{
  "title": "IMF Staff Completes 2016 Article IV Mission to the People’s Republic of China—Macao Special Administrative Region",
  "publication": "IMF News, November 15, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/11/15/pr16508-china-macao-imf-staff-completes-2016-article-iv-mission",
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  "summary": "IMF team led by Geoff Gottlieb visited Macao SAR from November 3 to 14 to conduct discussions on the Article IV review of the Macao SAR economy.",
  "publishDate": "2016-11-15",
  "sections": [
    {
      "heading": "Mission summary",
      "content": "- IMF team led by Geoff Gottlieb visited Macao SAR from November 3 to 14 to conduct discussions on the Article IV review of the Macao SAR economy.\n- The mission held discussions with senior officials from the SAR government, the Monetary Authority of Macao (AMCM), private sector representatives, and academics.\n- Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Staff will prepare a report, subject to management approval, for presentation to the IMF's Executive Board."
    },
    {
      "heading": "Economic outlook and recent developments",
      "content": "- “The Macao SAR economy has started an important transition.”\n- Developments in mainland China have triggered a “large and likely permanent reduction in external demand from high-net worth visitors.”\n- The economy will contract for a third consecutive year in 2016.\n- External demand has begun to recover with three consecutive months of positive gaming revenue growth.\n- There are signs of incipient recovery in housing prices and transactions in recent months.\n- Macao is well-positioned to have stable and sustainable growth in the low- to mid-single digits.\n- Macao retains a highly valuable gaming monopoly within China and is a known tourist brand with significant geographic proximity to – and cultural affinity with – mainland China’s middle class."
    },
    {
      "heading": "Diversification priorities and policy recommendations",
      "content": "- The authorities’ five-year plan correctly identifies the importance of:\n  - Diversifying from VIP to mass-market gaming;\n  - Diversifying from gaming to non-gaming tourism;\n  - Diversifying from tourism to financial services exports.\n- Tourism: the single biggest priority is ensuring that public sector infrastructure investment is adequate in both quality and quantity to accommodate further increases in external demand; moving from VIP to mass market tourists requires additional capacity to achieve the same amount of growth.\n- Financial services: “more granular work is needed to establish the extent of Macao SAR’s existing competitive advantage and the needed policy changes to succeed, particularly with respect to off-shore activities like leasing and wealth management.”\n  - Attracting non-resident investors and professionals may require considerable cuts in tax rates and substantial increases in supervision.\n  - To increase the likelihood that such costs are merited, the authorities should seek to maximize spillover benefits to local employment with well-targeted government training programs and educational investment."
    },
    {
      "heading": "Exchange rate peg, fiscal policy, and resilience",
      "content": "- “The peg to the Hong Kong dollar continues to serve Macao SAR well, providing a credible nominal anchor.”\n- Success of the peg is attributed to adequate foreign exchange coverage, a stable banking sector, appropriately tight fiscal policy, and flexible markets.\n- Under a currency peg, fiscal policy has a particularly important role. Given the extent of fiscal reserves, there is adequate policy space to accommodate future shocks rather than offsetting temporary reductions in revenue by pro-cyclical tightening.\n- Recent discretionary loosening can be politically difficult to reverse, resulting in permanent commitments.\n- Recommendation: develop a medium-term fiscal framework that explicitly takes into account:\n  - the expected move away from the tax-rich gaming sector;\n  - the projected material rise in pension spending due to aging."
    },
    {
      "heading": "Financial sector and housing market",
      "content": "- Despite the sharp fall in housing prices witnessed since early 2014, the financial sector remains well-protected, due in part to regulations put in place by the authorities.\n- Average loan to value and debt service to income ratios remain low, enabling non-performing loans to remain near zero.\n- The price correction has substantially improved affordability when measured against after tax income.\n- Policy options:\n  - Facilitate additional housing supply at market (rather than subsidized) prices if further affordability improvements are desired.\n  - Explore the scope for tighter loan-to-value ratios on second home purchases if speculative demand is a concern."
    },
    {
      "heading": "Key findings and exact figures from the mission",
      "content": "- Mission dates: November 3 to 14.\n- Press release date: November 15, 2016.\n- Economy contraction: third consecutive year in 2016.\n- Gaming revenue: three consecutive months of positive growth (recent months).\n- Growth outlook: stable and sustainable growth in the low- to mid-single digits.\n- Housing price decline began: since early 2014.\n- Non-performing loans: remain near zero.\n- Contact (IMF Communications Department): Phone: +1 202 623-7100; Email: MEDIA@IMF.org\n\nIMF Staff Completes 2016 Article IV Mission to the People’s Republic of China—Macao Special Administrative Region (Press Release No. 16/508), November 15, 2016.\n\n---\n\n\n References\n\n- People's Republic of China and the IMF\n- People's Republic of China - Macao Special Administrative Region and the IMF\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/11/15/pr16508-china-macao-imf-staff-completes-2016-article-iv-mission"
    }
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    "Published: November 15, 2016",
    "IMF team led by Geoff Gottlieb visited Macao SAR from November 3 to 14 to conduct discussions on the Article IV review of the Macao SAR economy.",
    "The mission held discussions with senior officials from the SAR government, the Monetary Authority of Macao (AMCM), private sector representatives, and academics.",
    "Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Staff will prepare a report, subject to management approval, for presentation to the IMF's Executive Board.",
    "“The Macao SAR economy has started an important transition.”",
    "Developments in mainland China have triggered a “large and likely permanent reduction in external demand from high-net worth visitors.”",
    "The economy will contract for a third consecutive year in 2016.",
    "External demand has begun to recover with three consecutive months of positive gaming revenue growth.",
    "There are signs of incipient recovery in housing prices and transactions in recent months.",
    "Macao is well-positioned to have stable and sustainable growth in the low- to mid-single digits.",
    "Macao retains a highly valuable gaming monopoly within China and is a known tourist brand with significant geographic proximity to – and cultural affinity with – mainland China’s middle class.",
    "The authorities’ five-year plan correctly identifies the importance of:",
    "Tourism: the single biggest priority is ensuring that public sector infrastructure investment is adequate in both quality and quantity to accommodate further increases in external demand; moving from VIP to mass market tourists requires additional capacity to achieve the same amount of growth.",
    "Financial services: “more granular work is needed to establish the extent of Macao SAR’s existing competitive advantage and the needed policy changes to succeed, particularly with respect to off-shore activities like leasing and wealth management.”",
    "“The peg to the Hong Kong dollar continues to serve Macao SAR well, providing a credible nominal anchor.”",
    "Success of the peg is attributed to adequate foreign exchange coverage, a stable banking sector, appropriately tight fiscal policy, and flexible markets.",
    "Under a currency peg, fiscal policy has a particularly important role. Given the extent of fiscal reserves, there is adequate policy space to accommodate future shocks rather than offsetting temporary reductions in revenue by pro-cyclical tightening.",
    "Recent discretionary loosening can be politically difficult to reverse, resulting in permanent commitments.",
    "Recommendation: develop a medium-term fiscal framework that explicitly takes into account:",
    "Despite the sharp fall in housing prices witnessed since early 2014, the financial sector remains well-protected, due in part to regulations put in place by the authorities.",
    "Average loan to value and debt service to income ratios remain low, enabling non-performing loans to remain near zero.",
    "The price correction has substantially improved affordability when measured against after tax income.",
    "Policy options:",
    "Mission dates: November 3 to 14.",
    "Press release date: November 15, 2016.",
    "Economy contraction: third consecutive year in 2016.",
    "Gaming revenue: three consecutive months of positive growth (recent months).",
    "Growth outlook: stable and sustainable growth in the low- to mid-single digits.",
    "Housing price decline began: since early 2014.",
    "Non-performing loans: remain near zero.",
    "Contact (IMF Communications Department): Phone: +1 202 623-7100; Email: MEDIA@IMF.org",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[People's Republic of China - Macao Special Administrative Region and the IMF](http://www.imf.org/external/country/MAC/index.htm)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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