financial sector development with preservation of financial stability and integrity by further strengthening regulatory and supervisory framework.
- Strengthen cooperation among government agencies responsible for the diversification agenda.
- Climate-related policy recommendations:
- Strengthen climate adaptation measures and scale up public investments in key areas of climate related vulnerabilities.
- Enhance early warning systems to monitor and evaluate Macao SAR’s exposure to climate change risks.
- Improve understanding and management of financial risks due to climate change to shield the financial system.
- Fiscal strategy recommendation:
- Adopt a well‑articulated medium term fiscal strategy to support diversification and climate resiliency efforts.
- Increase spending on education, healthcare, and climate resilient public infrastructure throughout the medium term.
- Establish a credible medium/long term fiscal framework to manage trade‑offs from multiple fiscal demands beyond the annual budget process.
IMF Press Release No. 22/116 — April 12, 2022; IMF Communications Department