Journal Issue

IMF Executive Board Concludes 2014 Article IV Consultation with the People’s Republic of China—Macao Special Administrative Region

International Monetary Fund. Asia and Pacific Dept
Published Date:
July 2014
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On July 16, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation1 with Macao Special Administrative Region (SAR). The Consultation took place for the first time since the handover of Macao SAR from Portugal to China in 1999.

Prudent macroeconomic management has underpinned rapid development in the territory, which is now the world’s largest gaming center and has one of the highest levels of per capita GDP in the world. The policy framework—anchored by the combination of a currency board pegged to the Hong Kong dollar (and indirectly the U.S. dollar), flexible markets, and a commitment to safeguarding fiscal discipline and financial stability—has served Macao SAR well in maintaining financial stability and a strong external position, while successfully weathering several external shocks, including the recent global crisis. As a small, open and tourism-dependent economy, Macao SAR currently also benefits from loose global monetary conditions and a Mainland-related boom.

Growth rose to 11.9 percent in 2013 from 9.1 percent the previous year, driven by a pick-up in gaming exports. This enabled a large fiscal surplus of 23.3 percent of GDP and another current account surplus estimated at around 44 percent of GDP. Robust activity and historically low unemployment kept inflation relatively elevated at 5.5 percent. Notwithstanding some measures taken by the government that have slowed transactions and nonresident inflows, property prices increased by nearly 40 percent again last year, and credit growth remained brisk, up by over 30 percent. Given limited domestic lending opportunities, banks also continued to increase their foreign assets. Meanwhile, the health of the banking system strengthened further, with the average capital adequacy ratio rising to nearly 15 percent and the non-performing loan (NPL) ratio ticking down to only 0.1 percent.

The outlook is bright. Growth should stay strong over the next few years at 8–10 percent buoyed by gaming exports and investment, with inflation remaining around 5–5.5 percent. However, Macao SAR needs to prepare for future shifts in the global and domestic landscape, including implications from the unwinding of unconventional monetary policy by the United States and the Mainland engaging in major structural reforms to rebalance its growth.

While Macao SAR may benefit from further developing services demanded by a changing global environment, the narrow base of the economy makes it susceptible to external shocks, including a potential slowdown in tourism, due to shocks in the Mainland or Hong Kong SAR, or other setbacks to the global recovery. The buoyant property market could also come under pressure if demand fundamentals shift or interest rates rise sharply, due to faster-than-anticipated withdrawal of unconventional monetary policy abroad or increased financial market volatility in its wake. Credit risks may also arise from cross-border lending to the Mainland, Hong Kong SAR, and Portugal. Over a longer horizon, growth could slow as the gaming sector matures and the population ages. As a result, Macao SAR will need to preserve its traditional strengths by appropriately calibrating macroeconomic policies while bolstering financial soundness, ensuring external stability, maintaining fiscal prudence, and diversifying the economy.

Executive Board Assessment2

Executive Directors commended the authorities for their prudent macroeconomic management, which has lifted living standards to one of the highest levels in the world and enabled Macao SAR to weather external shocks successfully. Directors noted, however, that, while the outlook remains strong, the small open economy is susceptible to shocks arising from a narrow economic base, booming property prices, and a shifting external environment. Accordingly, Directors recommended persevering with the prudent policies, and welcomed the authorities’ determination to take all necessary steps to safeguard macroeconomic and financial stability.

Directors welcomed the progress in bolstering financial stability, including by implementing recommendations from the 2011 Financial Sector Assessment Program and enhancing the regime against money laundering and the financing of terrorism. They encouraged the authorities to address the remaining vulnerabilities and to further strengthen the resilience of the banking system to potential risks, including from the gaming and property sectors as well as from cross-border financial spillovers. To identify emerging risks, Directors highlighted the importance of industry-wide stress testing and close cooperation with supervisors in other jurisdictions. Directors welcomed the authorities’ efforts to manage rising property prices with macroprudential measures and recommended continued vigilance.

Directors took note of the staff’s assessment that the currency board with the Hong Kong dollar link has worked well for Macao SAR and should be maintained. The system provides a crucial anchor to expectations and supports economic activity, including by keeping the external position broadly consistent with medium-term fundamentals and desirable policies.

Directors commended the authorities for their fiscal prudence. To ensure that public finances remain on a sound footing as the gaming sector matures and the population ages, they recommended the adoption of a medium-term budget framework. Consideration could also be given to allocating some part of Macao SAR’s ample fiscal reserves to a sovereign wealth fund with a clear mandate to achieve better risk-adjusted returns over a long horizon, including through a more diversified asset allocation strategy.

Directors underscored that economic diversification holds the key to unlocking additional growth engines and achieving greater economic resilience over the longer term. They commended the authorities’ focus on promoting nongaming services, and encouraged them to explore more opportunities, including through broader integration with the Mainland, further financial development, and greater public investments in infrastructure and human capital.

Macao SAR: Selected Economic and Financial Indicators
(Annual percentage change, unless otherwise specified)
National accounts
Real GDP14.33.41.727.521.
Total domestic demand16.9−5.0−12.8−0.113.811.
Net exports 1/
Prices and employment
Headline inflation (average)
Housing prices49.312.5−0.333.533.638.442.6
Median monthly employment earnings14.
Unemployment rate (annual average)
(In percent of total)
Economic structure
Secondary sector19.
Of which: manufacturing2.
Of which: construction15.
Tertiary sector80.982.889.192.793.693.8
Of which: public administration, other community, social &
personal services (including gaming)43.744.347.855.157.657.7
(In thousands)
Of which: foreign workers85.292.274.975.894.0110.6137.8
Tertiary sector239.5253.8261.5271.0284.2298.1314.6
Of which: gaming62.665.361.662.870.178.883.3
(In percent of GDP)
Balance of payments 2/
Current account, net24.319.432.042.944.143.544.043.641.1
Trade balance of goods and services, net27.633.844.556.159.259.760.960.858.6
Goods balance−25.7−24.4−20.4−19.3−21.2−20.5−19.3−19.4−19.2
Services balance53.358.164.975.480.480.280.380.277.8
Foreign exchange reserves 3/73.376.886.183.792.938.631.2
(In billions of US dollars)13.215.918.423.734.016.616.1
Saving and investment
Gross capital formation37.531.018.913.313.914.713.813.515.8
National saving61.850.550.856.257.256.857.857.256.9
Central government finance
Overall balance15.
Fiscal reserves 4/47.858.7
(Annual percentage change)
Financial sector
Interest rates
Discount window base rate (eop)
Saving deposit rate (average)
MAIBOR 3-month (eop)
Visitor arrivals−5.114.812.20.34.4
Gaming revenue45.831.09.657.541.913.418.6
Exchange rate
MOP/USD, period average0.4−0.2−−0.40.0
Nominal effective exchange rate−4.3−5.61.1−0.8−5.01.7−0.1
Real effective exchange rate−1.7−1.62.5−0.2−
Memorandum items:
Per capita GDP (in thousands of US dollars)34.738.439.852.866.775.587.3
Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates.

Contribution to annual growth in percent.

BPM6 methodology. Current account, net for 2013 is staff projection.

Part of foreign reserves transferred to fiscal reserve fund since 2012.

Balance as of January of following year, after approval by Legislative Assembly.

Sources: CEIC; Haver Analytics; IMF, International Financial Statistics; national authorities; and IMF staff estimates.

Contribution to annual growth in percent.

BPM6 methodology. Current account, net for 2013 is staff projection.

Part of foreign reserves transferred to fiscal reserve fund since 2012.

Balance as of January of following year, after approval by Legislative Assembly.


Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.


At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

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