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International Monetary Fund. Western Hemisphere Dept.

Measuring reserves and assessing international reserves adequacy in fully dollarized economies can be challenging. The role of international reserves may be different for these countries compared to countries with their own currencies. In addition, quantifying external risks and the opportunity costs that they face may be complex. This paper complements existing research by: first, exploring the challenges and judgements needed in measuring international reserves in dollarized economies according to country circumstances; and second, deriving a “synthetic” measure of international reserves for Panama and assessing its adequacy. As Panama does not have official international reserves, this paper proposes to use the statutory liquid assets in its banking system as its closest approximation. The paper is arranged in six parts: Section A provides an introduction. Section B summarizes the experiences of a sample of dollarized countries. Section C illustrates a stylized balance sheet of a central bank, depicting how international reserves are shown in a country with a central bank. Section Sections E discusses the liquidity buffers in Panama’s banking sector, while Section F synthesizes the illustrative measures of Panama’s international reserves to gauge reserves adequacy using the IMF metric. Section G discusses an indicator for government liquidity. Finally, section H concludes with a discussion of the policy implications.

International Monetary Fund. Western Hemisphere Dept.
San Marino's economic activity showed remarkable resilience throughout the pandemic. After Russia's invasion of Ukraine, San Marino faced an unprecedented energy price shock which, compounded with a food price shock, led to high inflation and real income erosion. However, strong external demand amidst global supply chain constraints and an elevated inflow of tourists have boosted economic activity so far this year. At the same time, San Marino secured beneficial energy import prices this year and next that have resulted in tariffs below regional peers at minimal fiscal costs. Despite a strong economy, the fiscal position in 2021 remained relatively weak. However, greater reliance on domestic debt along with a large share of long maturing and low interest debt is supporting favorable debt dynamics given higher inflation. Banks' capitalization and profitability improved in 2021, deposits continued to grow, while credit contracted. Progress halted recently while vulnerabilities remain given very large nonperforming assets and weak capitalization.
International Monetary Fund. Western Hemisphere Dept.

1. San Marino’s economy has been remarkably resilient post-pandemic. However, real income remains well below pre-Global Financial Crisis levels lagging significantly behind other economies that also suffered a banking crisis. The economy has been systematically affected by neighboring Italy’s lackluster performance, but it has also been hampered by problems of its own, with persistent challenges in the banking system and pressing structural constraints.

International Monetary Fund. European Dept.
San Marino entered the pandemic with substantial vulnerabilities and still struggling from the consequences of the Global Financial Crisis (GFC). However, the economy has shown significant resilience supported by a timely and targeted policy response. Fiscal support was substantially scaled up after external borrowing was secured, including through a debut Eurobond. The banking system was rationalized, partly capitalized, its liquidity substantially improved, and a strategy is being adopted to address exceptionally high nonperforming loans (NPLs). Some of these measures, while effective, have increased official public debt substantially.