People’s Republic of China-Macao Special Administrative Region: Staff Concluding Statement of the 2026 Article IV Mission

Washington, DC: Macao SAR’s economy has remained resilient amid heightened global uncertainty, supported by a strong rebound in gaming and tourism activities. Nonetheless, real GDP is still below its pre-pandemic level, and the economy remains heavily concentrated in the gaming sector and tourism from the Chinese mainland. At the same time, the aging process and low population growth are weighing on labor supply and potential growth while giving rise to fiscal costs. The financial system is well capitalized and liquid, although non-performing loans (NPLs) remain elevated despite recent improvements. Fiscal policy can support recovery in the near term while addressing long-term structural issues through higher spending on infrastructure, healthcare, and social benefits. Continuing to safeguard financial stability and further accelerating economic diversification will be important to enhance resilience and support more balanced and sustainable growth.

Recent Developments, Outlook and Risks

1. The economy continues to recover amid headwinds from the Middle East conflict. Growth remained robust, with real GDP expanding by 4.7 percent (y/y) in 2025 and by a further 7.1 percent (y/y) in 2026Q1, supported by strong performance in gaming and tourism activities. Inflation picked up modestly, rising to 1.2 percent in June 2026 from 0.7 percent (y/y) in December 2025, reflecting higher food and transportation prices. The banking system remains liquid and well capitalized, while the NPL ratio—driven primarily by property-related NPLs in Macao SAR and the Chinese mainland—has started to decline despite remaining elevated. External and fiscal positions remain strong, supported by the robust recovery of gaming revenues and conservative expenditure execution.
2. The recovery remains incomplete and uneven. While tourist arrivals have surpassed pre-pandemic levels and activities in hotels and restaurants have picked up, gaming revenues remain 15 percent below their pre-pandemic peak, reflecting structural shifts in the VIP gaming sector following tighter regulation and enhanced Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) enforcement, as well as changes in spending patterns. Domestic demand and private investment have been held back by still-tight credit conditions, heightened uncertainty, a sluggish property sector, and under-execution of public spending. Despite recent signs of stabilization, downward pressures on residential and commercial property prices continue amid subdued investor confidence. The Small and Medium Enterprises (SME) sector continues to face headwinds, as the rebound in tourist arrivals has not translated into broad-based demand. Consequently, the economic slack remains although it is gradually narrowing.
3. Looking ahead, growth is expected to moderate, while inflation is expected to pick up slightly. In 2026, growth is projected to ease to 3.3 percent, reflecting weaker gaming activity and higher-for-longer interest rates. Over the medium term, growth is projected to slow further to 3 percent in line with the projected slowdown in growth in the Chinese mainland and Hong Kong SAR, partly offset by a pickup in investment growth mainly linked to the commitment of gaming concessionaires to invest in non-gaming sectors. The output gap in non-gaming GDP is expected to close by 2030. Inflation is expected to increase gradually in 2026 due to higher energy prices and to stabilize at 2.2 percent over the medium term as economic slack narrows and the drag from lower import prices from the Chinese mainland dissipates.
4. The outlook is subject to high uncertainty with risks tilted to the downside, predominantly stemming from external sources in the near term. Intensification of geopolitical conflicts, renewed trade tensions, and greater competition in the gaming industry could weaken tourism activities and external demand, while spillovers from global financial market volatility and cyber threats could pose risks to financial stability, given Macao SAR’s significant cross-border financial linkages. Climate-related disasters could weigh on growth given physical exposures, while a longer than expected weakness in the local property market could further impair asset quality and raise credit risks. On the upside, an acceleration of the implementation of the diversification agenda, including deeper integration with the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and stronger investment in high-value-added sectors could boost investment, productivity, and medium-term growth. In addition, a sustained improvement in consumer and business confidence in the Chinese mainland could support tourism, boost external demand and attract foreign investment.

Moderate Near-Term Support while Implementing Policies to Address Medium-Term Fiscal Challenges

5. Strong fiscal buffers and the ongoing recovery provide scope for fiscal policy to support near-term growth. The 2026 budget envisaged expansionary fiscal policy, with higher spending on capital investment and aging-related social benefits than the 2025 outturn, to support domestic demand and address structural challenges. That said, based on revenue collections to date and historical spending execution, both gaming and non-gaming revenues are likely to exceed the budget estimates, while expenditure will likely fall short of the budget levels. If this pattern persists, fiscal policy in 2026 would be less supportive than originally envisaged, with stronger revenues translating primarily into further accumulation of fiscal reserves. Against this backdrop, efforts to ensure the timely implementation of planned spending will be critical to maintain needed support, particularly in the areas of aging-related welfare programs and capital investment. Further boosting fiscal spending in line with revenue over-performance should be considered if feasible.
6. A well-defined medium-term fiscal framework (MTFF) would provide an important anchor for fiscal policy in supporting economic diversification and climate resilience, and addressing population aging. The forthcoming third 5-year Economic and Social Development Plan (ESDP) provides a roadmap for economic diversification and sustainable development. Implementing this agenda will require significant fiscal resources, alongside sustained efforts to further strengthen public financial management and project implementation capacity over time. Given Macao SAR’s substantial fiscal space, a well-defined MTFF would help prioritize spending, align fiscal resources with strategic objectives, and ensure that public investment and social spending are delivered in a fiscally sustainable and efficient manner. Priority should be given to investment in physical, digital, and human capital; a social protection system that responds to demographic and technological changes; and climate adaptation. Pension and healthcare spending should be calibrated to maintain adequate protection as the population ages, while establishing a poverty benchmark would help improve policy targeting. To reduce reliance on gaming revenues, efforts to diversify the economy should be complemented by measures to broaden the non-gaming tax base, including through a periodic review of tax exemptions and incentives to ensure they are well-targeted, cost-effective, and aligned with development objectives.

Safeguarding Financial Sector Stability and Strengthening Financial Integrity

7. Macao SAR’s banking system remains resilient but further proactive efforts are needed to safeguard financial stability and manage emerging risks. While the NPL ratio has declined gradually in recent periods, asset quality pressures persist, reflecting banks’ large exposures to real estate activities both domestically and in the Chinese mainland, as well as sluggish recovery in the SME sector. Against this backdrop, the authorities should continue their efforts to promote prudent underwriting standards, adequate provisioning, and sound capital buffers. While recent adjustments to property-related macroprudential measures, including higher loan-to-value limits, may help support residential property market sentiment, any further easing should be carefully calibrated to avoid encouraging excessive risk-taking and the buildup of credit risks. Support for SMEs should be targeted and complemented by stronger insolvency and debt resolution frameworks to facilitate the resolution of non-viable firms. Continued enhancements to risk-based supervision, supervisory stress testing, and credit risk monitoring would further strengthen resilience, while close surveillance of banks’ exposures to the Chinese mainland property sector remains warranted.
8. Risks in the non-bank financial institutions (NBFIs) sector warrant closer monitoring. The sector – comprising insurance companies, pension funds, investment funds, leasing companies, and other financial intermediaries – has expanded in recent years and is expected to continue growing and further increasing its linkages with both the domestic financial system and the Chinese mainland. This expansion underscores the need for enhanced oversight, including by strengthening human, legal, and operational capacity of the supervisory agency. Priority should be given to strengthening the supervisory and macroprudential framework for existing NBFIs by addressing regulatory and data gaps and improving risk monitoring. In parallel, a macroprudential framework should be established for newly emerging NBFIs, particularly following the recent approval of the Investment Fund Law, including the establishment of fund management companies.
9. Further reform efforts should continue as Macao SAR undergoes a major modernization of its financial industry. Main modernization initiatives include strengthening Macao SAR’s bond market, by enhancing integration with Hong Kong SAR and Chinese mainland jurisdictions, expanding secondary market options, and actively promoting Fintech activity, supported by the growing adoption of digital payments, including the ongoing sandbox testing of a retail central bank digital currency (CBDC e-MOP). In that connection, Macao SAR should continue strengthening its regulatory and supervisory frameworks to support the development of these new financial activities while safeguarding stability and integrity, in line with best international practices, including by ensuring that supervisory resources and expertise continue to evolve alongside the increasing complexity of the financial sector. The frameworks should include appropriate risk assessment tools, supervisory monitoring, and targeted stress tests to strengthen early-warning capabilities and mitigate risks related to cybersecurity, consumer protection and AML/CFT.
10. Ongoing efforts to strengthen AML/CFT are welcome and should be sustained. Macao SAR has a strong track record in complying with the Financial Action Task Force technical recommendations. Ahead of the 2028 Asia Pacific Group on Money Laundering (APG) Mutual Evaluation, the authorities are strengthening AML/CFT implementation and enforcement, particularly in enhancing prosecution and conviction rates. They are preparing a Strategic AML/CFT Plan for 2026-30 and updating the legal framework to align with international standards and address emerging digital and corporate vulnerabilities.

Pursuing economic diversification and climate resilience

11. Macao SAR continues to make gradual progress with its ambitious diversification agenda.  Progress has been made in developing convention, exhibition, and cultural activities as well as financial services within Macao SAR, while the establishment of the Guangdong-Macao In-Depth Cooperation Zone in Hengqin (“Hengqin”) has created new opportunities for Macao SAR’s companies with spatial, logistic and taxation advantages to deepen their integration with the GBA economy. Leveraging Hengqin’s comparative advantage in manufacturing and Macao SAR’s strong connections with Portuguese-speaking countries, some firms have begun to establish their presence in priority sectors, including modern financial services, traditional Chinese medicine and health industries, high technologies, and conventions and cultural events. However, continued reforms and investment will be required to diversify the economy over time.
12. Further efforts are needed to achieve an effective and long-lasting economic diversification. Achieving the target of increasing the share of non-gaming activities to 60 percent of GDP by 2030, as outlined in the third 5-year ESDP, will require concerted efforts to build skill, attract talent, close physical and digital infrastructure gaps, enhancing the efficiency and effectiveness of public administration, and improving the business environment. The establishment of the Government Guidance Fund of MOP 20 billion to support diversification efforts of Macanese firms can play a catalytic role. Yet support measures should be targeted, time-bound, and performance-based to safeguard competition and limit resource misallocation. Leveraging digitalization and AI could boost productivity and expedite sectoral transformation, provided that appropriate financial integrity, data governance, cybersecurity safeguards, and workforce transition policies are in place. Close partnerships between tertiary institutions and industry, alongside GBA talent mobility schemes, could help attract and develop specialized skills.
13. Strengthening climate resilience should remain a policy priority. Given Macao SAR’s exposure to climate disasters, priorities should include continued enhancements to flood defenses and drainage systems, climate-proofing critical infrastructure and tourism facilities, improving land-use planning and building standards in high-risk areas, and strengthening early-warning systems and emergency preparedness, among others. The authorities are planning to further strengthen environmental protection and disaster prevention strategies, as envisaged in the third 5-year ESDP. The cost associated with these strategies and investments should be assessed and incorporated into Macao SAR’s MTFF.

READ MORE: https://www.imf.org/en/news/articles/2026/07/29/mcs-07292026-peoples-republic-china-macao-sar-cs-2026-aiv-mission