## People’s Republic of China—Macao Special Administrative Region: Staff Concluding Statement of the 2022 Article IV Mission _IMF News, January 24, 2022_ ## Source details **Canonical URL:** [People’s Republic of China—Macao Special Administrative Region: Staff Concluding Statement of the 2022 Article IV Mission](https://www.imf.org/en/news/articles/2022/01/21/peoples-republic-of-china-macao-sar-concluding-statement) ## Other formats - [Markdown version](/en/news/articles/2022/01/21/peoples-republic-of-china-macao-sar-concluding-statement/index.md) - [Structured JSON version](/en/news/articles/2022/01/21/peoples-republic-of-china-macao-sar-concluding-statement/index.json) - [Bundle manifest](/en/news/articles/2022/01/21/peoples-republic-of-china-macao-sar-concluding-statement/bundle-manifest.json) ## Bibliographic details - Published: January 24, 2022 --- ### I. Macroeconomic situation: elevated uncertainty ahead - Pandemic impact and recovery - Aggregate GDP shrank by 54 percent in 2020, mostly on the collapse of services exports. - The economy is estimated to have expanded by 17 percent in 2021 helped by the partial recovery of the gaming sector. - GDP is projected to grow by 15 percent in 2022 driven by the gradual return of foreign tourists and the recovery of domestic demand. - Growth is expected to accelerate to 23 percent in 2023 before gradually converging to its long‑term potential of around 3.5 percent over the medium term. - Given the depth of the economic losses during the pandemic, the level of GDP is expected to surpass its pre‑crisis level only in 2025. - External and financial position - Staff’s preliminary assessment: Macao SAR’s overall external position remains substantially stronger than warranted by medium‑term fundamentals and desirable policies. - The current account surplus in 2021 is estimated at less than half of the level observed in 2019. - The banking system remains well capitalized with solid levels of liquidity and profitability; capital adequacy is in double digits; the nonperforming loan ratio remains low. - Household debt to banks, half of which are mortgages, accounts for more than half of banks’ domestic credit. - Banks’ external exposures: large exposure to Mainland China; a significant share of foreign liabilities has less than one year maturity, creating funding vulnerabilities. - Balance of risks (tilted to the downside in the short term) - Resurgent pandemic: renewed COVID‑19 outbreaks and mobility restrictions could stall recovery and prompt persistent behavioral changes (e.g., a permanent shift toward online gaming). - Tighter regulation of the gaming industry: uncertainty from gaming law reforms and the recent ban on gaming services’ marketing in the Mainland could affect the VIP segment. - Spillovers from Mainland China: large‑scale defaults in Mainland China’s real estate sector or a sudden Mainland slowdown could prompt negative spillovers. - Financial risks: reduced household income lowers debt‑servicing capacity; tighter global financial conditions could pressure non‑financial firms and the banking system. - Climate change: intensification of climate‑related risks could adversely affect financial institutions and corporates. ### II. Fiscal policy: near‑term support and medium‑term strategy - Near-term guidance - Premature withdrawal of policy support should be avoided. - Fiscal support remains essential; the fiscal tightening envisaged in the 2022 budget is premature given the still‑large output gap and significant downside risks. - Given fiscal space remains ample, a neutral fiscal stance in 2022 is recommended to support non‑gaming activity and mitigate long‑term potential losses. - Recalibration and priorities - Target cash transfers to the most vulnerable households (high propensity to consume). - Incentivize job creation and continue job placement and matching efforts, particularly for youth. - Additional spending on healthcare, education, and scaling up macro‑critical public investments in climate resiliency to boost demand and assist diversification. - Maintain strict fiscal transparency and accountability for COVID‑19‑related spending consistent with other government spending. - Medium/long‑term fiscal framework - A well‑articulated medium‑term fiscal strategy would support diversification and climate resiliency efforts, preserve fiscal space, and ensure fiscal sustainability and intergenerational equity. - A medium/long‑term fiscal framework (MLTFF) should integrate fiscal decisions, specify short- and medium‑term priorities, ensure spending and tax efficiency, and provide clear guidelines for fiscal sustainability. ### III. Financial sector policies and stability measures - Monitoring and resolution - Strengthen monitoring of enterprises and households to anticipate potential increases in insolvencies. - Encourage banks to conservatively provision to withstand potential asset quality deterioration. - Enhance insolvency and debt resolution and restructuring frameworks, including special out‑of‑court solutions, to avoid overloading courts. - Managing spillovers and liquidity risks - Enhance regulatory and supervisory frameworks to manage risks from significant exposure to Mainland China. - Monitor credit risk of borrowers from Mainland China and conduct forward‑looking risk assessments. - Maintain close supervisory cooperation with the Mainland to minimize regulatory arbitrage. - Carefully monitor liquidity positions of banks with large short‑term foreign liabilities. - Macroprudential policy - To curb risks from residential property price growth, link differentiation in LTV limits to banks’ risk assessment of loans and borrowers rather than current residency‑based differentiation. - Exchange rate regime - The peg to the Hong Kong dollar continues to serve Macao SAR well as a credible nominal anchor. - Its success is underpinned by countercyclical fiscal policy, flexible labor markets, a healthy banking sector, and adequate reserve coverage; maintaining these policies will ensure continued success. ### IV. Structural reforms and economic diversification - Diversification strategy and opportunities - The government’s Master Plan of the Development of the Guangdong‑Macao Intensive Cooperation Zone aims to develop four nascent industries and facilitate integration into the Guangdong‑Hong Kong‑Macao Greater Bay Area (GBA). - Progress in promoting modern financial services is welcome; diversification will require addressing structural bottlenecks. - Key reforms to support diversification - Skill building: invest in outcome‑orientated occupational and on‑the‑job training; strengthen science‑business linkages. - Talent attraction: streamline administrative requirements for hiring non‑resident skilled workers. - Regional integration: leverage GBA integration to access a larger pool of skilled labor and offshore activities. - Physical and ICT infrastructure: close infrastructure gaps vis‑a‑vis OECD countries, including digital infrastructure; AMCM steps to deploy new financial infrastructure are welcome. - Housing and regulatory reforms: boost public housing supply; reform regulatory frameworks to increase private sector housing supply. - Public institutions and business environment: increase regulatory predictability, raise judicial independence, strengthen protection of property rights, and streamline labor and business regulations. - Financial sector development balance - Balance financial sector development with the need to preserve financial stability and integrity. - Identify and mitigate ML/TF risks as the financial sector expands. ### V. AML/CFT and governance actions - Actions and remaining gaps - The government has made good progress in addressing technical compliance deficiencies in AML/CFT. - Further strengthening needed for the offshore sector and for investigation and prosecution of laundering of foreign proceeds of crime, particularly through the gaming sector. - Enhanced cooperation - Government diversification initiatives are spread across different agencies; enhanced interagency cooperation would improve policy effectiveness. ### VI. Climate change: exposure and adaptation priorities - Climate exposure and risks - Macao SAR faces high risks of cyclones and medium risk of coastal floods and water scarcity. - Some critical infrastructures are at risk of being below the annual flood level within ten years. - Adaptation and financial resilience measures - Align public policies with climate objectives and build early warning systems to monitor climate change exposure. - Update land‑use planning strategy to address sea‑level rise and storm surges; strengthen coastal protection and mitigate coastal erosion. - Scale up public investments in critical infrastructure, water security, and coastal management. - Improve understanding and management of financial risks due to climate change; the authorities’ intention to improve insurance coverage for climate‑related disasters is positive. ### VII. Key policy recommendations summary - Fiscal - Avoid premature withdrawal of policy support; adopt a neutral fiscal stance in 2022. - Target cash transfers to vulnerable households; incentivize job creation; increase spending on healthcare, education, and climate‑resilient infrastructure. - Develop a medium/long‑term fiscal framework to support diversification, climate resiliency, fiscal sustainability, and intergenerational equity. - Financial sector - Strengthen monitoring of household and enterprise debt; encourage conservative provisioning. - Enhance insolvency and debt resolution frameworks; monitor banks’ liquidity and exposure to Mainland China; deepen supervisory cooperation with the Mainland. - Adjust macroprudential measures (LTV differentiation linked to risk assessments). - Structural reforms - Invest in skills and training; streamline hiring of non‑resident skilled workers; close physical and digital infrastructure gaps; improve regulatory predictability and judicial independence. - Coordinate interagency efforts to implement diversification strategies effectively. - Climate - Scale up public investments in climate adaptation, coastal management, and water security; enhance insurance coverage and financial-sector climate‑risk management. *People’s Republic of China—Macao Special Administrative Region: Staff Concluding Statement of the 2022 Article IV Mission, January 23, 2022* --- ## References - [People's Republic of China - Macao Special Administrative Region and the IMF](http://www.imf.org/external/country/MAC/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Mission Concluding Statements](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) _Source: https://www.imf.org/en/news/articles/2022/01/21/peoples-republic-of-china-macao-sar-concluding-statement_