Bangkok--24 Apr--Moody's Moody's Investors Service says that its Aa3 issuer ratings for the government of Macao continue to enjoy robustsupport from strong fiscal and external financial indicators, while a mix of macro-economic and political factors remain the main constraints. "Macao's solid fiscal position has produced considerable public sector surpluses over the past five years and because it does not have any public debt that needs to be repaid, its budget surpluses are all saved," says Steven Hess, a Senior Credit Officer with Moody's Sovereign Risk Unit. "The strength of its external position is another key factor behind its ratings, and during 2002-2006, its current account surplus averaged 34% of GDP," adds Hess. "Meanwhile, international reserves are ample and reached USD13.2 billion at end-2007, or 69% of GDP, up from USD6.7 billion at end-2005." "Indeed, on virtually all external liquidity and vulnerability indicators, Macao is stronger than similarly-rated countries," says Hess, who was commenting in conjunction with the release of Moody's latest report on the territory, which China classifies -- like Hong Kong -- as a Special Administrative Region. "From a medium-term perspective, Macao's prospects also look good due to the liberalization in 2002 of the gaming industry -- which along with tourism represents over half of government and foreign exchange revenues -- and its Closer Economic Partnership Arrangement with the Mainland," says Hess. "Further support comes from plans to build a bridge link with Hong Kong, which would help underpin the gaming boom." The recent statement by the Chief Executive to halt the granting of new gambling licenses won't have an effect on the ratings, said Hess. The momentum is already very strong. "In terms of its peers, no other government in Moody's rated universe is debt-free, a situation that provides for an overwhelmingly positive comparison to countries in the same rating range (Aa and A), as well as to all rated countries," says Hess. On the other hand, Macao's economic growth -- 27.3% in real terms in 2007 and second only to a record 28.4% in 2004 -- will slow sharply at some point as the high levels of construction activity peter off, the Moody's report says in its discussion on constraints and downside risk. "Another potential vulnerability is the linked exchange rate between the pataca and Hong Kong dollar and the concern that developments in Hong Kong can directly affect Macao," says Hess. "In addition, Macao -- as a currency board region -- has no monetary policy, and can do little to keep down inflation, which is now on the rise with consumer prices registering an annual climb of 9.1% in Q1 2008 against 5.6% for 2007," says Hess. Moreover, Macao's economy is becoming increasingly reliant on gaming and tourism, which is vulnerable toexternal shocks, the report says. "In conclusion, although Macao has stronger statistical credit fundamentals than many of its rated peers, Moody's believes that its dependence on one industry and its political status within China keep its ratings from being higher," says Hess. Copies of the report "Macao" can be found at www.moodys.com