Macau’s high exposure to climate-related shocks and uncertainties clouding over the new gambling law will add risks to the city’s economic prospects, according to the International Monetary Fund (IMF).
The city has sufficient policy buffers to effectively steer the economy, which is expected to grow by 15.5 per cent this year, and a faster pace of growth in 2023, but public investments and prevention plans should be increased to deal with the impact of the climate change, according to Ara Stepanyan, IMF Mission Chief for Macau.
“Macau is exposed to rising sea level, [at a rate that] has increased in the past 20 years to about 2.4mm per year,” Stepanyan wrote in a statement to the Post. “It is expected that the degree and frequency of climate-related disasters such as cyclones and coastal floods will increase. Some critical infrastructures are at risk of being below the annual flood level within 10 years.”
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The government has formulated environmental protection and disaster prevention plans in a number of areas to close the infrastructure gaps for disaster prevention and mitigation.
“The implementation of the envisaged plans will be important, and additional efforts are needed to further strengthen coastal protection and management, mitigate coastal erosion, and enhance water security,” he said.
In its report on Macau’s outlook released on April 12, the IMF urged city authorities to strengthen climate adaptation, scale up public investments in key areas of climate-related vulnerabilities, and enhance early warning systems to monitor and evaluate its exposure to climate change.
“The government has established storm surge and rainstorm warning systems. Enhancing these systems further will improve the government’s capacity to deal with the impact of extreme weather and climate change, helping protect the safety of citizens and their property,” said Stepanyan.
Another uncertainty is the new gambling law. “Some uncertainty still remains, which, combined with the ban on the gaming services’ marketing in mainland [China] pose risks to the outlook of the VIP segment of the market, which accounted for about one third of the total gaming revenues in 2021,” said Stepanyan.
“Our baseline projections for the gaming sector assume a smooth transition to the new legal regime for the gaming sector. However, we project only a gradual recovery, with the gaming sector reaching its pre-pandemic level only in 2025,” he said.
Last month, Macau government announced an extension for about six months of the existing gaming licences, to December 31, and asked Macau’s six casino operators to apply for the extension of their licences, which are due for expiry on June 26.
The six licences are held by Wynn Macau, Sands China, MGM China, SJM Holdings, Galaxy Entertainment and Melco Resorts.
According to the gambling reforms announced in January, the number of casino licenses will be kept at six, but their duration will be slashed to 10 years with up to three years of maximum extension at the government’s discretion, from 20 years with five-year extensions.
Macau’s GDP growth is expected to accelerate to 23.3 per cent next year, boosted by an increase in investment linked to the issuance of new gaming concessions and further integration with the Greater Bay Area, before gradually falling back to around 3.5 per cent in the medium term, the report said.
Its economy expanded by 18 per cent in 2021 to 239.4 billion patacas (US$29.83 billion), supported by the partial recovery of the gaming sector, after a 55.3 per cent decline in gross domestic product in 2020, according to government data.
However, given the depth of the economic losses during the pandemic, the level of GDP is not expected to surpass its pre‑crisis level until 2025, the IMF said.
“In the absence of rapid progress towards economic diversification, the current account balance is set to return to pre-pandemic levels when tourist arrivals to Macau return to pre‑pandemic levels.”
The IMF said the debt servicing capacity of Macau households had fallen because of pandemic-induced income losses and pressures on non‑financial firms from tighter global financial conditions. This could have a negative effect on the banking system.
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