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IMF Country Report No. 19/85
REPUBLIC OF SAN MARINO 2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF SAN MARINO
March 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with the Republic of San Marino, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its March 22, 2019 consideration of the staff report that concluded the Article IV consultation with the Republic of San Marino.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on March 22, 2019, following discussions that ended on February 1, 2019, with the officials of the Republic of San Marino on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 5, 2019.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for the Republic of San Marino.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2019 International Monetary Fund
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REPUBLIC OF SAN MARINO
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
March 5, 2019
Key Issues
Context: Deep-rooted weaknesses in the banking system have undermined economic activity and are now threatening financial stability and fiscal sustainability. Significant deposit outflows have left the banking system with low liquidity, while persistent losses and high non-performing loans (NPLs) resulted in sizable recapitalization needs, particularly in the state-owned bank. The central bank of San Marino (CBSM) and government liquidity buffers are low, and a full and upfront recognition of the state’s excessive commitments to the banking system would make public debt unsustainable. A comprehensive strategy is urgently needed to shift the economy to a sustainable growth path.
Outlook and risks: Growth is projected to remain subdued in the coming years, reflecting continued banking sector deleveraging and a less favorable external environment, most notably in Italy. Slow progress in repairing the banking sector, and full and upfront recognition of the state’s financial commitments to the banking system are the key risks.
Main policy recommendations: Urgent actions are needed to restore banking sector viability and credit supply, safeguard public finances, and promote sustained economic growth.
Financial sector: Improve liquidity management and finalize a strategy that consists of upfront loss recognition and bank recapitalization, restructuring and downsizing to return banks to viability, durable NPL resolution, and measures to strengthen bank oversight and governance. Require banks to raise fresh capital based on the findings of the Asset Quality Review and provide state support only to systemically-important and viable banks following burden sharing.
Fiscal policy: Restore public debt sustainability by implementing an ambitious and growth-friendly fiscal adjustment that relies on revenue and expenditure measures, including VAT implementation, targeted pension reform, and improved spending efficiency. Develop debt management capacity and diversify financing options.
Structural reforms: Strengthen labor supply by better targeting social benefits and further relaxing the hiring process of nonresidents. Address infrastructure weaknesses, improve further the ease of doing business, and increase international economic integration to sustain economic diversification and expand market access.
Approved By
Mahmood Pradhan (EUR) and Yan Sun (SPR)
Discussion were held in San Marino on January 23–February 1, 2019. The team comprised Messrs. Klein (head), Dell’Erba, Muraki, (all EUR), Comelli (SPR), and Monaghan (MCM). Mr. Spadafora (OED) participated in the discussions. The team met with the heads of State, Secretary of State for Finance and Budget, Central Bank President, other cabinet members and central bank officials, private sector representatives, and social partners. Ms. Burova and Mr. Velazquez-Romero (both EUR) assisted the mission from headquarters.
Contents
RECENT DEVELOPMENTS AND POLICY PRIORITIES
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Restoring Banking System Viability
B. Safeguarding Public Finances and Ensuring Debt Sustainability
C. Promoting a Sustained Economic Growth
DATA
STAFF APPRAISAL
BOXES
1. External Sector Assessment
2. San Marino’s Banking Sector Structure
3. VAT Implementation in San Marino
FIGURES
1. Macroeconomic Developments
2. High Frequency Indicators
3. Fiscal Developments
4. Financial Sector
TABLES
1. Selected Economic and Social Indicators, 2016–24
2a. Statement of Operations for Budgetary Central Government, 2016–24 (Millions of euros).
2b. Statement of Operations for Budgetary Central Government, 2016–24 (Percent of GDP)
3. Balance of Payments, 2017–24
4. Depository Corporate Survey, 2012–18
5. Financial Soundness Indicators, 2012–18
ANNEXES
I. Asset Quality Review and Staff’s Estimate of Bank Recapitalization Needs
II. Risk Assessment Matrix
III. Reserve Adequacy for San Marino
IV. Implementation of IMF Recommendations
V. Debt Sustainability Analysis
VI. Demographic Pressure and Pension Reform
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REPUBLIC OF SAN MARINO STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
March 5, 2019
Prepared By
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
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Press Release No. 19/91
FOR IMMEDIATE RELEASE
March 26, 2019
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