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IMF Country Report No. 20/93
REPUBLIC OF SAN MARINO
2020 ARTICLE IV CONSULTATION—PRESS RELEASE AND STAFF REPORT
April 2020
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 2020 Article IV consultation with the Republic of San Marino, the following documents have been released and are included in this package:
A Press Release.
A Staff Supplement updating information on recent developments.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on a lapse-of-time basis. The staff report reflects discussions with the Sammarinese authorities in January 2020 and is based on the information available as of January 31, 2020. It focuses on San Marino’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in San Marino and globally.
An Informational Annex prepared by the IMF staff.
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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REPUBLIC OF SAN MARINO
STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION
March 9, 2020
Key Issues
The Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on March 27 on a lapse of time basis. The staff report reflects discussions with the Sammarinese authorities in January 2020 and is based on the information available as of January 31, 2020. It focuses on San Marino’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in San Marino and globally.
Context: Banking system vulnerabilities pose considerable stability risks and hinder economic recovery. Significant deposit outflows have left the banking system with low liquidity, while persistent bank losses, poor asset quality, sizable capital shortfalls, led to multiple bank failures in recent years. Recent bank interventions largely relied on regulatory forbearance and state support, which widened fiscal deficits, eroded fiscal buffers, and increased the implicit public debt to unsustainable levels. The elevated risks, and a shared recognition that a broad coalition is critical to advance the necessary reforms, triggered snap elections in early-December—two years ahead of schedule— and the establishment of a four-party coalition government.
Outlook and risks: With no credible measures to restore banking system health and in the face of a continued weak external environment, economic growth is projected to remain subdued in the coming years. Slow progress in repairing the banking system and failure to restore fiscal sustainability are the key and material risks. The recent outbreak of COVID-19 in San Marino and Italy has significantly increased uncertainty.
Main policy recommendations: Urgently develop a stabilization plan that safeguards financial stability, restores fiscal sustainability, and removes supply-side bottlenecks to sustained growth:
Financial sector: Safeguard the central bank’s liquidity buffers and develop a credible strategy to secure banks’ viability and sustainability through upfront loss recognition, recapitalization with burden sharing, deep restructuring with significant reduction in non-performing loans and operating costs, and improvement of financial sector governance and oversight.
Fiscal policy: Put public finances on a sustainable path and gradually rebuild fiscal buffers, including by restricting state support to the banking system and implementing an ambitious fiscal adjustment that relies on both revenue and expenditure measures. Urgently reform the pension system and reduce fiscal risks through diversification of sovereign financing sources and enhancement of debt and cash management capacity.
Structural reforms: Strengthen labor supply, including by further relaxing hiring of nonresidents, rationalizing the social benefits system, and mitigating skill mismatch. Further improve the business climate and address infrastructure gaps to advance economic integration.
Approved By
Mahmood Pradhan (EUR) and Yan Sun (SPR)
Discussions were held in San Marino on January 22–31, 2020. The team comprised Messrs. Klein (head), Dell’Erba, Muraki (all EUR), Kaffo (SPR), and Leonovich (MCM). Mr. Spadafora (OED) participated in the discussions. Mr. Pradhan (EUR) and Mr. Fanizza (OED) met with the authorities and attended some meetings. 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
CONTEXT
RECENT DEVELOPMENTS AND POLICY PRIORITIES
OUTLOOK AND RISKS
POLICY AGENDA
A. Repairing the Banking System and Safeguarding Financial Stability
B. Putting the Public Finances on a Sustainable Path
C. Promoting Sustainable Growth
DATA
STAFF APPRAISAL
BOXES
1. The Bank Resolution Law and Its Application to BCIS
2. Public Debt: The Official vs. the Implicit Level
3. The Proposed Asset Management Company (AMC)
FIGURES
1. Macroeconomic Developments
2. High Frequency Indicators
3. Fiscal Developments
4. Financial Sector
TABLES
1. Selected Economic and Social Indicators, 2017–25
2a. Statement of Operations for Budgetary Central Government, 2017–25 (Millions of euros)
2b. Statement of Operations for Budgetary Central Government, 2017–25 (Percent of GDP)
3. Balance of Payments, 2017–25
4. Financial Soundness Indicators, 2012–19
5. Depository Corporate Survey, 2012–19
ANNEXES
I. Corporate Vulnerability in San Marino
II. External Sector Assessment and Reserve Adequacy for San Marino
III. Risk Assessment Matrix
IV. Social Benefits and Labor Market Outcomes
V. Implementation of Past IMF Recommendations
VI. Debt Sustainability Analysis
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REPUBLIC OF SAN MARINO
STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
March 9, 2020
Prepared by
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
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IMF.org
IMF Executive Board Concludes the 2020 Article IV Consultation with the Republic of San Marino
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REPUBLIC OF SAN MARINO
STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION—SUPPLEMENTARY INFORMATION
March 24, 2020
Prepared by
European Department
(In consultation with other departments)
This supplement provides information that became available after the staff report was issued on March 9, 2020.
