Republic of San Marino: 2020 Article IV Consultation—Press Release and Staff Report
Author:
International Monetary Fund. European Dept.
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Publication Date:
02 Apr 2020
eISBN:
9781513538761
Language:
English
Keywords:
ISCR; CR; authority; law enforcement personnel; containment measure; health crisis; loan instalment; near-term effort; vis-à-vis nonresident; government liquidity buffer; Commercial banks; Nonperforming loans; Financial statistics; Pension spending; state support; Sammarinese authorities; liquidity buffer; banking sector; government resource; Bank resolution; government strategy
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2020 Article IV Consultation-Press Release and Staff Report

Abstract

2020 Article IV Consultation-Press Release and Staff Report

Context

1. San Marino’s economy experienced a deep contraction, from which it struggles to recover. San Marino’s offshore banking model, which largely benefitted from banking secrecy, collapsed due to enhanced transparency and anti-tax evasion measures. Bank balance sheets shrank significantly owing to sizable deposit outflows and deleveraging, while poor risk management resulted in a considerable deterioration of banks’ asset quality and persistent losses. The financial contraction, coupled with feeble external demand, contributed to a deep and prolonged recession, from which the economy bottomed out in 2015. Yet, the recovery remained weak with GDP-per-capita well below its pre-crisis level.

San Marino: GDP Per Capita and Banking System Assets

(2008=100)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: WEO and IMF staff.

2. Banking sector weaknesses threaten financial stability and fiscal sustainability. The banking system’s low liquidity, high non-performing loans (NPLs), and large recapitalization needs have left the banking system highly vulnerable to shocks while re-current state support to banks— though not properly recognized—led to persistent fiscal deficits and an increase of the implicit public debt to unsustainable levels. The weak fiscal position together with the lack of market access and limited central bank of San Marino’s (CBSM) liquidity buffers significantly constrain the authorities’ policy options if faced by adverse economic conditions.

3. A new government took office in early January with the goal of reviving economic activity. The Christian Democrats emerged from December elections as the largest party and established a four-party coalition government. The coalition’s platform centers on stimulating growth, including by developing technology-based sectors, improving the business environment, and adopting a national strategy for NPL resolution. Priority is also given to ensure public debt sustainability, including by containing current expenditure, modernizing public administration, and reforming the tax system.

Recent Developments and Policy Priorities

4. Economic activity remained subdued, keeping the unemployment rate elevated. Real GDP growth accelerated to 1.7 percent in 2018 from 0.4 percent in 2017 as investment and net exports growth more than offset the contraction of consumption. For 2019, high frequency indicators are inconclusive: while exports of services remained strong and the number of enterprises grew following a prolonged contraction, employment growth, which was mostly driven by nonresidents, decelerated up to September and increased only in the last quarter, imports growth moderated, and manufacturing Purchasing Managers Index further weakened. Unemployment rate modestly declined to 7.7 percent from 8 percent in 2018 but remained well above its pre-crisis levels. Despite modest improvements in firms’ repayment capacity—owing to prolonged deleveraging—the corporate sector remained largely vulnerable with low profitability and high leverage, thus weighing on economic recovery (Annex I).

Real GDP Growth and Purchasing Managers Index

(Percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities and IMF staff.

Unemployment Rate and Employment Growth

(3-month average yoy, percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authoritiesand IMF.

5. Banking system liquidity remained broadly stable in 2019, but at low levels. Bank deposits declined slightly in 2019 and they are now at about 30 percent below their 2014 level. Liquidity risks in the banking system are high as the share of short-term deposits (due in seven days) increased to more than half of total deposits, and seven-day liquidity coverage ratios remained at about 30 percent. CBSM reserves increased to €385 million at end-2019 from €223 million at end-2018, mainly due to a temporary shift of part of pension fund deposits from banks into the CBSM, CBSM’s divestment of illiquid securities, and the sale of Delta sub-portfolio by the state-owned bank, Cassa di Risparmio della Repubblica di San Marino (CRSM), which contributed to an increase of its deposits at the CBSM. Nevertheless, CBSM’s capacity to withstand sizable deposits withdrawals is still constrained as reserves remain inadequate (Annex II).

Deposit Flows by Residency and Resident Share in Total Deposits

(Percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Customer deposits include certificates of deposits (CDs), in 2019, deposit increases/decreases related to the sales of the Delta subportfolio, rcnllocntior oF pension fund deposits between banks end the CBSM, andEanca CIS resolution are excluded from deposit flew data.Sources: Sammarinese aulhofities and IMF staff.

Banking System Deposits and Assets under Management

(millions of euros)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Customer deposits include certificates of deposits (CDs).Sources: Sammarinese authorities and IMF staff.

6. The banking system recapitalization needs are sizable, and the recent bank resolution suggests a potential underestimation. The estimated capital shortfalls, which are based on the 2017 Asset Quality Review (AQR) update, stand at 51 percent of GDP, and mostly concentrated in CRSM, which, in 2017, the government committed to recapitalize gradually over 25 years. Banks were required to incorporate the AQR findings in their capital calculations for the 2019 financial statements and they are currently evaluating ways to address their capital shortfalls. However, with AQR results becoming outdated, there is a risk that the capital needs are under-estimated.

San Marino: Banking System Recapitalization Needs

(Percent of GDP, staff estimate as of September 2019)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

* Higher capital levels will be required under the application of the EU standards.Sources: Sammarinese authorities and IMF staff.

7. A new bank resolution law was enacted and immediately applied to resolve a failed bank (Box 1). The law, which increases the CBSM’s intervention powers, was adopted to support BCIS’ resolution. While equity and a small part of uninsured deposits were written-off, the resolution of BCIS also entailed a bailout. The bank’s insured deposits, pension fund deposits, a small portion of NPLs, and all performing loans were transferred to other entities, while the remaining structure— renamed as Banca Nazionale Sammarinese (BNS)—was nationalized and recapitalized by converting CBSM Emergency Liquidity Assistance (ELA) claims into equity. A new management team was appointed and the bank has retained its banking license. Nevertheless, BNS has recently halted banking operations and its business model is expected to be re-defined in the coming weeks as most of its assets are not generating income.

8. Banking system NPLs increased further, accounting for more than half of banks’ total loans. The NPL ratio increased further to about 57 percent in November 2019 from 53 percent at end-2018, primarily due to reclassification of BCIS’ loan portfolio during its resolution process. Yet, reported NPLs are understated as they do not include NPLs of failed banks that are kept off-balance sheet (in closed funds) and—considering the large volume of ageing NPLs and the significant difficulties in cross-border enforcement of collaterals—they are likely to be under-provisioned. The authorities are planning to speed up NPL resolution through stricter supervisory requirements and creation of an Asset Management Company (AMC) that will manage and recover NPLs.

Non-performing loan distribution

(precent of total NPLs, end-2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

1/ Delta was an Italian financial company that was owned by CRSM, before liquidated due to anti-money laundering concerns.Sources: Sammarenise authorities and IMF staff

NPL and Coverage Ratios by Residency /1

(Percent, end-2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

1/ NPLs figure indicates the pre-AQR ratio.Source: Sammarinese authorities and IMF staff.

The Bank Resolution Law and Its Application to BCIS

A bank resolution law was enacted in June 2019. Recognizing the limitations of the resolution regime, which only allowed liquidation of an insolvent bank, the authorities adopted a new framework, which significantly expanded their powers and tools to resolve failing banks. The new law provides the resolution authorities with early intervention powers against banks that suffer losses and do not have prospects of meeting the minimum capital requirements as well as the ability to transfer the assets and liabilities to third parties, establish a bridge institution, and provide state support. The new resolution law protects all but a limited category of uninsured deposits, thereby restricting the scope of bail-in on top of loss absorption by shareholders’ equity, hybrid capital instruments, and subordinated debt. Protected uninsured deposits can be converted into senior bonds with longer maturity.

The failed BCIS was subsequently resolved. Shareholders’ equity was wiped out and a small amount (estimated at €16 million) of uninsured deposits were written off. The remaining balance sheet was split into three parts, based on the liabilities’ characteristics:

• Insured deposits were transferred to three private banks, along with performing loans and NPL fund (“Odisseo”) shares.

• The capital shortfall and a small portion of the bank’s NPL book were transferred to a newly-created public entity alongside pension funds’ deposits (about €100 million, 7 percent of GDP), which the state committed to repay over a period of 8–10 years.

• The rest of the bank was nationalized and renamed as BNS. Its assets largely consist of NPLs and tax credits that do not generate income, while a high share of its liabilities are uninsured deposits that were converted into bonds to mitigate immediate liquidity pressures.

9. The banking system’s unviable cost and income structure resulted in persistent losses. Owing to exceptionally high cost-to-income ratios, the banking system is estimated to have registered a loss in 2019—the tenth year in a row—reflecting sizable additional provisions made in BCIS resolution. Income generation continues to be constrained by a high share of non-income bearing assets such as NPLs and tax credits as well as limited fee and commission income, while high funding cost and large inefficiencies—partly reflecting the oversized branch network and high concentration of employment in the banking sector—keep the banks’ costs elevated.

Number of branches per 100,000 adults and 10,000 enterprises

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: ECB, Eurostat, IMF Financial Access Survey, CBSM, and IMF staff

Share of bank and financial sector staff in total employment

(Percent, 2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: ECB, Eurostat, CBSM, and IMF staff

10. The fiscal position further weakened. The 2019 fiscal deficit is estimated at 2.5 percent of GDP—well above the balanced budget target—largely due to CRSM recapitalization for its 2018 loss and capital spending increase, which more than offset one-off revenue related to confiscation of money-laundering-suspected deposits. Government liquidity buffers stood at €32 million at end-2019, limiting its ability to repay its expiring CBSM loans (€55 million). The fiscal deficit and the BCIS bailout are projected to have increased the already unsustainable implicit public debt to 86 percent of GDP at end-2019 (Box 2).

Public Debt: The Official vs. the Implicit Level

The official public debt—estimated at 32 percent of GDP at end-2019—does not fully report the entire fiscal liabilities. It excludes the government’s commitment to cover CRSM’s losses and repay pension funds’ deposits following BCIS resolution, as well as the banking system tax credits, which were given to banks to cover the asset-liability gap when they absorbed failed ones. The overall size of the implicit fiscal liabilities amounts to about 54 percent of GDP, resulting in an implicit public debt of 86 percent of GDP:

• CRSM legacy losses. In 2017, the government committed to amortize the CRSM legacy losses over 25 years. The remaining losses as of end-2019 stood at €455 million (32 percent of GDP).

• Banking system tax credits. They amount to €209 million (15 percent of GDP) and account for a significant part of banks’ assets. Staff consider these tax credits as legitimate fiscal costs that need to be explicitly recognized as they are not realizable in the foreseeable future and are part of the bank recapitalization cost given their detrimental impact on banks’ profitability and sustainability.

• BCIS’ pension fund deposits. As part of the recent BCIS’ bailout, the government committed to repay €100 million (7 percent of GDP) of pension fund deposits at BCIS over 8–10 years.

Public Debt: Official and Implicit Levels

(percent of GDP)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities and IMF staff.

11. The external position is considered as weaker than implied by fundamentals and desired policy settings (Annex II). The 2019 current account balance is estimated to have shifted to a slight surplus of 0.7 percent of GDP from a deficit of 1.6 percent in 2018 as income balance improved, while preliminary estimates suggest that the net international investment position modestly decreased to 244 percent of GDP from 247 percent of GDP in 2018 as banks continued to liquidate foreign portfolio investment and further reduce their loan exposure to non-residents. The real effective exchange rate (REER) remained broadly stable in 2019, yet staff’s analysis—which warrants caution given data weaknesses—points to an over-valuation.

Outlook and Risks

12. Banking sector weaknesses are projected to continue to weigh on the economy. Staff’s baseline assumes an unsustainable muddle-through scenario wherein banking sector vulnerabilities are not fully addressed, and financial and economic conditions gradually worsen. In this scenario, which also considers Italy’s weak growth outlook, GDP growth is projected to decelerate over the medium term to around 0.5 percent, primarily reflecting lower investment growth and weaker net exports.1 The current account is projected to remain broadly balanced, while inflation, which is largely driven by external prices, is set to slightly increase. Continued moderate capital outflows, including from the banking system, are projected to gradually drive CBSM’s reserves down.

San Marino: Macro Projections 2018–25

article image
Sources: IMF; International Financial Statistics; Sammarinese authorities; and IMF staff.

13. The outlook is clouded by significant downside risks (Risk Assessment Matrix, Annex III. Given the CBSM’s limited liquidity buffers, the key domestic risk is a resurgence of acute deposit outflows, which could increase liquidity pressures, disrupt the payment system, and undermine financial stability. An insufficient banking system restructuring would increase bank recovery costs over time, erode confidence, and further weaken financial intermediation with adverse growth implications. While households’ debt is low and their NPLs account for only 14 percent of total NPLs, lower growth and a higher unemployment rate would exacerbate their vulnerability with negative feedback effects to the banking system. A full bank bailout by the government and a slow fiscal consolidation would amplify the already high fiscal risks, increase debt service payments, and crowd-out important productive spending. Weaker-than-expected growth in key trading partners and wider spread of COVID-19 in San Marino and Italy would have adverse effects on growth prospects through reduced flows of trade and tourism and lower consumption and investment, as well as fiscal costs of response to the virus.

Authorities’ Views

14. The authorities broadly concurred with staff’s risk assessment and agreed that the current piecemeal approach to reforms is unsustainable. They shared staff’s view on the need for a comprehensive strategy to restore the banking sector viability and re-establish trust as well as to safeguard public finances. They stressed the recent progress in enhancing supervisory powers and highlighted that the ongoing efforts to develop a stabilization plan would support financial stability. They acknowledged the fiscal risks emanating from a slow fiscal consolidation and underscored their intent to carryout fiscal reforms to contain future increases in public debt. The authorities were confident that structural reforms aimed at improving external competitiveness will promote exports and growth. Following the spread of the COVID-19 in San Marino and Italy, they noted plans to provide temporary support to hard-hit sectors, as needed.

Policy Agenda

15. San Marino’s key challenges are to address banking sector vulnerabilities, safeguard public finances, and shift the economy to a high medium-term growth path. This requires a comprehensive strategy that restores banking system viability, including through upfront recapitalization and deep restructuring; reduces fiscal risks and ensures fiscal sustainability; and introduces structural reforms to strengthen the labor market as well as improve infrastructure and business climate.

A. Repairing the Banking System and Safeguarding Financial Stability

Addressing Capital Shortfalls and Improving Liquidity

16. Addressing banks’ capital shortfalls is critical to enhance their resilience to shocks and improve confidence. The following measures should be implemented in sequence:

  • Upfront loss-recognition following a fresh AQR. A new prudent AQR and solvency stress test should be carried out to quantify bank cleanup costs using loan classification and loss estimation that are consistent with international standards. Regulatory forbearance, including on capital calculations, should be avoided and laws that allow spreading losses over time be repealed.

  • Consolidation through resolution. The CBSM should intervene in banks that fail to deliver a credible capital management plan. To restore viability and efficiency, resolved banks need to be consolidated by transferring the good assets into a bridge bank while leaving the non-core assets behind in a liquidation entity.

  • Recapitalization with burden sharing. Given limited fiscal space, banks’ recapitalization should involve burden sharing with a wider coverage than in the current bank resolution law. Only systemically-important and viable banks should receive restricted public support following agreement on a restructuring plan.

17. Increasing banking system liquidity and preserving CBSM liquidity buffers are critical to safeguard financial stability. Priority should be given to aligning the ELA framework with international best practice, including by restricting it to fully-collateralized loans to solvent banks, contingent on credible plans to repay loans at maturity. Limiting CBSM’s budget financing to only exceptional needs and on a temporary basis is also essential. Attracting bank ownership participation by reputable banking groups and selling NPLs and banks’ real estate assets portfolios to strategic investors would also support liquidity in the system.

Restoring Medium-Term Viability

18. San Marino’s banking system requires deep restructuring to increase efficiency and restore profitability. The CBSM is currently reviewing banks’ industrial plans to ensure that they contain credible measures to return to profitability. Priority should be given to reducing banks’ high operating costs, including by rationalizing the oversized branch network and staffing levels, and increasing the share of income-generating assets, including through addressing CRSM’s legacy losses and converting banking system tax credits into coupon-bearing assets (e.g. government bonds). The law that allows the volume of tax credits to increase as recoveries from NPLs of failed banks decline should be repealed as it introduces moral hazard and increases fiscal costs over time. Continued CBSM ownership of the newly-created BNS presents a significant conflict of interest and poses risks to CBSM’s financial autonomy. Furthermore, BNS is currently unviable as a bank given that most of its assets do not generate income, thus its banking license needs to be quickly revoked, as currently envisaged.

19. Accelerating NPL resolution would also support these efforts. A speedy resolution of NPLs would reduce the significant burden on banks and, over the medium term, free up resources for new lending. The recent liberalization of the real estate market, removal of the cap on tax deductibility for loan-loss provisions, and the CBSM’s ongoing efforts to set strict supervisory requirements on the adequacy of loan-loss provisioning, timeliness of write-offs, and development of decisive NPL reduction strategies are steps in the right direction. Streamlining the judicial processes with a view to expediting insolvency and enforcement procedures is also a priority.

20. Plans to establish an AMC to tackle banking system NPLs should be carefully considered given the potential risks involved (Box 3). The authorities are considering establishing a centralized vehicle for NPL resolution, possibly by transforming BNS into an AMC. While the final modalities of the AMC are still being discussed with key stakeholders, the new entity is expected to manage and recover banking system NPLs that will be purchased—through a state-owned special purpose vehicle—at net book value, partly by issuing state-guaranteed senior bonds to foreign institutional investors. As not all the banks expressed an intention to offload the entirety of their NPLs to the vehicle, the effectiveness of the AMC remains unclear. Furthermore, sufficient write-downs on the NPLs by banks, preferably through a new AQR, and an application of a market-based transfer pricing are needed to reduce risks to public finances and delayed recognition of bank losses, while strong governance structure and a sunset clause for the AMC operations are critical to limit political interference and facilitate a speedy NPL recovery. In addition, the operating cost structure of the AMC, including managing servicing fee and interest payments to senior bonds, should be carefully weighed against their benefits as higher operating cost would inevitably reduce final payouts to banks. Involving foreign special servicers with the needed expertise and efficiency would help attract foreign NPL investors.

The Proposed Asset Management Company (AMC)

The authorities are considering transforming BNS into an AMC to tackle the system-wide NPLs. While the timeline and final modalities are still under discussion, the key elements of the proposed AMC are:

• Governance: A Special Purpose Vehcile (SPV) that will be established for the securitization of the NPLs is assumed to be fully state-owned and managed locally by a Board of Directors appointed by the parliament. The AMC/BNS will be owned by local banks and tasked to manage and recover NPLs, potentially in partnership with a reputable foreign servicer.

• Funding: The SPV will be established to purchase NPLs from banks. The SPV will issue state-guaranteed senior bonds to foreign investors for funding.

• Transfer pricing: The transfer of the

NPLs will be at their net book value (NBV). The price will be paid to orginator banks partly by cash, received from the subscribers of the senior bonds, and partly by issuing junior bonds to the originating banks. A part of the cash will be kept in an escrow account, and be paid to the originator banks only at the expiration of the senior bonds.

• Risk sharing hierarchy: Cashflows of every individual NPL will be tracked and losses related to NPL recovery will be absorbed in the first instance by the junior bonds held by banks that sold the particular loss-making NPLs, and—if insufficient—by the reserves of the bank held in the escrow accounts, with potential additional contributions requested from the banks. The state is assumed to be the final backstop in case these measures are not sufficient to repay the senior bonds.

Source: Central Bank of San Marino.

Strengthening Bank Oversight and Reducing Risks

21. Enhancing banking sector oversight and governance would help reduce financial stability risks. Steps are needed to enhance the CBSM’s crisis response capacity, including by overhauling lender-of-last-resort facilities and strengthening contingency plans. Moreover, financial sector regulators and supervisors, including for anti-money laundering (AML) and countering the financing of terrorism (CFT), need adequate resources and sufficient powers to monitor systemic risks, carry out regular bank inspections, and promote compliance with regulations. Plans to adopt a “Fit and Proper” regulation in the coming weeks would improve banks’ corporate governance.

22. Strengthening CBSM’ independence, decision-making structure, and resources is needed to support these efforts. Priority should be given to reviewing the CBSM law with a view of clarifying its mandate and responsibilities of decision-making bodies, as well as strengthening its institutional and financial independence, including by setting limits on government financing. Applying stronger eligibility and dismissal criteria to Governing Council members, enhancing their autonomy, and allocating more resources to supervisory activities are also critical.

23. Continuous efforts are needed to mitigate financial integrity risks. The authorities are continuing efforts to enhance financial integrity framework, including through conducting a second National Risk Assessment, rolling out AML/CFT inspections to designated non-financial professions and businesses as required under the Financial Action Task Force (FATF), legislating to address implementation of the targeted financial sanctions, and expanding corporate governance guidelines which include the voluntary establishment of AML committees by reporting entities. Concurrently, they are preparing for the Moneyval on-site visit, which will focus both on technical compliance and AML/CFT effectiveness. The authorities’ risk-based supervision and inspection ultimately resulted in sizable seizure and confiscation of assets. However, allocating more human and financial resources to Financial Intelligence Agency and enhancing banks’ customer due diligence and suspicious transaction reporting would support further reduction of financial integrity risks.

Authorities’ Views

24. The authorities agreed that addressing vulnerability of the banking system is an utmost priority. They realized that a comprehensive strategy that includes bank recapitalization and restoration of profitability is critically needed and committed to developing such a strategy as soon as possible. The authorities underlined their ongoing efforts to enhance bank oversight, including by requiring banks to make an upfront capital deduction of the 2017 AQR findings and submit plausible business plans to return to profitability. The CBSM also stressed recent improvement of its liquidity position while agreeing that there is scope for further enhancing its liquidity buffers. The authorities expressed the importance of advancing the plan for establishing an AMC to remove and manage NPLs that are plaguing bank balance sheets. They committed to further strengthen the AML/CFT framework by developing an action plan that is based on the second national risk assessment.

B. Putting the Public Finances on a Sustainable Path

25. The 2020 budget deficit is set to widen significantly. The 2020 budget targets a deficit of 1.2 percent of GDP, excluding CRSM recapitalization for its 2019 loss and a partial repayment of pension fund deposits following BCIS’ resolution. Considering these factors, and applying a more conservative revenue projection, staff project the 2020 fiscal deficit to double relative to the 2019 level and stand at 5 percent of GDP. With government’s low liquidity buffers, the financing of the deficit will be challenging, especially given the heavy reliance on the domestic market.

San Marino: Fiscal Projections, 2018–25

article image
Source: IMF staff.

Official public debt plus tax credits, CRSM legacy losses, and commitments related to BCIS resolution.

Medium-Term Fiscal Sustainability

26. Ensuring fiscal sustainability requires an ambitious adjustment strategy that is supported by burden sharing. An upfront loss-recognition and a full bank recapitalization by the state would increase public debt to about 87 percent of GDP in 2020, which would substantially increase financing risks given San Marino’s lack of market access, low revenue base, and weak debt management capacity (Annex VI). Staff consider public debt of about 50 percent of GDP and government deposits covering at least two months of spending as adequate medium-term fiscal anchors that can be achieved by limiting state contributions to bank recapitalization and applying a frontloaded fiscal adjustment that would be sustained over the medium term. Specifically, staff consider increasing the primary fiscal surplus, net of bank support, to 2.5 percent of GDP from 0.3 percent of GDP in 2019 as a feasible adjustment that can be supported by both revenue and expenditure measures:2

  • Revenue: Replacing the single-stage import tax with a VAT would support revenue mobilization, provided it is designed with sufficiently-high rates and limited exemptions and is implemented on a timeline that is consistent with the tax administration capacity.3 Reforming the regressive consumption allowance and repealing the discounts on petroleum products and other wasteful rebates should also play a pivotal role in broadening the tax base and boosting revenue.

  • Expenditure: The pension system is unsustainable and its annual deficit, currently at 2.5 percent of GDP, is projected to rapidly increase over the medium term on account of a rising old-age dependency ratio, thus further draining government resources and significantly reducing the pension funds’ liquid assets.4 Reforming the pension system by delaying retirement age, increasing contribution rates, and rationalizing existing benefits is urgently needed to reduce its systemic imbalance over time. Increasing spending efficiency by conducting spending reviews across public sector units and reforming the social safety-nets could yield further savings.

Proposed Fiscal Adjustment Relative to 2019 1/

article image

In net terms, cumulative

Net of the impact of automatic stabilizers

Estimated Pension Fund Deficit and Financing

(percent of GDP)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities and IMF staff.

Tax Revenue, 2018

(Percent of GDP)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Public Financial Management (PFM) Reforms

27. The authorities’ plan to modernize their PFM framework and diversify financing options is welcome. The draft PFM law, which is currently discussed with key stakeholders, includes measures to unify and align public sector accounting framework to international standards while enhancing budget planning, management, reporting, and controls. The government is also considering diversifying financing sources to reduce its reliance on domestic investors and increase system-wide liquidity. To reduce fiscal risks, the government strategy to broaden financing sources should take into account debt sustainability and cost-risk considerations and be accompanied by development of debt and cash management capacity and a broad fiscal strategy. Given the limited resources, careful prioritization is needed.

Authorities’ Views

28. The authorities agreed that fiscal reforms should complement banking system restructuring to achieve public debt sustainability. They agreed that both revenue and expenditure measures should contribute to fiscal consolidation. While supporting the introduction of the VAT, they noted the limited tax administration capacity as well as the need for a careful evaluation of its economic impact and considered implementation at mid-legislature as a realistic timeline. They also stressed that due to the structure of the Sammarinese economy, the VAT might not raise additional significant revenue, and saw scope to also reform the direct taxation system, including by rationalizing tax incentives. Additionally, they noted their intent to introduce e-invoicing to boost tax collection. The authorities recognized that a pension reform is critical for fiscal consolidation given that the structural deficit of the pension fund is set to widen and noted that the dialogue with social parties has already started, though the final modalities have yet to be defined. They also argued that the planned public accounting reform would strengthen controls and increase digitalization of public sector services, thus increasing spending efficiency and reducing operating costs. While the system of social security has served the country well, the authorities saw scope to improve targeting of specific benefits and allow private sector participation in the provision of health services. Lastly, the authorities noted that tapping external markets would support liquidity and enhance their resilience to shocks.

C. Promoting Sustainable Growth

29. Structural reforms would strengthen external competitiveness, improve productivity, and promote sustained economic growth. Attention should be given to:

  • Labor market. While labor markets have been partially liberalized, there are still lingering distortions, which hinder job search, prevent efficient allocation of labor, and undermine labor productivity growth (Annex IV). Further relaxing hiring processes, including of nonresidents, revisiting the supplemental wage for temporary layoffs, and rationalizing the duration of unemployment benefits would promote job seeking and unlock resources for high-productivity sectors. As finding of well-trained workforce is seen by many firms as a key challenge, revamping vocational training programs would help mitigate the skill mismatch and reduce the unemployment rate.

  • Business climate. San Marino’ ranking (92 out of 190) in the World Bank’s Doing Business is lagging many of its EU peers. While the authorities have advanced computerization, instituted self-certification, and reduced the number of permits required for certain procedures, further efforts are needed to support business environment, including in areas of starting a business, obtaining construction permits, protecting minority investors, and speeding up contract enforcement.

  • Economic integration. Sustained efforts are needed to increase economic integration and expand market access, including by concluding the EU association agreement, which is expected to simplify procedures for domestic exporting firms. Investment in infrastructure, particularly in the areas of telecommunication and transportation, remains essential to allow firms to expand into higher value-added sectors.

Real Labor Productivity, 2008 vs. 2018

(Per Person Employed, Index, 2008=100)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Eurostat and IMF staff.

Ranking for Doing Business

(Scale: Rank 190 center, rank 1 outer edge)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: World Bank, Doing Business.

Authorities’ Views

30. The authorities broadly concurred with the importance of addressing structural bottlenecks to promote sustainable growth. They agreed that skill mismatch is a critical structural issue and expressed their intension to provide better trainings to residents, including by enhancing cooperation between universities and industries. They also emphasized the importance of attracting foreign investment and stressed their commitment to address infrastructure gaps and improve the ease of doing business, including through reducing red tape, expediting judicial processes, and streamlining regulations. The authorities reiterated their plans to conclude the Association Agreement with the EU, while also strengthening the relationship with Italy to further advance economic integration. Encouraged by recent positive trends in tourism, they are working to promote San Marino as an attractive tourism destination and are exploring ways to upgrade accommodations as well as hosting cultural events and conferences in partnership with the private sector.

Data

31. Data reporting and provision have improved but more needs to be done. In 2018, the authorities started to produce balance of payment and IIP statistics annually and are making efforts to improve data dissemination, including by implementing the recommendations of the IMF’s Enhanced General Data Dissemination System (e-GDDS) and publishing critical data through the National Summary Data Page in January 2020. While data provision is broadly adequate for surveillance, further steps to improve data quality, coverage, and reporting frequency, including by providing greater resources to the Statistical Office, would support policy-making process.

Staff Appraisal

32. Banking sector weaknesses continue to pose stability risks and hinder economic recovery. Significant deposit outflows and weak risk management have left the banking system with low liquidity, poor asset quality, and considerable recapitalization needs, while multiple bank failures and continued state support to the banking system have eroded government liquidity buffers and led to an excessive and unsustainable accumulation of the implicit public debt. Absent a significant policy change, growth prospects are projected to remain subdued over the medium term with risks heavily tilted to the downside. The recent outbreak of COVID-19 in San Marino and Italy has significantly increased uncertainty. The external position is weaker than implied by fundamentals and desirable policy setting.

33. A comprehensive and credible stabilization plan is urgently needed. Shifting the economy to a higher medium-term growth path requires implementation of a coherent and credible strategy that restores banking system viability, ensures fiscal sustainability, and addresses structural impediments. The recent general elections and establishment of a four-party coalition government provides an opportunity to build a broad consensus for the necessary reforms.

34. Sustained efforts are needed to increase banking system liquidity and boost CBSM reserves. The CBSM should further enhance its liquidity management, including by aligning the ELA framework with international best practice, and restrict budget financing to only exceptional needs and on a temporary basis. Attracting bank ownership participation by reputable banking groups and selling non-performing loans (NPLs) and banks’ real estate portfolios to strategic investors would also support liquidity in the system.

35. A deep banking system restructuring is critical to restore its profitability and sustainability. Banks’ capital shortfalls should be promptly addressed, following a fresh asset quality review and upfront loss-recognition while laws that allow banks to spread losses over time should be repealed. The CBSM should quickly intervene in undercapitalized banks that fail to raise capital while state support should be provided only to systemically-important and viable banks, following burden sharing. Reducing banks’ high operating costs by rationalizing the oversized branch network and staffing levels, and increasing the share of income-generating assets, including by converting the tax credits into coupon-bearing assets, would improve their profitability. Accelerating NPL resolution by strengthening supervisory oversight and streamlining judicial procedures should support these efforts. Plans to establish an AMC should be carefully considered to avoid potential risks to public finances and delayed recognition of bank losses.

36. Strengthening the CBSM institutional framework and mitigating financial integrity risks would support financial stability. Bank supervisors need adequate resources and sufficient powers to monitor systemic risks, carry out frequent bank inspections, and promote compliance with regulations. Reviewing the CBSM law with a view to enhance its institutional and financial independence would increase its effectiveness as a supervisory authority. Continued efforts to strengthen the anti-money laundering framework, including in the context of the ongoing preparations of the second National Risk Assessment and Moneyval review, are welcome.

37. Undertaking a credible and ambitious fiscal consolidation and restricting state support to the banking system would safeguard public finances. Putting public debt on a downward and sustainable path requires an implementation of VAT and pension reforms along with measures to rationalize the tax exemptions, better target social benefits, and increase spending efficiency. Limiting state contributions to bank recapitalization is also necessary. The government’s plan to access external markets and increase liquidity should take into account debt sustainability considerations and be accompanied by development of debt and cash management capacity.

38. Steps to remove supply-side bottlenecks and increase economic integration would promote sustained growth. Addressing the lingering distortions in the labor market and mitigating the skill mismatch are necessary to promote job seeking and efficient allocation of labor while improving the business climate and closing the infrastructure gaps would help attract foreign investment, boost productivity, and increase external competitiveness. Concluding the association agreement with the EU would simplify procedures for domestic firms and support their expansion into new markets.

39. Efforts to improve data reporting and provision should continue. San Marino’s adherence to the IMF’s e-GDDS is an important step in improving data dissemination. Further steps to improve data quality, coverage, and reporting frequency, including by allocating additional resources to the Statistical Office, would support policy-making process.

40. Staff propose that the next Article IV consultation with the Republic of San Marino follows a standard 12-month cycle.

Figure 1.
Figure 1.

San Marino: Macroeconomic Developments

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: World Economic Outlook, Sammarinese authorities, and IMF staff.
Figure 2.
Figure 2.

San Marino: High Frequency Indicators

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: Sammarinese authorities and IMF staff.
Figure 3.
Figure 3.

San Marino: Fiscal Developments

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: Sammarinese authorities and IMF staff.
Figure 4.
Figure 4.

San Marino: Financial Sector

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: Sammarinese authorities and IMF staff.
Table 1.

San Marino: Selected Economic and Social Indicators, 2017–25

article image
Sources: International Financial Statistics; IMF Financial Soundness Indicators; Sammarinese authorities; World Bank; and IMF staff.

For the central government.

Official public debt plus tax credits, CRSM legacy losses, and commitments related to BCIS resolution.

2019 data are as of Sept 2019.

2017–19 data do not reflect 2017 AQR results. Latest NPL ratio and NPL coverage ratio are as of Nov 2019 and the others are as of Sept 2019.

CBSM supervisory data. Latest data reflect changes related to Banca CIS resolution. Supervisory data, as opposed to FSI data, reflect retrospective revisions made by banks in their annual financial statements. Loans and NPLs to banks are excluded in calculating each indicator.

Table 2a.

San Marino: Statement of Operations for Budgetary Central Government, 2017–25

(Millions of euros)

article image
Sources: Sammarinese authorities; and IMF staff.

Official public debt plus tax credits, CRSM legacy losses, and commitments related to BCIS resolution.

Table 2b.

San Marino: Statement of Operations for Budgetary Central Government, 2017–25

(Percent of GDP)

article image
Sources: Sammarinese authorities; and IMF staff.

Official public debt plus tax credits, CRSM legacy losses, and commitments related to BCIS resolution.

Table 3.

San Marino: Balance of Payments, 2017–25

(In millions of euros)

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Sources: San Marino Statistical Office and IMF staff.
Table 4.

San Marino: Financial Soundness Indicators, 2012–19

article image
Sources: Sammarinese authorities; IMF International Financial Statistics; and IMF staff.

2017–19 data do not reflect 2017 A QR results, whil e 2019 data reflect changes related to Banca CIS resolution

CBSM supervisory data. Latest data are as of Nov 2019. Supervisory data, as opposed to FSI data, reflect retrospective revisions made by banks in their annual financial statements. Loans and NPLs to banks are excluded in calculating each indicator.

Table 5.

San Marino: Depository Corporate Survey, 2012–19 1/

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Sources: International Financial Statistics and IMF Staff.

Data beginning in June 2015 accord to the IMF’s monetary and financial statistics methodology, and are not strictly comparable to earlier periods.

Annex I. Corporate Vulnerability in San Marino

1. The corporate sector in San Marino was hit hard by the prolonged economic contraction. San Marino experienced one of the deepest and longest recessions in Europe with an output loss of about one-third in the last decade. The number of firms has shrunk significantly by about one quarter compared with the 2008 level, reflecting firms’ liquidation rate of about 5 percent per annum. Domestic corporate NPLs increased sharply and remained elevated, especially in the service sector.

Domestic Credits and the Number of Firms

(millionsof euros)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammatinese authorities and IMF staff.

Domestic NPL Ratio by Sector

(2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities and IMF staff.

2. The corporate sector’s profitability is low and its debt burden is high. Firms’ net return on equity stands around 10 percent, among the lowest in the EU countries, suggesting that firms are still suffering from low profitability on average, partly owing to the anemic recovery of key trading partners1. The low profitability, together with firms’ high financial leverage ratio may indicate that firms face difficulties in servicing their debt.

Non-Financial Corporate Net Return on Equity

(Percent, 2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Net return on equity is calculated as net entrepreneurial income less current taxes on income and wealth divided by shares and other equity. Data of Bulgaria, Greece, Estonia, and Poland are as of 2017.Sources: Eurostat, Sammarinese authorities and IMF staff.

Financial Leverage

(2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Financial leverage is calculated as financial debts divided by net equity.Sources: Eurostat, Sammarinese authorities and IMF staff.

3. The service sector, in particular the food and accommodation sector, is facing significant challenges. With the exception of the wholesale sector, the service sector generally shows low profitability and high financial leverage. In particular, hotels and restaurants have continuously made losses while carrying the highest debt burden. This, together with the fact that the decline in the number of firms in hotel and restaurant sector (8 percent) is much smaller than the total (24 percent), may suggest that many firms in this sector are struggling to service their debt without exiting the market, contributing to banks’ slow NPL resolution.

ROE and Financial Leverage by Sector

(2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities and IMF staff.

4. The stress in the domestic banking sector has affected firms’ financing structure. Reflecting the gradual deleveraging process of Sammarinese banks, and the difficulties in securing cross-border financing from banks in other EU countries, surviving firms reduced their leverage while using other financing sources. In this context, many firms turned to internal resources as a source for investment, resulting in increasing share of shareholder loans and group company loans in total financial debt to 42 percent in 2017 compared with 36 percent in 2013.

5. Debt repayment capacity has recently improved but is still a source of concern. Firms’ ability to service debt has improved due to declining interest payments and accumulated liquidity assets. However, though it can partially be mitigated by sizable shareholder/group companies funding, their high reliance on short-term debt (60 percent of total financial debt), together with still elevated debt level, represents a significant repayment risk, particularly if banks will not be able to rollover existing loans due to ongoing liquidity pressure.

Corporate Sector Debt in San Marino

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Financial leverage is defined as financial debt per net capital. Internal financing include loans from shareholders and group companies.Sources: Sammarinese authorities and IMF staff.

Debt Servicing Capacity of the Corporate Sector in San Marino

(Percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Interest coverage ratio is calculated as earnings before interest and tax (EBIT) divided by interest expense. Debt service coverage ratio is calculated as EBITDA divided by debt service cost within on year (i.e. interest payment + short-term debt). Current ratio is current assets per current liabilities. Sources: Sammarinese authorities and IMF staff.

Annex II. External Sector Assessment and Reserve Adequacy for San Marino

A. External Sector Assessment

The external position of the Republic of San Marino in 2019 was weaker than implied by fundamentals and desirable policy settings. While significant data weaknesses call for caution, both the current account (CA) gap and real effective exchange rate (REER) Index models suggest an overvaluation, albeit with different magnitude.1 These findings, which largely reflect structural impediments, suggest that improving external competitiveness remains a key challenge for San Marino.

1. The 2019 current account is estimated to be broadly balanced while financial account outflows moderated. While data weaknesses call for caution, the 2019 current account balance is estimated to have shifted to a slight surplus of 0.7 percent of GDP from a deficit of 1.6 percent in 2018, largely due to an improvement in the income balance. Gross international reserves are estimated to have increased to €416 million at end-2019 from €249 million in 2018, largely reflecting the divestment of CBSM’s illiquid securities, and a shift of the pension fund bank deposits into the CBSM. Preliminary estimates suggest that the net IIP remained high, although moderating to 244 percent of GDP in 2019 from 247 percent of GDP in 2018 due to continued liquidation of foreign portfolio investments by banks as well as a sustained decline—though at a slower pace—in domestic banks’ loans to nonresidents.

Exports: Contribution to Growth

(Percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Imports: Contribution to Growth

(Percent)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

2. San Marino’s market share declined considerably in recent years. The country lost about two-thirds of its world export market share compared to the pre-crisis period due to a weak recovery in Italy, which contributed to a significant reduction in exports of goods, including manufacturing. The loss in export market share occurred simultaneously with a prolonged appreciation of the REER due to a persistent and widening positive inflation differential vis-à-vis Italy. This, along with other structural impediments, suggests that improving competitiveness remains a key challenge for San Marino. Indeed, in recent years labor productivity declined and unit labor costs increased significantly compared to that in neighboring Italian regions. Moreover, San Marino continues to lag its peers on regulations for starting a business, enforcing contracts and resolving insolvency, protecting minority investors and dealing with construction permits.

CPI-Based REER and Export Market Share

(Index Jan. 2007=100; increase is appreciation)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Haver, IFS, San Marino authorities and IMF staff.

Ranking for Doing Business

(Scale: Rank 190 center, rank 1 outer edge)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: World Bank, Doing Business.

GDP per Employed

(1997=100)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities, Italian authities, and IMF staff.

Unit Labor Cost

(1997=100)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: Sammarinese authorities, Italian authities, and IMF staff.

3. Both the current account (CA) and REER index models point to an REER overvaluation, although the models’ fit for San Marino is poor.

  • Current account (CA) approach: Based on the revised EBA-lite approach, the estimated 2019 CA norm and the implied REER gap, stood at about 11 percent and 9 percent of GDP, respectively. The high CA norm and large REER overvaluation primarily reflect the relatively high net foreign asset position2 of the economy relative to its key trading partners, yet these estimates, which suggests that the policy gap is relatively small, should be taken with caution given the model’s poor fit for San Marino, and data weaknesses, which limit the ability to assess the REER elasticity with high confidence.

  • REER index model: Consistent with the CA gap approach, the REER appears to be overvalued by about 11 percent, suggesting that the REER is stronger than implied by fundamentals. However, the REER deviation from its equilibrium is not explained by a policy gap and mostly reflects large residuals (8 percent).

San Marino: External Balance Assessment, 2019

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4. Staff judge San Marino’s external position as weaker than implied by fundamentals and desirable policy settings. Staff cannot exclusively rely on the two EBA-Lite approaches given their poor fit for San Marino and the persistence of significant data weaknesses. Nonetheless, given the strong need for fiscal consolidation, reserves accumulation (see below), and burden sharing for bank recapitalization, staff view the REER as overvalued and the external position as weaker than implied by fundamentals and desirable policy settings. This assessment is also supported by the recent erosion of external competitiveness and the significant reduction of exports’ market share.

B. Reserve Adequacy for San Marino

5. San Marino’s system-wide liquidity buffers have declined considerably in recent years. The aggregate liquidity buffers—comprised of international reserves and the decentralized liquidity buffer held by commercial banks outside the CBSM—have fallen sharply in 2015–17 on the back of significant deposits outflows, withdrawal of government deposits, and CBSM liquidity support to the banking system and the government. Overall liquidity has improved since end-2018, but still stood around 60 percent of the liquidity buffers in 2014.3

6. Some standard metrics still indicate that international reserves are below levels that are considered as adequate.4 While the ratio of reserves to broad money and the ratio of reserves to short-term external debt suggest that San Marino’s international reserves are at comfortable levels, the imports coverage ratio indicates that international reserves are insufficient. Moreover, the Fund’s ARA EM metric—a composite metric designed to better capture a range of capital outflow risks—shows that the international reserves amount to 71 percent of the metric, below the range which is generally considered to be adequate (100–150 percent).

Liquidity Buffers

(millions of euros)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: CBSM, MoF and IMF staff.Note: Decentralized liquidity buffer includes cash, deposits and loans available within 7 days, and securities that can be readily converted to cash but does not include deposits at CBSM and Sammarinese banks.

Reserve Coverage Metrics

(as of end 2019)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: ARA EM metric is defined as 10% of exports of goods and services, 30% of non-resident sight deposits, 20% of other liabilities to non-residents, and 10% of broad money. 2019 import/export is an esimate. Broad Money and other liablity data are as of Sept-2019.Sources: CBSM, IMF Monetary and Financial Statistics, and IMF staff.

7. San Marino’s reserve needs metric, which consider liquidity risks in the banking system and the public sector, shows an improvement, yet international reserves are below “safe” levels.5 As a fully euroized economy that does not have access to external markets, San Marino’s international reserves play a critical role as a buffer against shocks. Staff’s developed metric, which takes into account system-wide liquidity risks, suggests that the reserve gap is estimated to have declined to 8 percent (i.e. €34 million) at end-2019 from 28 percent at end-2018, mainly owing to termination of credit lines to banks and divestments of illiquid securities. Despite recent improvements, the CBSM may need to hold a higher buffer than the minimum level if further liquidity support to banks and the government becomes likely.

GIR Coverage and Banking Sector Liquidity

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Reserve coverage is defined as gorss international reserves as a share of the reserve needs. The latter is the sum of (1) reserve requirements, (2) sight deposits (excl. the government deposits), (3) fiscal buffer, and (4) credit lines (expected loans) to banks and the government.Sources: CBSM and IMF staff calculations.

Reserve Needs

(millions of euros, end-2019)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: Demand deposits of public institutions exclude the government deposits at the CBSM for liquidity buffer purpose.Sources: CBSM, IMF Monetary and Financial Statistics, and IMF staff.

Annex III. Risk Assessment Matrix1

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Annex IV. Social Benefits and Labor Market Outcomes

Recent Developments in the Labor Market

1. San Marino’s economy is recovering from a deep economic contraction. Since the global financial crisis, the country has lost more than 30 percent of its output, resulting in a steady and persistent increase in unemployment from about 4 percent to a peak of 9 percent in 2015. Although in recent years the unemployment rate has somewhat stabilized to about 8 percent, it remains elevated and above those in neighboring regions.1 A similar trend was observed among the youth, whose unemployment rate tripled during the crisis and has only modestly recovered in the recent period.

Unemployment Rates

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS, ISTAT.

Youth Unemployment Rates

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

2. The crisis has led to a reallocation of workforce in the economy. Since 2008, the overall level of employment (excluding self-employment) has declined by 4 percent2 At the sectoral level, the largest decline has been observed in construction (40 percent), finance (26 percent), public enterprises (12 percent) and public administration (9 percent). The financial sector is likely to face further downsizing over the next years, due to the need to regain profitability, while the public sector employment remains constrained by a significant erosion of the fiscal space and the need for fiscal consolidation.3 Manufacturing, on the other hand, continues to be the economy’s largest employer. Additionally, sectors like transport, commerce, accommodation and food services and especially other professional services have become more relevant in the economy, accounting for more than 40 percent of total employment, compared to 30 percent in 2002.

Employment by Sector

Cumlative Change (2018–2008)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Note: The figures exclude self-employment.Sources: UPECEDS, IMF staff elaborations.

Employment by Sector

Share of total (2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

3. The shift in the sectoral composition of the workforce has been supported by inflows of cross-border workers. The share of cross-border workers (predominantly employees from neighboring Italian regions) in total employment has increased steadily over the years, reaching 30 percent in 2008. Since 2017, employment growth has been for the most part driven by the hiring of cross-border workers, a process facilitated by the partial liberalization of the labor markets introduced with the 2017 “Development Law” (Box AIV.1).

Employment Growth and Contribution by Residency of Workers

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS and IMF staff.

4. Cross-border workers remain more predominantly employed in lower paying economic sectors. Over the years, Sammarinese workers have been predominantly employed in high paying sectors such as the financial sector and public administration. On the other hand, cross-border workers are more prevalent in lower paying sectors, like manufacturing, construction, commerce, accommodation and food service. The average salary in the public sector is about 30 percent higher than that of an average private sector employee, while in the finance sector the average wage is 80 percent higher.4 While these wage differentials can be partly explained by higher education of the workforce, as in the case of the public sector, it has been argued that such differentials create incentives for people to remain unemployed (Box AIV.2).5,6

Cross-border Workers by Sector

Share of Total, 2018

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS and IMF staff.

Cross-Borders Workers and the 2017 “Development Law”

The hiring process in San Marino is centralized, managed by both the Labor Office and the Office for Active Labor Market Policies. Ajob seeker needs to be registered on the centralized employment registry, which provides a prospective employer information about education level, skills, and targeted sector of the job seekers. Job seekers on this list are ranked according to their needs (family size, and length of unemployment) and their qualifications. In the previous regime, the matching between supply and demand for labor was done by the Labor Office, which provided prospective employers candidates based on their ranking on the list. Only after it was concluded that all the interviewed candidates were not qualified for the jobs, employers could search openly, either among people already employed, or among cross-border workers, subject to approval from the Labor Office. The “Development Law”—adopted in 2017—has partly liberalized this process. Employers can now choose between two channels for hiring. They can follow the old regime and recruit from the employment registry, or they can hire directly cross border workers, by paying a surcharge (4.5 percent additional contribution rate, earmarked to finance the Office for Active Labor Market Policies). Another important aspect of the Development law has been the equalization of status between cross-border workers and people on the employment registry. Since September 2017, cross-border workers can also be hired with open-ended contracts, a feature which in the old regime was allowed only after the workers had been employed for at least seven years.

Cross Border Employment Growth and Sectoral Contributions

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS and IMF staff.

8. Recent surveys suggest that firms look for qualified candidates abroad because of a skills gap. While some domestic workers might be unwilling to fill jobs in lower-paying sector, some firms, particularly in the manufacturing sector, face the emergence of a skill gap. According to the survey on employers’ occupational needs, performed by the Ufficio per le Politiche Attive del Lavoro (UPAL), about one in two firms reported difficulties in finding qualified local candidates in 2017, largely due to unavailability of the needed skills. Following the adoption of the Development law, the situation has somewhat eased, yet remained prominent, as one in four firms lamented difficulties in hiring. In San Marino the skill shortage seems to be more acute among firms that look for skilled industrial and construction trades workers. Firms in services sectors also have difficulties in hiring candidates and look abroad for workers with marketing, accounting and sales experience— profiles which are not readily available in San Marino.

Firms Facing Hiring Challenges

(share of respondents)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPAL

Hiring Difficulties Experienced Due to Lack of:

(share of respondents, 2018)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Measuring Unemployment Rates

The Statistical Office of San Marino (UPECEDS) publishes two series of unemployment rates. The first series, the “overall” unemployment rate, considers as unemployed those people registered on the employment list. The second series, called the “narrow” unemployment rate, excludes from the calculation those people who are seeking either a fixed term or part-time employment. The UPECEDS does not consider this group of people “immediately” employable, as they are not willing to accept any job. Therefore, they consider the narrow definition as the true rate of unemployment. The difference between these two series is constant throughout the years and did not increase significantly after the crisis. This group of “voluntary” unemployed people are predominantly women (85 percent).

San Marino: Unemployment Rate

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS.

Options for Reforms

9. Promoting growth remains key for employment creation. As the economy is going through a structural transformation, it is important to support firms’ demand for labor. The centralized hiring process imposed significant cost for firms, and the recent decision to allow them to directly search the employment registry without the intermediation of the labor office is a step in the right direction. However, reforms that further streamline the hiring process will, over time, reduce the search costs for firms and speed up job creation. The surcharge on direct hiring of cross-border workers should be discontinued, as it impacts negatively on firms’ ability to expand their activity, especially those facing skills gap in the domestic market. Reducing unemployment and addressing the skills gap requires interventions that affect incentives on both the supply and demand of labor.

Oku n’s Law

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: IMF staff.

7. Labor market policies should strive to reduce the incidence of frictional unemployment. The existence of frictional unemployment (Box AIV.2), can be addressed through several initiatives. First, a better understanding of the profiles of the workforce registered on the employment list is needed; second, lowering the hourly wage differentials between the private and public sectors can strengthen labor market participation. At the same time, it can improve productivity in the economy by ensuring that a higher educated workforce is also employed in the public sector.

Share of Workforce by Level of Education

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: UPECEDS.

8. Addressing the skills gap will require investment in training and education. San Marino has two centers in charge of Active Labor Market Policies (ALMP), the UPAL, overseeing tasks such as job placement services and counseling, and the Centro per la Formazione Professionale (CFP) which oversees training. San Marino also provides tax incentives for firms that expand their workforce by hiring through the employment list, and for hiring disadvantaged workers.7 The international evidence shows that such schemes can be costly to run, while the evidence on their effectiveness is mixed.8 For a country in need of fiscal consolidation like San Marino, it is important to subject ALMP to rigorous cost-benefit analysis and continuously monitor their supposed impact. As an example, providing tax incentives to hire workers on the employment list appears wasteful. To improve employability, it can be more effective to bolster existing incentives for training at the firm level. Going forward, to increase the level of competencies and skills of the local workforce, the UPAL can play a coordinating role between firms, schools, and universities to better match labor demand and supply.

9. The social protection system can be rationalized to promote job search. San Marino provides different type of financial support for the unemployed. The cost of unemployment benefits remains relatively contained in percent of GDP, similar to those in other countries, also in terms of generosity.9 Nonetheless, attention should be given to:

  • Wage supplementation system (CIG). This financial assistance, which is meant to be provided only for temporary shocks, is also used for prolonged economic downturn and corporate restructuring, thereby suppressing unemployment figures. This system may prevent de facto reallocation and reorganization of labor during downsizing and structural changes. In such cases, consideration should be given to provide workers with a standard unemployment benefit, conditioned on active job search and training.

  • Duration of unemployment benefits. The maximum duration of the unemployment benefits is 24 months, even for those that only worked for 6 months continuously. Linking the duration of unemployment benefits to employment period will reduce abuse and support more active job search.10

Sources: OECD, UPECEDS, Institute for Social Security, Eurostat, UPAL.1/ For San Marino, spending on labor market services and training is indicative, as it is the total budget allocated to OALMP, thus likely an over-estimate the actual spending on ALMP.

Annex V. Implementation of Past IMF Recommendations

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Annex VI. Debt Sustainability Analysis

Recent bank interventions have increased the implicit public debt to unsustainable levels. Staff’s baseline scenario, which incorporates the government’s excessive commitments to banking system and the pension funds, indicates that public debt increased to 85.8 percent of GDP in 2019 from 78.8 percent of GDP in the previous year mainly due to the recent bailout of BCIS. In the absence of durable fiscal adjustment and in the face of subdued growth prospects, the implicit public debt is projected to climb to 97.1 at the end of the forecast horizon. These levels, which are unsustainable for San Marino given its lack of market access and limited domestic financing sources, underscore the urgent need for an ambitious fiscal consolidation, stronger public debt management, and private sector contributions to banking system recapitalization. While data weaknesses call for caution, persistent capital outflows are projected to set the external debt, which is estimated at 67 percent of GDP in 2019, on a downward trajectory over the medium term.

1. Public debt, adjusted to include government’s commitments to the banking sector and the pension funds, increased further in 2019. Public debt increased in 2019 to 85.8 percent of GDP from 78.8 percent of GDP in 2018, mainly owing to the recent BCIS bailout. Going forward, public debt is projected to increase further to 97.1 percent of GDP by 2025 on the back of persistent fiscal deficits and weak growth (Figure AVI.1). The 2020 gross financing needs are projected to increase significantly to about 10.6 percent of GDP from 3.7 percent in 2019 due to a larger fiscal deficit and the repayment of a government loan from the CBSM,1 and—while declining in 2021— they are projected to remain on an upward path throughout the projection period and reach 11.9 percent of GDP in 2025, partly due to re-current state recapitalization of CRSM, which will facilitate a gradual recognition of public debt and thus increase interest payments.

Figure AVI.1.
Figure AVI.1.

San Marino: Public Sector Debt Sustainability Analysis (DSA)—Baseline Scenario

(In percent of GDP unless otherwise indicated)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.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.

2. The unsustainable level of implicit public debt calls for an ambitious fiscal adjustment and a restricted public sector contribution to bank recapitalization. The elevated public gross financing needs pose significant financing risks, given the lack of market access, limited domestic financing sources, and weak debt management capacity. Adverse economic conditions will further amplify these risks (see adverse scenarios below and Figure AVI.3). This underscore the urgent need for an ambitious and durable fiscal consolidation, stronger public debt management capacity, and careful design of a banking sector recapitalization strategy to limit future incurrences of public debt.

Figure AVI.2.
Figure AVI.2.

San Marino: Public DSA—Composition of Public Debt and Alternate Scenarios

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: IMF staff.
Figure AVI.3.
Figure AVI.3.

San Marino: Public DSA—Stress Tests

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: IMF staff.

3. The sustainability of public debt is assessed via several adverse scenarios. The analysis suggests that public debt remains highly vulnerable to negative shocks to GDP growth, the materialization of contingent liabilities, and a set of combined macro-fiscal shocks. In particular:

  • Real growth shock. Real GDP growth rate is assumed to decline by one-standard deviation below the baseline during 2021–22. Under this scenario, the public debt ratio would increase to 101.4 percent of GDP by 2022, and to 107.5 percent of GDP by 2025.

  • Primary balance shock. The primary balance is assumed to decline by half of its standard deviation in both 2021–22. The public debt is expected to increase to 100 percent of GDP by 2025.

  • Real interest rate shock. The interest rate is expected to increase by 300 basis points by 2021. Under this scenario, public debt is projected to increase to 99 percent of GDP by 2025.

  • Combined macro-fiscal shock. Under this scenario, which is a combination of the above shocks, the public debt will reach 104 percent of GDP by 2022, and then gradually increase to 112 percent of GDP by 2025.

  • Contingent liability customized shock. This scenario envisages new intervention in the banking sector, equal to 10 percent of GDP. This shock is accompanied by an interest rate increase of 50 basis points, and a real growth shock as the one above (growth declining by one standard deviation in 2021–22). Under this scenario, public debt reaches 118 percent of GDP by 2025.

4. San Marino’s gross external debt is set to decline on the back of continued, albeit more moderate, capital outflows. San Marino’s gross external debt stood at 76 percent of GDP in 2018, where deposit liabilities of deposit-taking corporations accounted for the largest component. With continued capital outflows, including from the banking system, gross external debt is estimated to have declined to 67 percent of GDP in 2019 and projected to remain on a downward trajectory over the medium term, reaching a level of 49 percent of GDP at the end of the forecast horizon. All else equal, lower growth, a deterioration in the current account, and a slower price growth relative to that in key trading partners (real exchange rate depreciation) would result in a higher trajectory of external debt relative to the baseline.

5. The analysis is subject to several caveats reflecting limited data availability. First, due to lack of data, gross external debt does not include FDI debt instrument liabilities and, as a result, gross financing needs may be underestimated. In addition, the limited availability of external sector historical data (only two data points) requires making assumptions about averages and standard deviations of key variables, such as the non-interest current account balance, export and import growth, and non-debt creating capital flows, that are used for the stress tests.

Figure AVI.4.
Figure AVI.4.

San Marino: Public DSA—Risk Assessment

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 85% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 20% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:400 and 600 basis points for bond spreads; 17 and 25 percent of GDP for external financing requirement; 1 and 1.5 percent for change in the share of short-term debt; 30 and 45 percent for the public debt held by non-residents.4/ Long-term bond spread over German bonds, an average over the last 3 months, 01-Oct-18 through 30-Dec-18.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.
Figure AVI.5.
Figure AVI.5.

San Marino: External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP)

Citation: IMF Staff Country Reports 2020, 093; 10.5089/9781513538761.002.A001

Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2020.
Table AVI.1.

San Marino: External Debt Sustainability Framework, 2017–24

(In percent of GDP unless otherwise indicated)

(In percent of GDP, unless otherwise indicated)

article image

Derived as [r – g – r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
1

The 2020 growth projection assumes that the COVID-19 outbreak will be contained in the first half of the year.

2

Additional measures would be needed to reverse the fiscal relaxation in 2020.

3

The VAT modalities are under discussion, Staff recommended a three rates structure: a standard rate of 15 percent, with reduced rates of 10 percent for most services and 5 percent for food and other basic goods.

1

The average return on total assets (ROA) in San Marino stood at around 4 percent in 2012–18, well below that of the EU.

1

San Marino recently started to produce balance of payment and IIP statistics.

2

The stock of NIIP stood at 244 percent of GDP as of end-2019, of which 45 percent was related to banks and 47 percent attributable to other financial and nonfinancial corporations, households, and Nonprofit Institutions Serving Households (NPISHs). In this assessment, the NIIP stock was deflated to account for the fact that about 80 percent of loans to non-residents are non-performing.

3

The improvement in liquidity in 2019 relative to end-2018 was mainly driven by one-off factors, including divestment of illiquid securities by the CBSM, a shift in pension fund bank deposits into the CBSM, and CRSM’s sale of the sub-delta portfolio, the proceeds of which were mostly deposited at the CBSM.

1

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 is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.

1

The magnitude of the economic contraction did not translate into a significantly higher increase in unemployment partly due to the wage supplementation system given to companies in economic distress.

2

Considering the number of self-employed, total employment declined by about 6 percent since 2008.

3

The share of public sector workers in total dependent employment has been instead on a declining trend, reaching 19 percent in 2018 compared with 30 percent in the 1990s.

4

The hourly wage figures, which might be a better indicator, are not available.

5

Only 6.8 percent of the private sector workforce has a university degree, compared to about 22 percent in the public sector.

6

See Burda, Michael 1988, “Wait Unemployment’ in Europe.” Economic Policy, vol. 3, no. 7, pp. 393–425, and 1996 IMF staff report SM/96/165 (7/3/96) for an examination in the case of San Marino.

7

Apprenticeships policies are also available to support young workers.

8

Vooren, M., Haelermans, C., Groot, W. and Maassen van den, Brink, H., 2019, “The Effectiveness of Active Labor Market Policies: A Meta—Analysis”. Journal of Economic Surveys, 33: 125–149.

9

A comparison in purchasing power standard is not available for San Marino.

10

The Indennita economica speciale (IES), which is granted to workers unemployed because of company closure is normally given for 12 months, although they are benefiting from priority in their ranking on the employment list.

1

In the projection, we assume the short-term loan from CBSM is repaid in 2020 by issuing a new 10-year bond with percent interest rate.

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Cover IMF Staff Country Reports
Republic of San Marino: 2020 Article IV Consultation-Press Release and Staff Report
Author:
International Monetary Fund. European Dept.
Volume/Issue:
Volume 2020: Issue 093
Publisher:
International Monetary Fund
ISBN:
9781513538761
ISSN:
1934-7685
Pages:
62
DOI:
https://doi.org/10.5089/9781513538761.002

San Marino: GDP Per Capita and Banking System Assets

(2008=100)

Real GDP Growth and Purchasing Managers Index

(Percent)

Unemployment Rate and Employment Growth

(3-month average yoy, percent)

Deposit Flows by Residency and Resident Share in Total Deposits

(Percent)

Banking System Deposits and Assets under Management

(millions of euros)

San Marino: Banking System Recapitalization Needs

(Percent of GDP, staff estimate as of September 2019)

Non-performing loan distribution

(precent of total NPLs, end-2018)

NPL and Coverage Ratios by Residency /1

(Percent, end-2018)

Number of branches per 100,000 adults and 10,000 enterprises

Share of bank and financial sector staff in total employment

(Percent, 2018)

Public Debt: Official and Implicit Levels

(percent of GDP)

Estimated Pension Fund Deficit and Financing

(percent of GDP)

Tax Revenue, 2018

(Percent of GDP)

Real Labor Productivity, 2008 vs. 2018

(Per Person Employed, Index, 2008=100)

Ranking for Doing Business

(Scale: Rank 190 center, rank 1 outer edge)
Figure 1.

San Marino: Macroeconomic Developments
Figure 2.

San Marino: High Frequency Indicators
Figure 3.

San Marino: Fiscal Developments
Figure 4.

San Marino: Financial Sector

Domestic Credits and the Number of Firms

(millionsof euros)

Domestic NPL Ratio by Sector

(2018)

Non-Financial Corporate Net Return on Equity

(Percent, 2018)

Financial Leverage

(2018)

ROE and Financial Leverage by Sector

(2018)

Corporate Sector Debt in San Marino

Debt Servicing Capacity of the Corporate Sector in San Marino

(Percent)

Exports: Contribution to Growth

(Percent)

Imports: Contribution to Growth

(Percent)

CPI-Based REER and Export Market Share

(Index Jan. 2007=100; increase is appreciation)

Ranking for Doing Business

(Scale: Rank 190 center, rank 1 outer edge)

GDP per Employed

(1997=100)

Unit Labor Cost

(1997=100)

Liquidity Buffers

(millions of euros)

Reserve Coverage Metrics

(as of end 2019)

GIR Coverage and Banking Sector Liquidity

Reserve Needs

(millions of euros, end-2019)

Unemployment Rates

Youth Unemployment Rates

Employment by Sector

Cumlative Change (2018–2008)

Employment by Sector

Share of total (2018)

Employment Growth and Contribution by Residency of Workers

Cross-border Workers by Sector

Share of Total, 2018

Cross Border Employment Growth and Sectoral Contributions

Firms Facing Hiring Challenges

(share of respondents)

Hiring Difficulties Experienced Due to Lack of:

(share of respondents, 2018)

San Marino: Unemployment Rate

Oku n’s Law

Share of Workforce by Level of Education
Figure AVI.1.

San Marino: Public Sector Debt Sustainability Analysis (DSA)—Baseline Scenario

(In percent of GDP unless otherwise indicated)
Figure AVI.2.

San Marino: Public DSA—Composition of Public Debt and Alternate Scenarios
Figure AVI.3.

San Marino: Public DSA—Stress Tests
Figure AVI.4.

San Marino: Public DSA—Risk Assessment
Figure AVI.5.

San Marino: External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP)