Macau has been urged to create a sovereign wealth fund (SWF) and invest the billions in profits made from its engorged gambling industry.
The International Monetary Fund (IMF) said the explosion of the betting tourism in the Special Administrative Region (SAR) since 2001 meant its government had received huge revenues over the last decade.
“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,” an IMF report on the region said. “Consideration could also be given to allocating some part of Macau 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.”
At $88,700, Macau has the world’s third highest GDP per capita, according to the CIA World Factbook, just behind that of Qatar and Liechtenstein. Some 85% of government revenues come from gambling activity—which has been fuelled by the Chinese government’s decision to relax restrictions on its citizens travelling to the region to frequent its many casinos. In 2013, this city of 607,500 people hosted nearly 29.3 million visitors.
“Consideration could also be given to allocating some part of Macau SAR’s ample fiscal reserves to a sovereign wealth fund with a clear mandate to achieve better risk-adjusted returns over a long horizon,” the IMF said.
“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 IMF said.
In 2013, Macau’s budget surplus was 23.3% of its annual GDP, behind Kuwait’s at 29.2%. Kuwait has the world’s oldest SWF, with estimated assets of more than $400 billion. The IMF said Macau’s reserves stood at around $16 billion last year, while they had been as high as $34 billion in 2011.
“[IMF] directors underscored that economic diversification holds the key to unlocking additional growth engines and achieving greater economic resilience over the longer term,” the report said. “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.”
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