Local fiscal reserves provide ‘ample space’ for recovery stimulus packages – Report

Local fiscal reserves are sufficient for provided ‘ample space’ for rolling out fiscal stimulus packages to cushion the ‘severe impacts’ of the Covid-19 outbreak on households and businesses while upholding the public sector’s debt-free status, the Monetary Authority of Macau (AMCM) indicated in its latest Monetary and Financial Stability Review.

In 2019 the Macau SAR reported some MOP51.4 billion (US$6.4 billion) in the MSAR Government’s central account fiscal surplus, with financial reserve capital increasing by 13.9 per cent year-on-year to some MOP579.4 billion.

However, the AMCM noted that in the first five months of 2020, due to the pandemic and the associated containment measures, the public revenue from gaming concessionaires plunged 56.5 per cent while the public expenditure rose notably due to additional anti-pandemic healthcare spending and relief measures.

‘In the first quarter of 2020 […] the local economy which plunged year-on-year by 48.7 per cent. In particular, service exports and private consumption retreated significantly by 60.0 per cent and 15.2 per cent respectively,’ the AMCM indicated.

The monetary authority also noted that investment spending ‘remained in the doldrums’ and that while public investment rose notably by 41.5 per cent in the first quarter of 2020, private investment dropped 43.8 per cent due to the completion of integrated-resort projects and postponed construction due to the pandemic.

‘Although the increment in public investment partially offset the contraction of private
investment, the overall investment spending – the sum of gross fixed capital formation and changes in inventories – still registered decreases.’

The job market was also said to have shown ‘signs of deterioration as economic contraction worsened’ this year, while labour income went down progressively as the overall labour demand slackened.

In order to meet the extra expenditure budgeted for boosting the economy, the Legislative Assembly has approved the transfer of MOP42.6 billion from the Fiscal Reserve to the 2020 Budget

This led to public revenue – excluding public autonomous agencies – decreasing by 26.8 per cent to MOP40.6 billion, while public expenses rose by 38.1 per cent to MOP32.4 billion, with the Macau SAR remaining ‘debt-free’.

The monetary authority also noted that the foreign exchange reserves had increased year-on-year by 11.5 per cent year-on-year to MOP183.3 billion at end-May 2020, which help support the local currency.

‘The MSAR’s foreign exchange reserve is maintained at a level that has sufficiently covered MOP monetary liabilities, providing a strong buffer to cushion against external shocks,’ the report stated.

Despite the considerable local financial reserves, Chief executive Ho Iat Seng has indicated next year’s Macau SAR budget will see a 10 per cent cut in public departments expenditures, with the AMCM noting that the revival of Macau’s economy is subject to ‘sizable uncertainty’.

While the pandemic has been relatively well contained in neighbouring Mainland cities, the resumption of mobility on a limited base may help alleviate the negative impact on tourism activities,’ the report noted.

‘The MSAR Government has laid out targeted plans to promote and revive the local travel industry to facilitate the gradual recovery of the economy. However, external demand in the second half of 2020 is likely to remain subdued and subject to high uncertainty’

Authorities considered that the two rounds of relief measures implemented by the
government and the pent-up demand are likely to boost consumption in the second half of 2020, while higher public investment spending on infrastructure and construction projects will mitigate the contraction of private investment.

‘Nevertheless, Macau’s economy is expected to register double-digit contraction in 2020 amid a challenging external environment,’ the report concluded.

‘The pandemic has highlighted the importance of economic diversification in
increasing the resilience of Macau’s economy against external shocks’