2020 deficit could reach MOP48 bln depending on Gov’t relief efforts – Economist

University of Macau Chair Professor in Accounting and Finance, Jean Chen, indicated to Macau News Agency (MNA) that academic estimates from the university suggest that this year’s local government deficit could reach an amount between MOP30 billion (US$3.7 billion) and MOP48 billion.

This assessment matched the estimate made last week by Secretary for Economy and Finance Lei Wai Nong, that the local coffers could record a deficit exceeding MOP40 billion in 2020 as a result of the Covid-19 impact on the local economy.

These results would mainly come from a decrease in yearly gross gaming revenues and an increase in government expenses to alleviate the economic impact of the epidemic and boost the local economy.

Today it was revealed that the amount in gaming taxes collected by the Macau government in the first two months of this year has dropped 12.2 per cent year-on-year to some MOP17.2 billion, with total expenses increasing by 12.4 per cent year-on-year to MOP6.9 billion, and resulting in MOP11.8 billion surplus.

The Dean of the UM Faculty of Business Administration pointed out that the actual deficit level would also depend on the level of government expenditure on public infrastructure, which the economist considered could generate a “positive social impact and economic benefit” that could compensate the loss in revenue from gaming industry and therefore reduce the deficit.

“This kind of dramatic change due to unexpected emergency is not necessarily leading to long-term drop in revenue. A temporary deficit is normal for any country suffering from some dramatic events […] A careful cost-benefit analysis is necessary rather than one single indicator,” the economist told MNA.

The financial expert noted that with Macau being a tourism and service-focused region the MICE, catering, retail, tourism, casino, taxi and Real Estate have been the most affected, with an estimated drop of turnover between 60 percent and 95 per cent and an average of around 80 per cent in the first quarter of 2020 compared with their normal business turnover in the same period last year.

“Around 35,000 SMEs which account for more than 95 percent of the firms in Macau are very much related to service industry, and thus have been suffering badly during this very difficult time,” Professor Chen noted.

“Under the controls of visitor arrivals, work arrangements, and 15-day closure of all casinos, etc., turnovers of related SMEs have dropped by more than 50 per cent and some of them even 90 per cent in the first three weeks of February 2020. Moreover, related employees needed to accept no- or reduced-pay leaves, and the threat of losing their jobs if the situation persists”

The local government has so far announced several financial support measures for residents and SMEs, including MOP2.2 billion in individual consumer vouchers, tax breaks and reductions, and credit guarantees for SME bank loans.

While considering that the tax and tariff reduction policies announced by local authorities could reduce the financial and liquidity burdens incurred by local SMEs, the UM Professor also considered some of the MOP579.4 billion accumulated financial reserve capital could be used for public investments to boost the local economy.

Therefore, the local govenrment could “speed up” and increase the public investment in the Light Rapid Transit system, city renovations, the future Cotai Hospital, the airport expansion, public housing, and in the reclaimed new areas.

“More public investment in infrastructure would have long-term social and economic benefits to the society, such as building citizen’s confidence, widening employment opportunities, and improving tourism infrastructure, which will certainly help the diversification of Macau’s economy,” Professor Chen told MNA.