Analyst
Lin Wenjie
linwenjie@dagongcredit.com

Sovereign Credit Rating

Local currency/outlook AA+/stable
Foreign currency/outlook AA+/stable
Rating time October 2010

Rationale

Dagong assigns “AA+” on both local and foreign currency long term sovereign credit rating for the Macao SAR of the People’s Republic of China (“Macao”). The ratings are based on the overall evaluation of its improving government management capability, its favorable economic prospects，as well as the sound fiscal and foreign exchange strengths.
Macao government has no debt burden. Moreover, it is almost unlikely for the Macao government to maintain any debt in the short to medium term, in light of the repeated expansion of its scale of government net assets and expected continuous surplus of balance of payment in the future period.
Macao government has strong debt repayment capability, as they are shown in the following aspects:
Government management capability is growing. Macao is in a stable political and social environment, and since PRC resumed the exercise of sovereignty over Macao, Macao government has run the region actively, and promoted the rapid development of the local economy. However, many new problems have emerged during this transition period, and government needs to further improve its management capability to meet any new challenges;

Since 2000，changes in economic structures, which is marked by the boom of the casino and tourist industry, has brought about sustained rapid economic growth of Macao. After the global financial crisis in 2008, supported by the good economic development in Asia-pacific region, especially in mainland China, Macao’s economy has moved into a rapid recovery track, which is expected to continue in the future. However, Macao’ economy showed some vulnerability because of its high dependence on the casino industry and external economic environment;

In recent years, rapid development and improvement of efficiency and soundness of the banking sector not only have helped maintain the overall stability of the financial system, but also supported the growth of the real economy;

The basis of government finance and foreign exchange operation is sound. Macao has maintained large scale of fiscal surplus for many years and has accumulated large amount of net assets, which can ensure the strong financial strength of Macao government. Its sustained current account surplus, high foreign exchange reserves, and large net external financial assets can all fully guarantee the foreign exchange strength.

Outlook

The improvement of external economic environment has driven rapid recovery of Macao’ casino and tourist industry, and Macao’s economy has experienced continuous rapid growth since the third quarter 2009. Dagong expects the trend of rapid growth of the casino and tourist industry will continue, given the fact that the external economic situation is less likely to deteriorate sharply again in the next 1 to 2 years despite the existing uncertainties. In this context, the economic scale, fiscal revenue and export earnings will continue to expand. In addition, the good prospects of economic development in mainland China will provide favorable external environment in the foreseeable future. Therefore, Dagong keeps a stable outlook for Macao government’s local and foreign currency sovereign credit rating in the next 1-2 years.