Moody’s downgraded Macau’s issuer rating to Aa3 from Aa2 on Wednesday and assigned it a negative outlook given a protracted slump in the gambling sector on which the city’s economy overwhelmingly depends.
China’s slowing economy and a pervasive anti-corruption crackdown has sapped demand from wealthy gamblers and prompted operators in the southern Chinese city to shift their focus to lower spending regular punters.
Although gambling income is still five times that of Las Vegas, last year revenues in the former Portuguese colony dropped 34 percent to $29 billion. Average monthly revenues have halved from what they were at the start of 2014 and are set to fall for a 24th consecutive month in May.
The international credit rating agency said the downgrade was in response to “the sharp weakening in the economy, with growth remaining highly volatile.”
The long-term foreign currency bond ceiling was lowered to Aa2 from Aaa and its long-term foreign currency deposit ceiling rating was cut to Aa3 from Aa2.
Moody’s, which still rates Macau three notches below the top Aaa rating, said its credit profile remains strong compared with many other places.
Macau’s growth is highly dependent on the gambling sector, which accounts for 58.3 percent of economic output at current producer prices, about three-fourths of its service exports, and three-quarters of total fiscal revenues.
The drop in tourist arrivals from mainland China has hit Macau hard. In 2015, the economy shrank 20.3 percent year-on-year, extending a 0.9 percent contraction in 2014. This is in sharp contrast with the 13.7 percent average annual growth clocked during the preceding five years.
“The negative outlook reflects uncertainties surrounding the trajectory for growth, the policy response, and the consequences for Macao’s fiscal and external buffers,” it said while indicating a higher likelihood of a rating change over the medium term.