Abstract
Context: A subdued recovery has started to settle in. However, downside risks persist. San Marino's economy remains in transition following the implosion of its offshore banking model in the aftermath of the global crisis, resulting in the loss of a third of output. Challenges: Lay foundations for sustainable growth strengthening the banking system, realigning fiscal policy with new economic realities, and improving flexibility to enable the diversification of economic activity.
Context, Outlook, and Risks
1. The economy is bottoming out after six years of recession. The impact of the global financial crisis, which led to a massive outflow of nonresident deposits and a sharp downsizing of its large financial sector (Box 1) caused an extraordinary loss of a third of San Marino’s output—the largest in Europe. As a consequence, nonperforming loans (NPLs) increased rapidly to close to 46 percent of loans. The banking system continues to deleverage, and the economy remains in transition to a new business model. However, the authorities’ efforts in recent years, as well as the inclusion in Italy’s whitelist in late 2014 and the stabilization of bank deposits, set the stage for a modest recovery of about 1 percent in 2015. Industrial production and car registrations increased by 2 and 3 percent, respectively, while labor market condition stabilized. Modest growth of 1–1¼ percent is projected for 2016 and the medium-term, on the back of rebounding consumption and investment, but this is insufficient to bring the economy back to its precrisis levels.
San Marino: Banking System Assets
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San MarinoSan Marino: Banking System Assets
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San MarinoSan Marino: Banking System Assets
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San Marino
San Marino: GDP
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical OfficeSan Marino: GDP
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical OfficeSan Marino: GDP
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical Office
GDP Developments in Selected Countries (2008=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical Office; IMF, WEO.GDP Developments in Selected Countries (2008=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical Office; IMF, WEO.GDP Developments in Selected Countries (2008=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino Statistical Office; IMF, WEO.2. A sound fiscal position allowed San Marino to use public finances to support the economy. In the wake of the output contraction, the central government balance turned to a moderate deficit. In addition, public funds were used to recapitalize Cassa di Risparmio della Repubblica di San Marino (CRSM)—the largest bank in the country—totaling 13 percent of GDP (in three rounds of recapitalization). This has led to an increase in net public debt from virtually zero at the beginning of the crisis to about 20 percent of GDP in 2015. Notwithstanding the low level of public debt, options for budget financing remain limited, as the sovereign has not established access to international markets.
3. Headwinds from a weak financial sector continue to cloud San Marino’s medium-term outlook (Annex I). The banking system is undergoing a sharp adjustment, with bank assets having declined from over 600 percent of GDP in 2008 to about 400 percent in 2015. Moreover, the recession in San Marino, but also in Italy where many banks have customers, led to a sharp increase in nonperforming loans and weakened the banking system. Lingering problems impede the functioning of the banking system and weigh on economic growth through effects on wealth, the provision of credit, and tax receipts, and their resolution remains a key challenge.
4. Other risks to the outlook are broadly balanced. Prolonged slow growth in Italy, and more generally in the euro area, remains a downside risk both through external demand as well as through the quality of Sammarinese banks’ significant Italian assets. On the upside, the normalization of economic relations with Italy (primarily San Marino’s inclusion in Italy’s tax whitelist) could stimulate bilateral economic activity more than expected.
5. In addition, as a euroized microstate, San Marino faces a number of specific challenges. San Marino’s very small size results in capacity constraints—including skills shortages in specific areas—, that limit the possibilities of economic diversification, and implies that even micro policy actions, such as attracting just a few small enterprises or selling a small number of homes used as collateral for nonperforming loans, often have macroeconomic implications. Macroeconomic statistics exhibit gaps: no balance of payments data is available and national accounts are published with a one-year lag. On the positive side, the country’s size has led to a relatively consensus-based decision-making process and facilitates speedy implementation of agreed policies. Although euroized, San Marino is not a member of the European Union (EU) and the Eurosystem and therefore lacks a lender-of-last-resort facility. At the same time, its financial system is somewhat sheltered from turmoil on international capital markets, as the banks are fully domestically owned, not quoted on the stock exchange, and do not rely on (external) wholesale funding. Over the medium term, the country faces the significant challenge of diversifying its model of economic growth away from banking, and improving competitiveness to integrate its economy more fully into the world economy.
Authorities’ views
6. The authorities shared staff’s assessment that the economy is slowly returning to growth. They see positive trends in employment and new business startups. At the same time, they emphasized that the short-term costs of the ongoing efforts to comply with international best practice (e.g., the introduction of extensive anti-money laundering practices and the transposition of EU directives, see ¶20) and the implementation of deep structural reforms have thus far outweighed the long-term benefits. Going forward, the authorities emphasized their objective is to increase economic flexibility in order to improve competitiveness. They see promoting economic diversification as the main challenge and remain strongly committed to continue structural reforms. In this regard, they highlighted that capacity bottlenecks of the state administration and Central Bank of San Marino (CBSM) should be addressed.
Policy Discussions
A. Financial Sector—Repairing Balance Sheets
The Banking System
7. The banking system remains fragile with high and still increasing nonperforming loans, relatively low provisions, and large operating losses. Reflecting the still weak economic environment, Sammarinese banks’ NPLs have edged up to close to 46 percent of total gross loans (31 percent excluding CRSM) as of end-September 2015. Half of these NPLs are vis-à-vis nonresidents. Over the last year, loan loss provisioning has not fully kept pace, leading to a slight decline of the NPL coverage ratio to 29 percent. Declining interest margins, reflecting weak lending activity and the burden of impaired assets, together with relatively high operating costs resulted in net losses of €35 million (€18 million excluding CSRM), or 2½ percent of GDP, in 2015.
Nonperforming Loans in Systemic Banking Crisis
(in percent of total loans)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBS; L. Laeven and F. Valencia, 2012, “Systemic Banking Crises Database: An Update,” IMF WP/12/163, June; and Financial Soundness Indicators Database.Nonperforming Loans in Systemic Banking Crisis
(in percent of total loans)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBS; L. Laeven and F. Valencia, 2012, “Systemic Banking Crises Database: An Update,” IMF WP/12/163, June; and Financial Soundness Indicators Database.Nonperforming Loans in Systemic Banking Crisis
(in percent of total loans)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBS; L. Laeven and F. Valencia, 2012, “Systemic Banking Crises Database: An Update,” IMF WP/12/163, June; and Financial Soundness Indicators Database.8. The banking system falls marginally short of the 11 percent minimum capital adequacy requirement. In particular, CRSM’s capital position is weak, despite significant public capital support, and stands at 7.5 percent—€46 million (3¼ percent of GDP) short of the minimum capital requirement. Excluding CRSM, the system’s capital adequacy ratio was 13.1 percent at end-September 2015. However, banks’ capitalization might be overstated, as the level of loan loss provisions is relatively low.
San Marino: Banking System
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Central Bank of San MarinoSan Marino: Banking System
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Central Bank of San MarinoSan Marino: Banking System
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Central Bank of San Marino9. Banks’ liquidity buffers have remained broadly stable. As of end-September 2015, liquid assets cover almost 60 percent of short-term liabilities. The Sammarinese authorities estimate that the recent Italian policy on voluntary disclosure of offshore assets has resulted in nonresident deposit outflows of about €260 million until early 2016, and could lead to some additional outflows.
10. The authorities should devise a comprehensive strategy to repair banks’ balance sheets. Given the institutional setting (see ¶5), San Marino’s possibilities to deal with the problem are limited and should be carefully crafted. The strategy should consist of the following steps:
Asset quality reviews (AQRs). Forward-looking AQRs for all banks are critical to reduce uncertainty on banks’ asset quality. Recent on-site supervisory AQRs for three banks resulted in upward adjustment of provisions. Given existing capacity constraints, the CBSM should consider hiring external parties to speed up the process.
Provisioning. On the basis of the AQR results, the CBSM should require banks to quickly meet the need for additional provisions in order to bring their NPL coverage ratios to adequate levels.
Capitalization. The increase in provisions is likely to bring the capitalization of some banks below the regulatory minimum. These banks should be required to present time-bound market-based recapitalization plans to the CBSM. The plans should include a predefined set of safeguards, such as no dividend payments. Foreign investors could support recapitalization efforts, but sound fit-and-proper standards should apply.
Resolution. Banks for which solvency deficiencies are unlikely to be addressed within a reasonable period of time should be resolved. For banks deemed systemically important to the domestic economy, the state could subscribe remaining capital shortfalls, while carefully considering the case for diluting existing shareholders upfront.
11. Dealing with the existing stock of NPLs remains a priority. As of end-2015, total NPLs stood at €2 billion (47 percent of total loans or 140 percent of GDP). Of this stock, €1.1 billion (57 percent of total) pertains to CRSM, mostly due to its Italian subsidiary (Delta Group) in liquidation. Excluding CRSM, about half of the remaining €837 million of NPLs are related to loans to nonresidents, mostly in Italy. This large stock of NPLs is a drag on banks’ profitability and inhibits their capacity to intermediate and extend new loans.
12. So far, banks have managed NPLs internally, but the three largest banks are considering creating a joint asset management company (AMC). Three special purpose vehicles have been established to deal exclusively with the impaired assets of weak banks absorbed by other Sammarinese credit institutions (see Selected Issues Paper). The three largest banks are also planning setting up a joint AMC, although, given the difficulty in agreeing on common valuation criteria for transferred assets, the AMC is expected to comprise separate funds for each of the banks. A more effective pooling of the NPL portfolios would help achieve larger economies of scale, consolidate debtor positions, and could attract potential foreign investors. However, any capital release should be avoided, since banks retain full ownership of the funds (see Selected Issues Paper).
San Marino’s Banking System: An Overview
Since the outbreak of the global crisis, San Marino’s banking sector has consolidated substantially. The abrupt deleveraging and the rapid asset quality deterioration revealed pockets of vulnerability in the system. The CBSM played a key role in preserving financial stability, notably by quickly intervening some small institutions in difficulty. As a result, between 2009 and 2015, the number of operational credit institutions has declined from 12 to 7, one of which de facto operates as “bad bank” for another credit institution, while the number of operative fiduciary companies dropped from 48 to 8 over the same period. The two largest banks, CRSM and Banca di San Marino, account for 56 percent of total assets and deposits of the system. On average, about 52 percent of the loans are vis-à-vis nonresidents, while only 25 percent of deposits is from nonresidents.
Nonetheless, the banking sector remains very large and vulnerable. The size of San Marino’s banking sector, measured as asset to GDP, is comparable to Cyprus and Ireland. Contrary to most other financial centers, all banks are domestically owned. Although liquidity buffers appear adequate, on average, the lack of foreign-owned subsidiaries or branches in the system prevents the Sammarinese banks from having even indirect access to sources of emergency liquidity assistance. With average capital-adequacy ratio at around 11 percent, high nonperforming loans, and relatively low loan-loss provisions, the Sammarinese banking system compares unfavorably with peer countries.
San Marino: Funding of Banks’ Total Assets
(in percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS; WEO; and IMF staff calculations.San Marino: Funding of Banks’ Total Assets
(in percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS; WEO; and IMF staff calculations.San Marino: Funding of Banks’ Total Assets
(in percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS; WEO; and IMF staff calculations.Selected Banking Sector Indicators1/
Latest available information.
Selected Banking Sector Indicators1/
| Asset to GDP ratio | Number of credit institut. | o/w foreign subsidiaries and branches | Tier 1 capital adequacy ratio | NPL ratio | NPL coverage ratio | Liquidity ratio | Liquid assets to short-term liabilities | ROA | |
|---|---|---|---|---|---|---|---|---|---|
| San Marino | 4.8 | 7 | 0 | 11.9 | 45.6 | 29.4 | 31.0 | 57.2 | −0.8 |
| Cyprus | 5.2 | 37 | 32 | 15.7 | 45.6 | 33.8 | 19.5 | 30.5 | 0.2 |
| Ireland | 5.1 | 22 | 19 | 22.1 | 14.9 | 40.2 | … | … | 1.0 |
| Luxembourg | 19.4 | 146 | 133 | 19.7 | … | … | 57.9 | 67.4 | 0.9 |
| Malta | 5.4 | 27 | 14 | 12.2 | 9.0 | 24.0 | 31.2 | 50.4 | 1.2 |
Latest available information.
Selected Banking Sector Indicators1/
| Asset to GDP ratio | Number of credit institut. | o/w foreign subsidiaries and branches | Tier 1 capital adequacy ratio | NPL ratio | NPL coverage ratio | Liquidity ratio | Liquid assets to short-term liabilities | ROA | |
|---|---|---|---|---|---|---|---|---|---|
| San Marino | 4.8 | 7 | 0 | 11.9 | 45.6 | 29.4 | 31.0 | 57.2 | −0.8 |
| Cyprus | 5.2 | 37 | 32 | 15.7 | 45.6 | 33.8 | 19.5 | 30.5 | 0.2 |
| Ireland | 5.1 | 22 | 19 | 22.1 | 14.9 | 40.2 | … | … | 1.0 |
| Luxembourg | 19.4 | 146 | 133 | 19.7 | … | … | 57.9 | 67.4 | 0.9 |
| Malta | 5.4 | 27 | 14 | 12.2 | 9.0 | 24.0 | 31.2 | 50.4 | 1.2 |
Latest available information.
13. Opening of the real estate market to nonresidents could further support the process. In the domestic market, a significant share of NPLs is related to mortgage loans. An important factor impeding timely and effective recovery of this debt is the stagnant Sammarinese property market. The market has limited capacity to absorb a large number of foreclosed properties, reflecting, among other things, existing restrictions to nonresident ownership. To improve the functioning of the property market, the authorities should explore the scope for a gradual opening of the Sammarinese real estate market to nonresident investors, in line with San Marino’s longer-term goal to integrate into the EU. This would support asset prices and hence facilitate NPL resolution.
14. Legal, regulatory and tax reforms would help deal with problem loans. While the Sammarinese framework for debt enforcement is relatively effective, the insolvency regime is almost exclusively used for asset liquidations and does not provide effective tools for debt restructuring. As a result, the system does not maximize value by preserving the continuity of financially distressed but viable businesses. To address some of these gaps in the insolvency system, the Sammarinese banks have recently adopted a code of conduct guiding multi-creditor coordination during debt restructuring. However, this process is voluntary and lacks mechanisms to make the terms of restructuring agreements binding for minority dissenting creditors (see Selected Issues Paper). In addition, the use of closed-fund AMCs by banks is complicated by a number of regulatory requirements. Dealing with these issues more comprehensively will require further legal and regulatory changes. Moreover, to encourage provisioning and write-offs, the current limit on tax deductibility of 5 percent of total loans per annum should be reconsidered.
15. Additional challenges arise from the cross-border nature of a large part of NPLs. Many NPLs have a cross-border element, e.g., the borrower is nonresident and/or the collateral securing the loan is located outside San Marino, mostly in Italy. This gives rise to legal obstacles that complicate the management and resolution of problem loans, resulting in delays and high costs. Improving the framework for bilateral judicial cooperation between San Marino and Italy could help address these issues.
16. Provisioning standards and bank supervision should be strengthened to reduce the likelihood of similar problems in the future. To prevent NPL provisioning problems from reoccurring, the CBSM should gradually introduce more stringent provisioning requirements and employ stricter on-site supervision. The start of the credit registry later this year will help improve banks’ credit risk assessment. Macroprudential measures, such as limits to loan-to-value and debt-to-income ratios, could also help mitigate the buildup of systemic credit risk in the banking sector.
Cassa di Risparmio
17. The fourth recapitalization of CRSM in four years is underway. CRSM underwent three separate recapitalizations over the period 2012–14 (Box 2). Its assets declined to €1.7 billion, or 121 percent of GDP by end 2015 (from 213 percent of GDP in 2009), including its Delta portfolio of Italian loans of about €700 million. Yet, CRSM remains undercapitalized, likely under-provisioned, and loss-making. In January 2016, at the request of the CBSM, CRSM submitted a revised business plan based on an estimated capital gap of €54 million, €40 million of which would be funded by a tier-2 hybrid bond subscribed by the state. In turn, the state will issue a €40 million bond, underwritten by CRSM and the other Sammarinese banks. These bonds will be offered to the public, with placement guaranteed by the banks in case the offer goes under-subscribed. Merging a real estate company controlled by the state and the foundation (CRSM’s major nonstate shareholder, see Box 2) into CRSM and the subsequent revaluation of CRSM’s entire real estate portfolio is expected to close the remaining €14 million capital gap and provide an additional €10 million capital to absorb projected 2016–17 losses.
San Marino: CRSM
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San MarinoSan Marino: CRSM
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San MarinoSan Marino: CRSM
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: Central Bank of San MarinoPast CRSM Recapitalizations
CRSM is San Marino’s oldest and largest bank. Even though its size has rapidly declined, it accounts for 30 percent of the system’s total assets (121 percent of GDP), 38 percent of total loans, and 30 percent of customer deposits. CRSM is a domestic bank, majority owned by a foundation established by law in San Marino for charitable purposes. Since the 2014 recapitalization, the state owns 46 percent of shares, as well as the majority of voting rights. The foundation consists of some 160 individuals, who together propose and elect new foundation members. The foundation’s resources are entirely financed by dividends received from CRSM in the past.
CRSM was recapitalized three times over the period 2012–2014. The liquidation Delta Group, its large Italian subsidiary, by the Bank of Italy due to alleged fraud in 2009 took a severe tall on CRSM’s capitalization. As losses ate into its capital buffers, the bank needed repeated capital injections to meet its minimum regulatory capital requirement.
The first recapitalization took place in late 2012. The government extended a low interest loan to CRSM’s shareholders for €60 million, which the shareholders then injected into the bank’s capital together with €20 million of its own funds. With this, the foundation retained its equity stake in the bank. In exchange, the government obtained some concessions, such as the possibility to name the chairman of the bank’s board and two other board members.
A second recapitalization was undertaken in early 2013. The bank issued subordinated debt for €40 million, €35 million of which was underwritten by the social security fund. For the second time, public support was granted with no dilution of the foundation’s stake and limited or no conditionality.
In 2014, the bank was recapitalized for the third time. The state injected €85 million in capital in exchange for a 46 percent minority equity stake, as well as the right to appoint a majority of the bank’s board members, in addition to the board’s chairperson. A government bond fully subscribed by CRSM financed the capital injection. Despite repeated public support (totaling 13 percent of GDP), the foundation was able to preserve a majority stake as well as veto power over any sale of the state’s shares in the bank.
18. The modalities of this operation fall short of international best practice. The recapitalization does not include upfront dilution of existing nonstate shareholders, who, according to best practice, should be the first in line to finance losses. While offering the state bond to the public is a step in the right direction, the authorities could have considered external financing to fully break the bank-sovereign feedback loop.
19. To limit the risk of further public support, the current recapitalization of CRSM should be contingent on a solid reorganization plan that brings the bank back to profitability. The bank’s revised business plan continues to rely on overly optimistic assumptions even in the envisaged adverse scenario. The plan should illustrate how the bank would be able to regain profitability under a relatively conservative downside scenario, likely requiring a more aggressive downsizing. Contingency plans need to be formulated in case the restructuring process is unsuccessful. In addition, the state as the main shareholder should appoint experienced turnaround experts to CRSM’s board and executive management positions. Without such measures, the bank is likely to remain loss-making and hence the risk of future recapitalization needs remains high.
20. Addressing the financial sector challenges requires close coordination among the stakeholders and additional resources. Developing a strategy aimed at cleaning-up banks’ balance sheets and streamlining laws, regulation, and taxation calls for close coordination between the CBSM, the government, the banks, and the judiciary. To this end, the establishment of a time-bound working group could be considered. Furthermore, the CBSM requires additional resources, and full independence in their deployment. Going forward, it needs sufficient capacity to bolster bank supervision (including the AQRs), transpose EU directives (including the Capital Requirements Regulations and Directive and the Bank Recovery and Resolution Directive, as required by the monetary agreement with the EU), and finalize the credit register.
Authorities’ Views
21. The authorities concur that banks’ balance sheets need to be repaired. They note that capacity constraints have prevented speeding up banks’ AQRs. The central bank is working on a comprehensive strategy to address the NPL problem. The authorities acknowledged the need for close coordination in developing and implementing this strategy. Since insolvency procedures are seldom used in San Marino, the authorities were of the view that improvements in the legal and regulatory framework might deliver only marginal benefits. Nevertheless, they considered staff’s recommendations useful and welcome. They stressed that scrapping the limit on tax deductibility of provisions and write-offs might have substantial fiscal consequences, as the limit also applies to nonfinancial companies. Thus they saw a temporary exemption from this limit narrowly targeted at banks’ existing NPL portfolios as a more viable solution.
22. The authorities see bringing CRSM back to profitability as a crucial challenge. They pointed out that CRSM’s Delta portfolio consists of restructured loans, for which credit risk should now be low, and note that excluding Delta assets, CRSM’s financial position would be broadly in line with the rest of the Sammarinese banking system. To inform a strategy to deal with CRSM’s restructuring, the authorities have requested IMF technical assistance. The authorities have also started renegotiating CRSM’s ownership structure with the foundation, to better reflect past and current state support.
B. Public Finances—Rebuilding Buffers
23. With the fading of the one-off factors that supported the 2014 outturn, the central government’s budget is expected to have been broadly balanced in 2015. The central government registered a 0.8 percent of GDP surplus in 2014, mainly due to expenditure restrain (1½ percent of GDP) and strong revenue collection due to concerted collection efforts of tax arrears resulting in unusually high one-off collections. While 2015 data are not yet available, revenue and expenditure trends thus far are in line with budget numbers. Revenue is expected to have decreased modestly from 2014 as one-off collections fade and nontax revenue decreased reflecting less income from transactions with third parties. Expenditure is expected to have remained flat, with higher transfers to the social security fund largely offset by lower capital outlays. Gross public debt declined slightly to 19 percent of GDP.
San Marino: Fiscal Outcomes
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino MoFSan Marino: Fiscal Outcomes
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino MoFSan Marino: Fiscal Outcomes
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: San Marino MoF
San Marino: Public Debt
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Ministry of FinanceSan Marino: Public Debt
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Ministry of FinanceSan Marino: Public Debt
(Percent of GDP)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: Ministry of Finance24. The budget deficit is expected to turn to a ½ percent of GDP deficit in 2016. This deterioration is driven by an increase in capital investment by €10 million (0.8 percent of GDP) annually in 2016–18. Over the medium term, the fiscal deficit is expected to remain close to ½ percent of GDP, as revenue is expected to decrease to 21¼ percent of GDP largely due to dwindling profits of public corporations, compensated by lower current expenditure due to continued containment of the public sector wage bill and an improved outlook for social security expenditure. On current policies, gross debt is projected to reach 21 percent of GDP by 2020, taking into account the €40 million CRSM recapitalization bond issued this year and the increased capital spending, but no further recapitalization needs.
25. The mission advised that San Marino should gradually rebuild the fiscal buffers that served it well in the past. The planned additional capital investment in 2016–18 is appropriate, as capital expenditure, which generally improves productivity and hence growth potential, has fallen to unsustainably low levels during the recession. The resulting small projected 2016 fiscal deficit can be accommodated, given that growth is expected to be in line with medium-term forecasts and debt remains stable over the medium-term. Starting next year, once growth is entrenched, a modest adjustment of 1 percent of GDP (compared to the baseline without the additional capital expenditure, or 1¾ percent of GDP when compared to the baseline including the additional capital expenditure) over four years to reach a primary surplus of 1¾ percent of GDP by 2020 would put debt on a clear downward trajectory and create fiscal space to deal with shocks from the potentially large contingent liabilities looming in the banking system. Under such a fiscal stance, gross debt would decline to 15½ percent of GDP by 2020, and a contingent shock of 20 percent of GDP would be manageable with gross debt peaking slightly above 40 percent of GDP (text table and Annex II). If the economy were to fall back into recession, the authorities should let automatic stabilizers (e.g., unemployment insurance and wage supplements for underemployed workers) work fully.
San Marino: Gross Public Debt and Primary Deficit under Different Scenarios
(percent of GDP)
Additional capital expenditure of 0.8 percent of GDP startingin 2016 is included in the baseline.
Adjustment involves fiscal consolidation of 1% of GDP over four years, with 0.75% of GDP additional revenue from the introduction of VAT in 2017.
Shock senario assumes a contingent financial liability shock of 20% of GDP.
San Marino: Gross Public Debt and Primary Deficit under Different Scenarios
(percent of GDP)
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Public Debt | ||||||
| Baseline (incl. capex) 1/ | 18.8 | 21.8 | 21.6 | 21.5 | 21.5 | 21.4 |
| Baseline+adj 2/ | 18.8 | 21.5 | 20.2 | 18.9 | 17.3 | 15.5 |
| Contingent shock 3/ | 18.8 | 41.6 | 41.5 | 41.7 | 41.7 | 42.0 |
| Contingent shock +adj 2/ 3/ | 18.8 | 41.5 | 40.5 | 39.4 | 37.9 | 36.3 |
| Primary Balance | ||||||
| Baseline (excl. capex) | 0.3 | 0.6 | 0.9 | 0.8 | 0.8 | 0.8 |
| Baseline (incl. capex) 1/ | 0.3 | −0.2 | 0.1 | 0.0 | 0.0 | 0.0 |
| Baseline+adj 2/ | 0.3 | −0.2 | 1.1 | 1.2 | 1.5 | 1.7 |
| Contingent shock 3/ | 0.3 | −20.2 | 0.1 | 0.0 | 0.0 | 0.0 |
| Contingent shock +adj 2/ 3/ | 0.3 | −20.2 | 1.1 | 1.2 | 1.5 | 1.7 |
Additional capital expenditure of 0.8 percent of GDP startingin 2016 is included in the baseline.
Adjustment involves fiscal consolidation of 1% of GDP over four years, with 0.75% of GDP additional revenue from the introduction of VAT in 2017.
Shock senario assumes a contingent financial liability shock of 20% of GDP.
San Marino: Gross Public Debt and Primary Deficit under Different Scenarios
(percent of GDP)
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Public Debt | ||||||
| Baseline (incl. capex) 1/ | 18.8 | 21.8 | 21.6 | 21.5 | 21.5 | 21.4 |
| Baseline+adj 2/ | 18.8 | 21.5 | 20.2 | 18.9 | 17.3 | 15.5 |
| Contingent shock 3/ | 18.8 | 41.6 | 41.5 | 41.7 | 41.7 | 42.0 |
| Contingent shock +adj 2/ 3/ | 18.8 | 41.5 | 40.5 | 39.4 | 37.9 | 36.3 |
| Primary Balance | ||||||
| Baseline (excl. capex) | 0.3 | 0.6 | 0.9 | 0.8 | 0.8 | 0.8 |
| Baseline (incl. capex) 1/ | 0.3 | −0.2 | 0.1 | 0.0 | 0.0 | 0.0 |
| Baseline+adj 2/ | 0.3 | −0.2 | 1.1 | 1.2 | 1.5 | 1.7 |
| Contingent shock 3/ | 0.3 | −20.2 | 0.1 | 0.0 | 0.0 | 0.0 |
| Contingent shock +adj 2/ 3/ | 0.3 | −20.2 | 1.1 | 1.2 | 1.5 | 1.7 |
Additional capital expenditure of 0.8 percent of GDP startingin 2016 is included in the baseline.
Adjustment involves fiscal consolidation of 1% of GDP over four years, with 0.75% of GDP additional revenue from the introduction of VAT in 2017.
Shock senario assumes a contingent financial liability shock of 20% of GDP.
26. Fiscal adjustment should focus mainly on expenditure rationalization combined with modest revenue increases. Over the last few years, the government has successfully controlled the public sector wage bill, which has shrunk by ½ percent of GDP. Nevertheless, it is still high and expenditure measures should continue to target the public sector wage bill—both through wage restraint and employment. In addition, the government has set up a working group to explore options for pension reform to ensure the system’s long-term sustainability. These expenditure measures combined could yield ¼ percent of GDP annually in each of the years 2017–2020, for an overall expenditure reduction of 1 percent of GDP. The introduction of the VAT system next year—for which the authorities have prepared draft legislation and consultations are ongoing—should go ahead as planned, and should be used to increase revenue by some ½–1 percent of GDP, by setting the average VAT rate somewhat higher than the revenue-neutral rate.1 Together with the revenue increase, this will create fiscal space of around ½–1 percent of GDP to finance planned capital expenditure of 0.8 percent of GDP in 2017 and beyond.
27. Establishing access to external financing for the sovereign would help diversify funding sources and break the bank-sovereign link. Given the expected small size of potential financing needs, an external private placement or syndicated loan could be considered instead of borrowing on international capital markets. Establishing access to external financing would provide an important buffer to respond to shocks that could simultaneously raise borrowing needs and leave domestic banks unable to lend to the government. The current low international interest rates present a window of opportunity, as they limit the additional cost. In addition, an agreement on a contingent credit line from the Italian authorities would provide a welcome insurance against liquidity shocks.
Authorities’ Views
28. The government agreed on the importance of rebuilding fiscal buffers. Public finances have stabilized after many years of recession and adjustment. Looking forward, the authorities see the need for further capital investment, and at the same time are committed to further fiscal consolidation to put debt on a downward path and be prepared for possible future shocks. They highlighted that their policies and the ongoing modest resumption of growth have already reduced the deficit and stabilized debt. To support the public pension system, the government obtained a parliamentary mandate to study reform options to ensure the system’s long-term sustainability. The authorities consider the introduction of the VAT in 2017 a priority, emphasizing this in public. However, they note opposition to the VAT system from service and domestic trade companies, whereas the export sector supports the change. Given this opposition, the authorities plan to set a revenue-neutral average VAT rate, and phase the VAT in gradually. The government views the public placement of the state bond to recapitalize CRSM as a step toward breaking the bank-sovereign feedback loop. Going forward they will consider external financing options.
C. Structural—Seeking a New Growth Model
29. San Marino made important progress toward improving the business environment and liberalizing the labor market. Improvements in the business environment support a gradual rebalancing of the economy towards industry and nonfinancial services. The government has, for example, set up a high-tech business incubator, put in place a simple and fast online process to establish a business (improving the country’s ranking by 17 positions to 76th in the World Bank’s Doing Business ranking), and has simplified the registration of property. Recent changes to labor market policies, such as establishing an entry-level wage below the lowest level in collective wage agreements, and temporary lower social security contributions when hiring unemployed workers, support employment. The government has also exempted small high-tech businesses in the incubator from the slow and complicated procedures to hire skilled nonresident workers.
30. A more favorable business environment and flexible labor market are essential to successfully transition to a more diversified economy. Further improvements to the business environment as well as reforming the insolvency and debt restructuring regimes (see ¶14 and the Selected Issue Paper) would support economic diversification towards a nonbank growth model. Incentives and tax breaks for new investments and projects can also be included in the policy mix, but should be subject to a careful cost-benefit analysis. Further streamlining of the procedures to hire skilled nonresident workers should be considered, as this would enable San Marino to take greater advantage of the labor market in the dynamic neighboring Italian regions.
Ranking for Doing Business
(Scale: Rank 200 center, rank 1 outer edge)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Ranking for Doing Business
(Scale: Rank 200 center, rank 1 outer edge)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Ranking for Doing Business
(Scale: Rank 200 center, rank 1 outer edge)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Real Effective Exchange Rate and CPI Relative to Italy (2008M1=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS and staff calculationsReal Effective Exchange Rate and CPI Relative to Italy (2008M1=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS and staff calculationsReal Effective Exchange Rate and CPI Relative to Italy (2008M1=100)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: IFS and staff calculations31. Price competitiveness improved modestly, while net foreign assets remained stable. On the back of the steep euro depreciation since mid-2014, a proxy2 for San Marino’s real effective exchange rate (REER) has now fallen close to its lowest level since the start of the crisis, largely on the back of movement in Italy’s real effective exchange. These available price-based indicators and the stability of net foreign assets at around two months of imports (Figure 2) suggest no significant balance of payments imbalances.
San Marino: Recent Economic Developments, 2006–15
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.San Marino: Recent Economic Developments, 2006–15
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.San Marino: Recent Economic Developments, 2006–15
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.
San Marino: Financial Sector Indicators, 2008–14
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.1/ Liquid assets as a share of liquid liabilities, excluding inter-bank loans.San Marino: Financial Sector Indicators, 2008–14
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.1/ Liquid assets as a share of liquid liabilities, excluding inter-bank loans.San Marino: Financial Sector Indicators, 2008–14
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Sources: CBSM; IMF, International Financial Statistics; UPECEDS; and IMF staff calculations.1/ Liquid assets as a share of liquid liabilities, excluding inter-bank loans.32. San Marino’s continued emphasis on international cooperation has paid off and remains crucial going forward. Last year, San Marino (together with Andorra and Monaco) has started negotiations on an association agreement with the EU. In addition, San Marino’s improved openness and transparency enabled the conclusion of the bilateral economic cooperation agreement with Italy and Italy’s inclusion of San Marino in its tax whitelist. Going forward, the Sammarinese authorities should continue improving this cooperation with Italy. In particular, the CBSM’s new senior management will need to rebuild and broaden the relations with the Bank of Italy, which previously relied on a few individuals that were replaced. In this context, the recent legislative change to allow the exchange of credit information with the Bank of Italy even in the absence of a signed Memorandum of Understanding is a positive development. It enables the imminent start of the credit register to be followed by the exchange of credit information with Italy later this year. The expected completion of the national risk assessment this summer and the start of the exchange of tax information in 2017 are further welcome steps.
Authorities’ Views
33. The authorities agreed on the need to diversify San Marino’s economy, and the crucial role that international cooperation plays in this regard. They consider continued structural reform important to facilitate economic diversification. In this regard, the authorities emphasized the success of the high-tech business incubator as well as the start of Sammarinese business aviation and cargo services at Rimini airport under a special agreement with Italy. Future plans include upgrading the basic tourism infrastructure, to facilitate further private investment in this sector with the aim of attracting multi-day tourists and increasing per-visitor spending. The authorities expect to soon start seeing the economic benefits from inclusion in Italy’s tax whitelist. The broader long-term goal remains concluding the association agreement with the EU, fully integrating San Marino with the EU’s four freedoms and thus leveling the playing field for Sammarinese business in Europe.
D. Data Provision
34. Data provision is broadly adequate for surveillance purposes, but gaps exist. While these data gaps are not uncommon for very small countries, San Marino needs to improve timeliness of, in particular, national accounts and fiscal statistics and ensure consistency with international standards. Balance of payments data are not currently available. Importantly, banking sector data are comprehensive and timely.
Staff Appraisal
35. San Marino is emerging from a prolonged recession, but important challenges remain. There are signs of a modest economic recovery, yet headwinds from high nonperforming loans in the banking sector and the still incomplete restructuring of CRSM continue to cloud the outlook. On the upside, stronger growth in Europe and Italy and the normalization of economic relations with the latter could stimulate bilateral economic activity more than expected.
36. A comprehensive strategy is needed to clean up banks’ balance sheets. The current large stock of nonperforming assets is a drag on banks’ profitability and inhibits their capacity to intermediate and extend new credit. Therefore, addressing the sheer size of the NPL stock is crucial to safeguard financial stability and support San Marino’s nascent economic recovery. A policy based on stocktaking, provisioning, and, where needed, recapitalization, would serve to repair banks’ balance sheets. The central bank’s focus on designing such a plan is welcome. At the same time, regulatory, legal and tax impediments to NPL management and resolution should be addressed, including by removing tax disincentives to NPL write-offs, enhancing the insolvency regime to facilitate reorganization of viable companies, and relaxing the regulation governing asset management companies. Lastly, to improve the functioning of the real estate market and hence support asset value and sales, the scope for a gradual opening of the Sammarinese property market to nonresident investors should be explored.
37. The steadfast implementation of this strategy requires close coordination among stakeholders and likely additional resources. Intensive coordination among the government, the CBSM, the banks, and the judiciary is crucial for the success of the strategy. In this regard, the CBSM’s attention to the NPL problem and to policies addressing it is welcome. It remains important to ensure the CBSM is adequately resourced its tasks and can exercise its duties independently.
38. The recapitalization of CRSM should be contingent on a deeper reorganization that quickly brings the bank back to profitability. This will likely require more aggressive downsizing of the bank. In addition, the state as main shareholder should appoint experienced turnaround experts to CRSM’s board and executive management positions. Any injection of public resources should carefully consider the dilution of nonstate shareholders.
39. San Marino should gradually rebuild the fiscal buffers that served it well in the past. These buffers have allowed the state to cushion social expenditure during the crisis and its aftermath, and would be needed again to respond similarly to future shocks. An overall fiscal adjustment of 1 percent of GDP over four years would put debt on a clear downward path and create room to deal with potentially large contingent liabilities looming in the banking system.
40. This modest fiscal adjustment should start next year. The additional public capital expenditure from the budget of €10 million annually starting this year will help support the recovery. The resulting modest deficit should be accommodated this year. Starting in 2017, the aim should be to modestly increase revenue, while reducing current expenditure by ¼ percent of GDP per year in 2017–2020. This would create room to permanently accommodate the higher capital expenditures.
41. The scheduled introduction of the VAT in 2017 remains a priority, while containing the public sector wage bill and reforming the pension system are also important. The introduction of the VAT should aim to increase revenues by ½–1 percent of GDP. Expenditure policies should focus on further reducing the public sector wage bill, as well as rationalizing and modestly reducing spending on public pensions and publicly financed health care benefits. In this context, staff welcomes the authorities’ commitment to reform the public pension system and the recent setup of a working group to explore options to ensure the system’s long-term sustainability.
42. External financing options should be considered. This would help diversify funding sources and break the bank-sovereign link. Since potential financing needs may be too small to tap international capital markets in a cost effective way, an external private placement or syndicated loan could be considered.
43. The government took important steps to improve the business environment and labor markets. Examples include simplification of the process to establish a business and register property. The government has piloted streamlined procedures to hire skilled nonresident workers for startups, and should consider scaling up such efforts to the economy more generally. It has also set up a high-tech business incubator, where the first start ups are now operational and expanding. Such changes are important to support rebalancing of the Sammarinese economy.
44. San Marino’s focus on improving international cooperation has paid off, and should be maintained. The opening of negotiations with the EU on an association agreement and the conclusion of the bilateral economic cooperation agreement with Italy are important achievements. The activation of the credit register should start as scheduled, thereby enhancing the cooperation with the Bank of Italy and helping banks upgrade their credit risk assessment. Lastly, staff welcomes the imminent completion of the AML-CFT national risk assessment, and the exchange of tax information starting in 2017.
45. It is recommended that the next Article IV consultations with the Republic of San Marino be held on the standard 12-month cycle.
San Marino: Selected Economic and Social Indicators, 2012–16
For the central government. Does not include possible costs of future bank recapitalization.
For 2015, latest available.
San Marino: Selected Economic and Social Indicators, 2012–16
| GDP per capita (2014): 44,216 U.S. dollars | Life expectancy at birth (2010): 83.2 years |
| Population (December 2013): 31,448 persons | Literacy, adult (2008): 96 percent |
| Projection | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | ||||
| Activity and Prices | ||||||||
| Real GDP (percent change) | −7.5 | −3.0 | −1.0 | 1.0 | 1.1 | |||
| Domestic demand | −4.6 | −1.4 | −3.6 | … | … | |||
| Final consumption | 0.0 | 0.1 | −2.0 | … | … | |||
| Fixed investment | −13.0 | −7.0 | −17.2 | … | … | |||
| Net exports | −4.1 | −2.3 | 2.1 | … | … | |||
| Exports | −9.8 | −6.6 | −1.0 | … | … | |||
| Imports | −8.9 | −6.1 | −2.5 | … | … | |||
| Contribution to GDP | ||||||||
| Domestic demand | −3.4 | −1.0 | −2.7 | |||||
| Final consumption | 0.0 | 0.0 | −1.2 | |||||
| Fixed investment | −2.9 | −1.5 | −3.4 | |||||
| Net exports | −4.1 | −2.3 | 2.1 | |||||
| Exports | −18.1 | −11.8 | −1.6 | |||||
| Imports | 14.0 | 9.5 | 3.8 | |||||
| Employment (percent change) | −2.6 | −1.3 | −0.8 | … | … | |||
| Unemployment rate (average; percent) | 6.9 | 8.1 | 8.7 | … | … | |||
| Inflation rate (average; percent) | 2.8 | 1.3 | 1.1 | 0.4 | 0.9 | |||
| Nominal GDP (millions of euros) | 1401.5 | 1404.7 | 1390.5 | 1410.9 | 1438.8 | |||
| Public Finances (percent of GDP) 1/ | ||||||||
| Revenues | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | |||
| Expenditure | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | |||
| Overall balance | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | |||
| Government debt | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | |||
| Government deposits (millions of euros) | 72.9 | 55.9 | 40.4 | 32.9 | 32.9 | |||
| Money and Credit | ||||||||
| Deposits (percent change) | −1.6 | −2.0 | 1.9 | … | … | |||
| Private sector credit (percent change) | 11.2 | −9.6 | 1.0 | … | … | |||
| Net foreign assets (percent of GDP) | −26.7 | 4.4 | −4.0 | … | … | |||
| Commercial banks | −46.3 | −22.2 | −25.9 | … | … | |||
| Central bank | 19.5 | 26.6 | 21.9 | … | … | |||
| External Accounts (percent of GDP) | ||||||||
| Balance of goods and services | 21.6 | 21.7 | 25.9 | … | … | |||
| Exports | 178.7 | 171.4 | 171.4 | … | … | |||
| Imports | 157.1 | 149.7 | 145.4 | … | … | |||
| Gross international reserves (millions of U.S. dollars) | 385.0 | 539.3 | 392.0 | … | … | |||
| Exchange Rate (average) | ||||||||
| Euros per U.S. dollar | 0.78 | 0.75 | 0.75 | … | … | |||
| Real exchange rate vis-à-vis Italy | 98.0 | 100.0 | … | … | … | |||
| Financial Soundness Indicators (percent) 2/ | ||||||||
| Regulatory capital to risk-weighted assets | 8.8 | 13.6 | 11.4 | 11.0 | … | |||
| Bad loans to total loans | 9.6 | 13.9 | 16.1 | 18.4 | … | |||
| Loan loss provision to total loans | 42.5 | 26.7 | 30.3 | 29.4 | … | |||
| Return on equity (ROE) | −22.5 | −7.8 | −21.4 | −11.5 | … | |||
| Liquid assets to total assets | 28.0 | 29.6 | 32.4 | 31.0 | … | |||
| Liquid assets to short-term liabilities | 58.7 | 60.6 | 65.4 | 57.2 | … | |||
For the central government. Does not include possible costs of future bank recapitalization.
For 2015, latest available.
San Marino: Selected Economic and Social Indicators, 2012–16
| GDP per capita (2014): 44,216 U.S. dollars | Life expectancy at birth (2010): 83.2 years |
| Population (December 2013): 31,448 persons | Literacy, adult (2008): 96 percent |
| Projection | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | ||||
| Activity and Prices | ||||||||
| Real GDP (percent change) | −7.5 | −3.0 | −1.0 | 1.0 | 1.1 | |||
| Domestic demand | −4.6 | −1.4 | −3.6 | … | … | |||
| Final consumption | 0.0 | 0.1 | −2.0 | … | … | |||
| Fixed investment | −13.0 | −7.0 | −17.2 | … | … | |||
| Net exports | −4.1 | −2.3 | 2.1 | … | … | |||
| Exports | −9.8 | −6.6 | −1.0 | … | … | |||
| Imports | −8.9 | −6.1 | −2.5 | … | … | |||
| Contribution to GDP | ||||||||
| Domestic demand | −3.4 | −1.0 | −2.7 | |||||
| Final consumption | 0.0 | 0.0 | −1.2 | |||||
| Fixed investment | −2.9 | −1.5 | −3.4 | |||||
| Net exports | −4.1 | −2.3 | 2.1 | |||||
| Exports | −18.1 | −11.8 | −1.6 | |||||
| Imports | 14.0 | 9.5 | 3.8 | |||||
| Employment (percent change) | −2.6 | −1.3 | −0.8 | … | … | |||
| Unemployment rate (average; percent) | 6.9 | 8.1 | 8.7 | … | … | |||
| Inflation rate (average; percent) | 2.8 | 1.3 | 1.1 | 0.4 | 0.9 | |||
| Nominal GDP (millions of euros) | 1401.5 | 1404.7 | 1390.5 | 1410.9 | 1438.8 | |||
| Public Finances (percent of GDP) 1/ | ||||||||
| Revenues | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | |||
| Expenditure | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | |||
| Overall balance | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | |||
| Government debt | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | |||
| Government deposits (millions of euros) | 72.9 | 55.9 | 40.4 | 32.9 | 32.9 | |||
| Money and Credit | ||||||||
| Deposits (percent change) | −1.6 | −2.0 | 1.9 | … | … | |||
| Private sector credit (percent change) | 11.2 | −9.6 | 1.0 | … | … | |||
| Net foreign assets (percent of GDP) | −26.7 | 4.4 | −4.0 | … | … | |||
| Commercial banks | −46.3 | −22.2 | −25.9 | … | … | |||
| Central bank | 19.5 | 26.6 | 21.9 | … | … | |||
| External Accounts (percent of GDP) | ||||||||
| Balance of goods and services | 21.6 | 21.7 | 25.9 | … | … | |||
| Exports | 178.7 | 171.4 | 171.4 | … | … | |||
| Imports | 157.1 | 149.7 | 145.4 | … | … | |||
| Gross international reserves (millions of U.S. dollars) | 385.0 | 539.3 | 392.0 | … | … | |||
| Exchange Rate (average) | ||||||||
| Euros per U.S. dollar | 0.78 | 0.75 | 0.75 | … | … | |||
| Real exchange rate vis-à-vis Italy | 98.0 | 100.0 | … | … | … | |||
| Financial Soundness Indicators (percent) 2/ | ||||||||
| Regulatory capital to risk-weighted assets | 8.8 | 13.6 | 11.4 | 11.0 | … | |||
| Bad loans to total loans | 9.6 | 13.9 | 16.1 | 18.4 | … | |||
| Loan loss provision to total loans | 42.5 | 26.7 | 30.3 | 29.4 | … | |||
| Return on equity (ROE) | −22.5 | −7.8 | −21.4 | −11.5 | … | |||
| Liquid assets to total assets | 28.0 | 29.6 | 32.4 | 31.0 | … | |||
| Liquid assets to short-term liabilities | 58.7 | 60.6 | 65.4 | 57.2 | … | |||
For the central government. Does not include possible costs of future bank recapitalization.
For 2015, latest available.
San Marino: Selected Economic and Social Indicators for the Medium Term
For the central government. Does not include possible costs of future bank recapitalization.
San Marino: Selected Economic and Social Indicators for the Medium Term
| Projection | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||
| Real and External | ||||||||||||
| Real GDP (percent change) | −7.5 | −3.0 | −1.0 | 1.0 | 1.1 | 1.2 | 1.3 | 1.3 | 1.3 | 1.3 | ||
| Net exports | −4.1 | −2.3 | 2.1 | 0.2 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | ||
| Exports | −18.1 | −11.8 | −1.6 | 1.7 | 1.9 | 2.1 | 2.3 | 2.2 | 2.3 | 2.3 | ||
| Imports | 14.0 | 9.5 | 3.8 | −1.4 | −1.6 | −1.8 | −1.9 | −1.9 | −1.9 | −1.9 | ||
| Public Finances (percent of GDP) 1/ | ||||||||||||
| Revenues | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | 21.8 | 21.3 | 21.3 | 21.3 | 21.3 | ||
| Expenditure | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | 22.1 | 21.8 | 21.8 | 21.8 | 21.8 | ||
| Overall balance | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | −0.3 | −0.4 | −0.4 | −0.4 | −0.4 | ||
| Primary balance | −2.5 | −1.4 | 1.0 | 0.3 | −0.2 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Government debt | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | 21.6 | 21.5 | 21.5 | 21.4 | 21.4 | ||
For the central government. Does not include possible costs of future bank recapitalization.
San Marino: Selected Economic and Social Indicators for the Medium Term
| Projection | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||
| Real and External | ||||||||||||
| Real GDP (percent change) | −7.5 | −3.0 | −1.0 | 1.0 | 1.1 | 1.2 | 1.3 | 1.3 | 1.3 | 1.3 | ||
| Net exports | −4.1 | −2.3 | 2.1 | 0.2 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | 0.3 | ||
| Exports | −18.1 | −11.8 | −1.6 | 1.7 | 1.9 | 2.1 | 2.3 | 2.2 | 2.3 | 2.3 | ||
| Imports | 14.0 | 9.5 | 3.8 | −1.4 | −1.6 | −1.8 | −1.9 | −1.9 | −1.9 | −1.9 | ||
| Public Finances (percent of GDP) 1/ | ||||||||||||
| Revenues | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | 21.8 | 21.3 | 21.3 | 21.3 | 21.3 | ||
| Expenditure | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | 22.1 | 21.8 | 21.8 | 21.8 | 21.8 | ||
| Overall balance | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | −0.3 | −0.4 | −0.4 | −0.4 | −0.4 | ||
| Primary balance | −2.5 | −1.4 | 1.0 | 0.3 | −0.2 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Government debt | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | 21.6 | 21.5 | 21.5 | 21.4 | 21.4 | ||
For the central government. Does not include possible costs of future bank recapitalization.
San Marino: Financial Soundness Indicators, 2009–15
Based on bank balance sheet data.
Last observation refers to December 2015.
Last observation refers to bad loans net of provisions as of December 2015 and capital as of September 2015.
Before extraordinary items and taxes.
San Marino: Financial Soundness Indicators, 2009–15
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Jun-15 | Sep-15 | ||
|---|---|---|---|---|---|---|---|---|---|
| Capital adequacy ratios (percent) | |||||||||
| Regulatory capital to risk-weighted assets | 16.9 | 15.6 | 14.1 | 8.8 | 13.6 | 11.4 | 11.1 | 11.0 | |
| Capital to assets | 10.6 | 9.6 | 8.6 | 6.3 | 7.3 | 6.2 | 7.0 | 7.0 | |
| Asset quality ratios (percent) | |||||||||
| Bad loans to total loans 1/ 2/ | 2.9 | 5.9 | 7.2 | 9.6 | 13.9 | 16.1 | 16.9 | 18.4 | |
| Nonperforming loans to total loans | 6.9 | 11.9 | 34.1 | 20.3 | 42.4 | 43.1 | 45.8 | 45.6 | |
| Bad loans net of provision to capital 1/ 3/ | 7.2 | 17.6 | 28.7 | 41.3 | 47.3 | 57.3 | 67.3 | 73.7 | |
| Nonperforming loans net of provision to capital | 36.5 | 72.5 | 273.1 | 166.1 | 289.2 | 335.8 | 368.0 | 370.5 | |
| NPL coverage ratio | 23.9 | 27.8 | 22.6 | 42.5 | 26.7 | 30.3 | 28.6 | 29.4 | |
| Earning and profitability (percent) | |||||||||
| Return on assets (ROA) 4/ | 0.1 | −0.1 | −3.3 | −2.2 | −0.6 | −1.8 | −0.4 | −0.8 | |
| Return on equity (ROE) 4/ | 0.5 | −0.7 | −28.8 | −22.5 | −7.8 | −21.4 | −5.5 | −11.5 | |
| Interest margin to gross income | 67.5 | 56.1 | 77.1 | 58.5 | 46.1 | 32.1 | 37.4 | 38.7 | |
| Non-interest expenses to gross income | 34.1 | 48.3 | 66.7 | 69.7 | 81.2 | 50.7 | 62.6 | 63.8 | |
| Trading income to gross income | 12.8 | 1.5 | −6.3 | 11.7 | 13.3 | 13.9 | 4.0 | −1.3 | |
| Administrative expenses to non-interest expenditures 1/ 2/ | 51.3 | 61.9 | 69.2 | 69.7 | 66.1 | 55.6 | 59.5 | 57.1 | |
| Liquidity (percent) | |||||||||
| Liquid assets to total assets | 29.9 | 27.9 | 25.8 | 28.0 | 29.6 | 32.4 | 32.0 | 31.0 | |
| Liquid assets to short-term liabilities | 57.1 | 67.4 | 57.6 | 58.7 | 60.6 | 65.4 | 62.3 | 57.2 | |
| Loans to deposits | 76.5 | 85.0 | 76.8 | 91.8 | 86.7 | 80.0 | 78.9 | 79.3 | |
Based on bank balance sheet data.
Last observation refers to December 2015.
Last observation refers to bad loans net of provisions as of December 2015 and capital as of September 2015.
Before extraordinary items and taxes.
San Marino: Financial Soundness Indicators, 2009–15
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Jun-15 | Sep-15 | ||
|---|---|---|---|---|---|---|---|---|---|
| Capital adequacy ratios (percent) | |||||||||
| Regulatory capital to risk-weighted assets | 16.9 | 15.6 | 14.1 | 8.8 | 13.6 | 11.4 | 11.1 | 11.0 | |
| Capital to assets | 10.6 | 9.6 | 8.6 | 6.3 | 7.3 | 6.2 | 7.0 | 7.0 | |
| Asset quality ratios (percent) | |||||||||
| Bad loans to total loans 1/ 2/ | 2.9 | 5.9 | 7.2 | 9.6 | 13.9 | 16.1 | 16.9 | 18.4 | |
| Nonperforming loans to total loans | 6.9 | 11.9 | 34.1 | 20.3 | 42.4 | 43.1 | 45.8 | 45.6 | |
| Bad loans net of provision to capital 1/ 3/ | 7.2 | 17.6 | 28.7 | 41.3 | 47.3 | 57.3 | 67.3 | 73.7 | |
| Nonperforming loans net of provision to capital | 36.5 | 72.5 | 273.1 | 166.1 | 289.2 | 335.8 | 368.0 | 370.5 | |
| NPL coverage ratio | 23.9 | 27.8 | 22.6 | 42.5 | 26.7 | 30.3 | 28.6 | 29.4 | |
| Earning and profitability (percent) | |||||||||
| Return on assets (ROA) 4/ | 0.1 | −0.1 | −3.3 | −2.2 | −0.6 | −1.8 | −0.4 | −0.8 | |
| Return on equity (ROE) 4/ | 0.5 | −0.7 | −28.8 | −22.5 | −7.8 | −21.4 | −5.5 | −11.5 | |
| Interest margin to gross income | 67.5 | 56.1 | 77.1 | 58.5 | 46.1 | 32.1 | 37.4 | 38.7 | |
| Non-interest expenses to gross income | 34.1 | 48.3 | 66.7 | 69.7 | 81.2 | 50.7 | 62.6 | 63.8 | |
| Trading income to gross income | 12.8 | 1.5 | −6.3 | 11.7 | 13.3 | 13.9 | 4.0 | −1.3 | |
| Administrative expenses to non-interest expenditures 1/ 2/ | 51.3 | 61.9 | 69.2 | 69.7 | 66.1 | 55.6 | 59.5 | 57.1 | |
| Liquidity (percent) | |||||||||
| Liquid assets to total assets | 29.9 | 27.9 | 25.8 | 28.0 | 29.6 | 32.4 | 32.0 | 31.0 | |
| Liquid assets to short-term liabilities | 57.1 | 67.4 | 57.6 | 58.7 | 60.6 | 65.4 | 62.3 | 57.2 | |
| Loans to deposits | 76.5 | 85.0 | 76.8 | 91.8 | 86.7 | 80.0 | 78.9 | 79.3 | |
Based on bank balance sheet data.
Last observation refers to December 2015.
Last observation refers to bad loans net of provisions as of December 2015 and capital as of September 2015.
Before extraordinary items and taxes.
San Marino: Statement of Operations for Budgetary Central Government, 2010–17
(Percent of GDP)
Does not reflect the introduction of the VAT, planned for 2017.
San Marino: Statement of Operations for Budgetary Central Government, 2010–17
(Percent of GDP)
| Projection | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||
| Revenue | 18.9 | 18.3 | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | 21.8 | |||
| Taxes* | 14.2 | 13.0 | 14.6 | 14.6 | 17.2 | 17.0 | 17.0 | 17.4 | |||
| Income Taxes | 7.5 | 7.1 | 7.0 | 7.4 | 8.1 | 8.1 | 8.0 | 8.2 | |||
| Non-income taxes | 6.7 | 5.9 | 7.6 | 7.2 | 9.1 | 8.9 | 9.0 | 9.2 | |||
| Taxes on international trade and transactions | 4.0 | 3.5 | 4.5 | 5.1 | 6.4 | 6.4 | 6.5 | 6.8 | |||
| Other taxes | 2.7 | 2.5 | 3.0 | 2.1 | 2.7 | 2.5 | 2.5 | 2.5 | |||
| Non-tax revenue | 4.7 | 5.2 | 5.8 | 5.0 | 5.3 | 4.9 | 5.1 | 4.3 | |||
| Expenditure | 21.4 | 22.4 | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | 22.1 | |||
| Current Expenditure | 18.9 | 19.8 | 20.7 | 19.7 | 19.6 | 20.4 | 20.3 | 19.9 | |||
| Compensation of employees | 6.4 | 6.8 | 7.1 | 7.1 | 6.6 | 6.7 | 6.6 | 6.5 | |||
| Use of goods and services | 1.8 | 2.0 | 2.1 | 1.9 | 2.2 | 2.1 | 2.1 | 2.0 | |||
| Interest | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.3 | 0.4 | 0.4 | |||
| Transfers | 10.3 | 10.7 | 11.1 | 10.4 | 10.3 | 11.0 | 10.8 | 10.7 | |||
| To other general government units | 9.6 | 9.6 | 10.3 | 9.7 | 9.6 | 10.2 | 10.1 | 10.0 | |||
| Other expenses (including subsidies) | 0.3 | 0.3 | 0.3 | 0.3 | 0.2 | 0.4 | 0.3 | 0.3 | |||
| Capital Expense | 2.6 | 2.6 | 2.2 | 1.4 | 2.1 | 1.3 | 2.3 | 2.1 | |||
| Net lending (+)/borrowing (-) (fiscal balance) | −2.5 | −4.1 | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | −0.3 | |||
| primary balance | −2.4 | −4.1 | −2.5 | −1.4 | 1.0 | 0.3 | −0.2 | 0.1 | |||
| Memorandum items | |||||||||||
| Social Seurity balance | … | −0.2 | −0.8 | −0.7 | −0.4 | … | … | … | |||
| Public debt | 17.5 | 14.7 | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | 21.6 | |||
| Government deposits | 13.5 | 10.4 | 5.2 | 4.0 | 2.9 | 2.3 | 2.3 | 2.2 | |||
| Nominal GDP (in millions of euros) | 1615.3 | 1477.5 | 1401.5 | 1404.7 | 1390.5 | 1410.9 | 1438.8 | 1472.4 | |||
Does not reflect the introduction of the VAT, planned for 2017.
San Marino: Statement of Operations for Budgetary Central Government, 2010–17
(Percent of GDP)
| Projection | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||
| Revenue | 18.9 | 18.3 | 20.4 | 19.6 | 22.5 | 21.8 | 22.0 | 21.8 | |||
| Taxes* | 14.2 | 13.0 | 14.6 | 14.6 | 17.2 | 17.0 | 17.0 | 17.4 | |||
| Income Taxes | 7.5 | 7.1 | 7.0 | 7.4 | 8.1 | 8.1 | 8.0 | 8.2 | |||
| Non-income taxes | 6.7 | 5.9 | 7.6 | 7.2 | 9.1 | 8.9 | 9.0 | 9.2 | |||
| Taxes on international trade and transactions | 4.0 | 3.5 | 4.5 | 5.1 | 6.4 | 6.4 | 6.5 | 6.8 | |||
| Other taxes | 2.7 | 2.5 | 3.0 | 2.1 | 2.7 | 2.5 | 2.5 | 2.5 | |||
| Non-tax revenue | 4.7 | 5.2 | 5.8 | 5.0 | 5.3 | 4.9 | 5.1 | 4.3 | |||
| Expenditure | 21.4 | 22.4 | 23.0 | 21.1 | 21.7 | 21.8 | 22.6 | 22.1 | |||
| Current Expenditure | 18.9 | 19.8 | 20.7 | 19.7 | 19.6 | 20.4 | 20.3 | 19.9 | |||
| Compensation of employees | 6.4 | 6.8 | 7.1 | 7.1 | 6.6 | 6.7 | 6.6 | 6.5 | |||
| Use of goods and services | 1.8 | 2.0 | 2.1 | 1.9 | 2.2 | 2.1 | 2.1 | 2.0 | |||
| Interest | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.3 | 0.4 | 0.4 | |||
| Transfers | 10.3 | 10.7 | 11.1 | 10.4 | 10.3 | 11.0 | 10.8 | 10.7 | |||
| To other general government units | 9.6 | 9.6 | 10.3 | 9.7 | 9.6 | 10.2 | 10.1 | 10.0 | |||
| Other expenses (including subsidies) | 0.3 | 0.3 | 0.3 | 0.3 | 0.2 | 0.4 | 0.3 | 0.3 | |||
| Capital Expense | 2.6 | 2.6 | 2.2 | 1.4 | 2.1 | 1.3 | 2.3 | 2.1 | |||
| Net lending (+)/borrowing (-) (fiscal balance) | −2.5 | −4.1 | −2.6 | −1.5 | 0.8 | 0.1 | −0.6 | −0.3 | |||
| primary balance | −2.4 | −4.1 | −2.5 | −1.4 | 1.0 | 0.3 | −0.2 | 0.1 | |||
| Memorandum items | |||||||||||
| Social Seurity balance | … | −0.2 | −0.8 | −0.7 | −0.4 | … | … | … | |||
| Public debt | 17.5 | 14.7 | 15.4 | 20.8 | 19.0 | 18.8 | 21.8 | 21.6 | |||
| Government deposits | 13.5 | 10.4 | 5.2 | 4.0 | 2.9 | 2.3 | 2.3 | 2.2 | |||
| Nominal GDP (in millions of euros) | 1615.3 | 1477.5 | 1401.5 | 1404.7 | 1390.5 | 1410.9 | 1438.8 | 1472.4 | |||
Does not reflect the introduction of the VAT, planned for 2017.
Appendix I. Risk Assessment Matrix1
| Risk | Relative likelihood | Impact if realized | Policy Response |
| Structurally weak growth in Italy and the euro area. Weak demand and persistently low inflation from a failure to fully address crisis legacies and undertake structural reforms, leading to low medium-term growth and persisting financial imbalances in the euro area and Italy in particular. | High | High Given extensive financial and real links with Italy and advanced Europe, the impact on the Sammarinese economy would be large and direct. |
|
| Further modest public bank recapitalizations. | High | Medium Public finances could cope with modest further bank recapitalization needs. |
|
| Failure to clean up bank balance sheets, leading to a loss of confidence in the system. | Medium | High A loss of confidence in the system would likely lead to large public recapitalization needs and would have significant growth and fiscal implications. |
|
| Higher medium-term growth from inclusion in Italy’s tax whitelist. | Medium | Medium The industrial and service sectors could bounce back, boosting growth, tax revenue, and banks’ margins. |
|
| Loss of cross-border or domestic electronic payment services: significantly curtails domestic and cross-border payments. | Low | Medium Disruption of retail and wholesale electronic payment services leads to an abrupt adjustment in consumption and trade. A sudden shift to cash may cause short-term currency shortages. |
|
| Tensions with neighboring Italy resurface. | Low | High Persistent tensions would dissuade Italian corporates and banks from doing business with San Marino, thus affecting growth. |
|
| Risk | Relative likelihood | Impact if realized | Policy Response |
| Structurally weak growth in Italy and the euro area. Weak demand and persistently low inflation from a failure to fully address crisis legacies and undertake structural reforms, leading to low medium-term growth and persisting financial imbalances in the euro area and Italy in particular. | High | High Given extensive financial and real links with Italy and advanced Europe, the impact on the Sammarinese economy would be large and direct. |
|
| Further modest public bank recapitalizations. | High | Medium Public finances could cope with modest further bank recapitalization needs. |
|
| Failure to clean up bank balance sheets, leading to a loss of confidence in the system. | Medium | High A loss of confidence in the system would likely lead to large public recapitalization needs and would have significant growth and fiscal implications. |
|
| Higher medium-term growth from inclusion in Italy’s tax whitelist. | Medium | Medium The industrial and service sectors could bounce back, boosting growth, tax revenue, and banks’ margins. |
|
| Loss of cross-border or domestic electronic payment services: significantly curtails domestic and cross-border payments. | Low | Medium Disruption of retail and wholesale electronic payment services leads to an abrupt adjustment in consumption and trade. A sudden shift to cash may cause short-term currency shortages. |
|
| Tensions with neighboring Italy resurface. | Low | High Persistent tensions would dissuade Italian corporates and banks from doing business with San Marino, thus affecting growth. |
|
Appendix II. Public Debt Sustainability
1. San Marino’s gross central government debt is projected to stabilize below 22 percent of GDP. Before the crisis, gross debt stood below 15 percent of GDP. Net debt was negative, as the government held cash buffers in excess of 15 percent of GDP. However, the crisis swung budget surpluses into deficits, which, together with financial support to CRSM amounting to 13 percent of GDP,1 increased gross debt to more than 20 percent of GDP by 2013, while cash buffers decreased to below 4 percent of GDP. In 2014, gross public debt temporarily dropped to 19 percent of GDP, due to fiscal over-performance. However, the fiscal balance is expected to deteriorate modestly in 2015 –2016 and over the medium term, including due to higher capital expenditure. In addition, the government is in the process of issuing a €40 million bond to recapitalize CRSM. In light of these developments, public debt is projected to stabilize at 21–22 percent of GDP.
2. The possible need for further bank capital support represents the main risk to public finances and debt sustainability. A contingent liability shock scenario where further recapitalization needs amount to 20 percent of GDP—reflecting a combination of further capital needs from CRSM and other banks—would, without a change in the fiscal stance, dramatically increase public debt, reaching 42 percent of GDP by 2020. Such dynamics may not prove sustainable in a country without a track record of sovereign bond issuance and untested ability to access external financing.
3. Fiscal adjustment is needed given these observations. Staff’s suggested adjustment of 1 percent of GDP (compared to 2016 projections excluding additional capital expenditure) over four years would put public debt on a clear downward trend and provide fiscal space for contingent liabilities. Under these adjustments, debt would peak below 42 percent of GDP and decrease to 36 percent of GDP by 2020, even in the presence of the above-mentioned contingent shock.
San Marino: Public Sector Debt Sustainability Analysis (DSA)-Baseline Scenario
(In Percent of GDP Unless Otherwise Indicated)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: IMF staff.1/ Public sector is defined as central government.2/ Based on available data.3/ Long-term bond spread over German bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.San Marino: Public Sector Debt Sustainability Analysis (DSA)-Baseline Scenario
(In Percent of GDP Unless Otherwise Indicated)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: IMF staff.1/ Public sector is defined as central government.2/ Based on available data.3/ Long-term bond spread over German bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.San Marino: Public Sector Debt Sustainability Analysis (DSA)-Baseline Scenario
(In Percent of GDP Unless Otherwise Indicated)
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Source: IMF staff.1/ Public sector is defined as central government.2/ Based on available data.3/ Long-term bond spread over German bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
San Marino: Public Sector DSA—Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
San Marino: Public Sector DSA—Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
San Marino: Public Sector DSA—Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2016, 111; 10.5089/9781484343890.002.A001
Currently service businesses pay a 3 percent service tax, while most imports face a standard import tax of 17 percent. The VAT will replace these taxes and is expected to improve efficiency.
Italy’s REER corrected for differences in developments in the consumer price index for Italy and San Marino.
The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline. The RAM reflects staff views on the source of the risks and overall level of concern as of the time of the discussion with the authorities.
11 percent was provided by the central government and 2 percent by the Social Security Institute.
