Although gaming results are expected to improve for 2023 with the lifting of several pandemic restrictions, it is still uncertain that the target of 130 billion patacas in revenues will be reached, analysts tell PLATFORMA. The Legislative Assembly approved last week the public budget for 2023, with the Executive again repeating the 130 billion in gross gaming revenue forecast. This is the third time the administration has pointed to the same level since the pandemic began in 2020
The budget bill for next year also foresees the use of the financial reserve in more than 35 billion patacas and the continuity of social support to the population.
According to the Secretary for Economy and Finance, Lei Wai Nong, the forecast is based on the return of electronic visas and tours from inland China, as well as the extra-gaming guarantees provided by future gaming licenses.
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In total, the authorities expect the new policies could attract 40,000 tourists a day next year. Although the city’s economic outlook is now more optimistic, considering the gradual lifting of pandemic restrictions, few are betting that the gaming sector will achieve such a robust recovery.
CAUTIOUS OPTIMISM
While pre-pandemic budget projections were overly “pessimistic” and quickly outdated, since 2020 local authorities have never officially lowered projections for the sector that many saw as overly optimistic.
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That year, overall gaming industry revenues stood at 60.4 billion patacas in 2020 – a dramatic annual drop of 80 percent. However, in 2021, the amount rebounded to 90.81 billion, but another drop is expected this year as a result of the multiple confinements recorded within China and the Macau SAR itself.
By October, the accumulated total reached only MOP35 billion, less than half of what was recorded at the same time last year and still far from the projection revised by the authorities (MOP50 billion).
According to the forecasts of Jacky So, vice-rector and director of the Faculty of Management and Administration at the University of Science and Technology of Macau, 2022 should end with a total of 53 billion patacas collected, or 41 percent of the initially projected amount.
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“Whether the forecast [for 2023] is realistic or not only depends on the return of tourists and players to Macau, which in turn is determined by the development of the new version of the pandemic and government policies in China and Macau,” So tells PLATAFORMA.
“Assuming the new 5+3 quarantine continues or becomes 0+3, just like Hong Kong, I believe ‘normal’ Chinese tourists will be happy to visit Macau soon. The new electronic visa application should also attract younger tourists.”
This month, Macau reduced the quarantine for those arriving in the territory from seven to five days, with the Chinese immigration administration admitting the return of individual e-visas and tours.
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Jacky So predicts that if the majority of tourists coming to Macau next year are part of the so-called mass market of the gambling industry, then perhaps 30 to 40 percent of the expected 130 billion patacas can be achieved.
However, he points out that considering the impact of Beijing’s tougher stance on the VIP gambling sector, it is expected that only 10 to 15 percent of the VIP market can be recovered after the Chinese New Year in January next year.
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“I believe that the MOP 130 billion target is not realistic. Macau will already be happy if 70 to 80 percent of that goal can be achieved after 2023!”
Angus Chu, an economist at the University of Macau’s Faculty of Social Sciences, points out that only by taking into consideration the pre-pandemic past would the 2023 budget forecasts make sense.
“At its peak [in 2013] annual gambling revenue in Macau was over MOP300 billion, so a forecast of MOP130 billion is quite reasonable for the post-Covid economy. The question is when the pandemic ends, and that nobody knows,” he explains to PLATAFORMA.
“Until then, gambling revenues in Macau will be below their potential level.”
VAULT SHRINKING
Another aspect of concern to the Palace is the continuing impact of declining gambling revenues on the budget available to the Macau SAR authorities.
The amount in gambling taxes received has dropped dramatically: first to 29.81 billion patacas in 2020, rising slightly in 2021 to 33.91 billion. This year, however, the Executive’s coffers still only saw 15.12 billion – a far cry from the 50 billion patacas expected for this year.
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Since 2020, the Chief Executive has drawn on his abundant financial reserves to balance the budget, cover the growing pandemic prevention expenses and support the multiple rounds of consumer support for the population.
Between 2020 and 2021, nearly 100 billion patacas will be injected into the budget to support the extraordinary expenses resulting from a plan of aid and tax benefits for the population and small and medium-sized enterprises. Given the dependence of Macau’s economy on the gaming industry, Angus Chu believes that the government has pursued a correct policy of incurring fiscal deficit to boost the economy.
“Otherwise, Macau’s economy would suffer an even more severe recession. The key, according to the academic, is for “the Government to balance its fiscal budget when the pandemic is over, not while the economy is in recession.”
Despite the expense, the value of the reserve increased between 2020 and 2021, something justified by the AMCM in the “prudent allocation and hedging of risks, as well as the application of funds in markets with potential growth”.
However, 2022 has proven less auspicious, with six months of consecutive losses in value between January and July of this year. Even so, the MSAR government plans an allocation of about MOP35.6 billion from its financial reserves in 2023 to meet the projected budget deficit.
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Jacky So proposes two other viable alternatives to reduce the budget deficit: implementing higher taxes and/or selling government bonds/loans.
“The first will be difficult to implement because of competition from neighboring cities in Taiwan, Singapore, Hong Kong, South Korea, etc., which maintain a 12.5 percent income tax. But a relatively small amount of government bonds may be beneficial in terms of promoting securities markets in Macau.”
For the economist, Macau should consider better ways to direct savings to more productive investments. “If the inflation rate continues to rise, the demand for bonds to protect against inflation will be high.”
