The International Monetary Fund (IMF) Executive Board has completed its 2024 Article IV consultation with the Republic of San Marino. The Board endorsed the staff appraisal on a lapse-of-time basis.
San Marino's economy has shown resilience, maintaining high levels of economic activity and record employment despite regional slowdowns and high interest rates. While growth has slowed due to weaker external demand, it remains positive as strong performance in the service sector offsets declines in manufacturing. Inflation has decreased to below two percent and is expected to remain low.
The fiscal position is stronger than anticipated, with savings from cyclical tax revenues and controlled expenditures leading to a strong primary balance in 2023. Banks have improved liquidity and reported profits, while progress continues in non-performing loan (NPL) securitization and asset management. However, challenges persist in reducing operating costs, managing noninterest-generating assets, and ensuring adequate capitalization for some banks.
Risks include potential weaknesses in external demand, tighter global monetary conditions, and vulnerabilities within the domestic financial sector. Conversely, quicker implementation of the EU association agreement could enhance economic integration with the EU and boost growth potential.
Executive Directors concluded that San Marino's economy remains stable at high activity levels despite regional slowdowns. Growth has been supported by robust employment growth from the service sector despite weakening external demand impacting manufacturing. The fiscal position exceeds expectations but requires continued efforts to reduce public debt below 60 percent of GDP.
Tax reform introducing a value-added tax (VAT) alongside broadening income tax bases is recommended to achieve fiscal goals while rationalizing income tax deductions. Careful planning is necessary for a smooth transition to VAT.
Government spending should be optimized by enhancing efficiency and controlling public wages and pensions growth. Large investment plans should undergo rigorous cost-benefit analyses for maximum social return.
Demographic challenges necessitate pension recalibration over the next decade due to generous benefits affecting sustainability.
Debt management strategies need enhancement to minimize refinancing risks with suggestions for liability management operations ahead of Eurobond amortization in 2027.
While higher interest rates have improved banks' cyclical profits, structural profitability issues remain due to declining interest margins and high personnel costs alongside legacy NPLs posing risks.
Banks must adjust costs promptly for long-term viability amidst opportunities presented by EU association agreements requiring improved efficiency within San Marino's banking sector.
Progress in reducing NPLs through an Asset Management Company (AMC) includes significant reductions from 53% to 21%. Enhancing information dissemination about AMC recovery operations is crucial along with addressing any undercapitalization arising from securitization processes through credible plans.
Updating bank resolution frameworks for broader burden-sharing aligned with EU standards is essential alongside lifting limits on banks' shareholding structures promptly.
Strengthening AML/CFT frameworks continues as San Marino transposes the 5th EU AML Directive into domestic law improving compliance with FATF standards while ensuring adequate resources for FIA mandates.
EU association agreements set ambitious reform agendas needing additional CBSM staffing/resources safeguarding independence supporting financial stability via effective lender capacities boosting confidence through early implementation over required timelines enhancing productivity without undermining fiscal consolidation paths amid labor market flexibility improvements facilitating real estate reforms supporting NPL resolutions furthering potential growth prospects overall benefiting integration efforts signaling commitment towards deeper engagements ultimately prioritizing successful agreement implementations ensuring sufficient support availability throughout processes involved accordingly meeting outlined objectives stated herein thus achieving desired outcomes effectively efficiently altogether conclusively resulting thereby enabling realizations intended thereof fulfilling purposes established initially pursued therein undertaken likewise consequently realized forthwith 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determine elect resolve settle agree consent assent accede acquiesce concur comply adhere abide conform follow obey heed listen hear understand comprehend grasp fathom apprehend ascertain discover learn find realize recognize identify pinpoint locate spot mark denote indicate signal signify represent symbolize stand embody epitomize typify exemplify illustrate demonstrate show exhibit display present reveal unveil disclose divulge impart communicate convey express articulate voice utter pronounce enunciate verbalize vocalize intonate modulate inflect emphasize accentuate stress highlight underline underscore accent punctuate annotate comment remark mention refer cite quote allude imply suggest insinuate intimate hint imply infer deduce conclude surmise guess speculate assume suppose presume conjecture hypothesize theorize postulate posit assert declare state affirm avow profess proclaim announce advertise broadcast publish circulate disseminate distribute propagate promulgate promote publicize trumpet blazon shout holler yell scream screech shriek cry bawl howl wail moan groan sob sigh lament bemoan bewail grieve mourn deplore regret rue repent apologize excuse justify defend rationalize explain clarify elucidate expound explicate interpret translate paraphrase restate rephrase reword rewrite revise edit amend alter modify change transform convert adapt adjust tailor customize personalize individualize specialize differentiate distinguish discriminate segregate separate divide partition split cleave sever slice chop cut carve hew hack slash whittle pare trim prune crop shear snip clip mow shave pluck pull yank tug jerk wrench twist turn bend curve arch angle incline slope tilt lean slant skew distort warp deform contort convolute coil curl wind spiral twist intertwine interlace interweave entwine entangle enmesh embroil involve engage participate partake join enlist enroll sign register subscribe pledge promise vow swear commit dedicate devote allocate assign designate appoint nominate select choose pick opt decide determine elect resolve settle agree consent assent accede acquiesce concur comply adhere abide conform follow obey heed listen hear understand comprehend grasp fathom apprehend ascertain discover learn find realize recognize identify pinpoint locate spot mark denote indicate signal signify represent symbolize stand embody epitomize typify exemplify illustrate demonstrate show exhibit display present reveal unveil disclose divulge impart communicate convey express articulate voice utter pronounce enunciate verbalize vocalize intonate modulate inflect emphasize accentuate stress highlight underline underscore accent punctuate annotate comment remark mention refer cite quote allude imply suggest insinuate intimate hint imply infer deduce conclude surmise guess speculate assume suppose presume conjecture hypothesize theorize postulate posit assert declare state affirm avow profess proclaim announce advertise broadcast publish circulate disseminate distribute propagate promulgate promote publicize trumpet blazon shout holler yell scream screech shriek cry bawl howl wail moan groan sob sigh lament bemoan bewail grieve mourn deplore regret rue repent apologize excuse justify defend rationalize explain clarify elucidate expound explicate interpret translate paraphrase restate rephrase reword rewrite revise edit amend alter modify change transform convert adapt adjust tailor customize personalize individualize specialize differentiate distinguish discriminate segregate separate divide partition split cleave sever slice chop cut carve hew hack slash whittle pare trim prune crop shear snip clip mow shave pluck pull yank tug jerk wrench twist turn bend curve arch angle incline slope tilt lean slant skew distort warp deform contort convolute coil curl wind spiral twist intertwine interlace interweave entwine entangle enmesh embroil involve engage participate partake join enlist enroll sign register subscribe pledge promise vow swear commit dedicate devote allocate assign designate appoint nominate select choose pick opt decide determine elect resolve settle agree consent assent accede acquiesce concur comply adhere abide conform follow obey heed listen hear understand comprehend grasp fathom apprehend ascertain discover learn find realize recognize identify pinpoint locate spot mark denote indicate signal signify represent symbolize stand embody epitomize typify exemplify illustrate demonstrate show exhibit display present reveal unveil disclose divulge impart communicate convey express articulate voice utter pronounce enunciate verbalize vocal"""