Public Information Notice:IMF Executive Board Concludes 2006 Article IV Consultation with the Republic of San Marino

March 2, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 07/25
March 2, 2007

On February 23, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of San Marino.1


San Marino has been undergoing a profound transformation. It has come a long way since the early part of this decade when growth was sputtering, public finances were precarious, and the economy was mired in old-fashioned modus operandi. Responding to global competition, San Marino is becoming a more dynamic economy oriented toward the service sectors, by modernizing its laws and regulations and opening itself to new opportunities for growth. At the same time, it is experiencing the impact of an ageing population and has started taking action on several fronts to ensure that there are enough savings to make good on the promise of generous entitlements to its residents.

These policies have begun to bear fruit. Output growth has rebounded to an estimated 5 percent in 2006, reflecting the recovery in Italy and Europe and improving competitiveness. Barring unforeseen circumstances, growth is expected to remain strong in the coming years. The budget deficits of yesteryears have been replaced by a string of surpluses through spending restraint, especially on wages and healthcare. However, revenue losses from tax cuts, increasing transfers to public enterprises, and spending overruns have eroded the budget surplus in 2006, and this trend will likely continue in 2007-09 under current plans. Nevertheless, public debt remains low, and an ambitious reform of the first pillar pension system has been enacted to combat ageing-related spending pressures.

Reflecting the healthy economy and an increase in international deposits, the financial sector appears profitable, liquid and well capitalized. A wide-ranging reform of the regulatory framework and supervision is underway to modernize the financial sector and make it conform to international standards. Financial institutions are adjusting, so far successfully, to these and other changes relating to international taxation. Efforts to improve supervision are beginning to produce results. Finally, tax cuts, greater efficiency in tax payment procedures, and labor market reforms to simplify hiring procedures and encourage training have improved the business climate and competitiveness, and bolstered growth prospects.

Executive Board Assessment

Executive Directors welcomed San Marino's strong economic performance and improved growth prospects, supported by a broad range of policy initiatives, which bode well for strengthening the economy's resilience. They encouraged the authorities to continue with reforms to enhance institutional flexibility and help ease the economy's transition to increased reliance on high value-adding service sectors. Directors also drew attention to the fiscal policy challenges arising from an ageing population, mobile factors of production, generous entitlements, and the need to keep tax rates competitive to attract and retain investment.

In light of ageing-related spending pressures over the medium term, Directors encouraged the authorities to take measures to stop the further reduction in the budget surplus expected over 2007-09. The tax base should be broadened further to offset the revenue losses from tax rate cuts, and current spending should be restrained further to make room for needed public investment. Transfers to public enterprises should be reduced by allowing these enterprises to operate as viable commercial entities, and, in this context, Directors supported the government's decision to increase tariffs. They also noted that healthcare spending should be further contained through demand-side measures. Directors considered that a second round of reforms in the first pillar pension system may be warranted if the fiscal position does not strengthen. They supported plans to introduce a mandatory defined-contribution second pillar pension system in 2007. While the current fiscal framework may already provide sufficient safeguards, Directors noted the authorities' intention to consider a rules-based approach to promote fiscal discipline.

The financial sector appears to be adjusting well to the new taxation and legislative regime. Directors called for an expeditious implementation of the new regulatory framework, allowing the Central Bank of San Marino (CBSM) to operate in an arms-length manner.

Directors observed that institutions in the financial sector are venturing into new lines of business with new risks, increasing the importance of adequate supervision and oversight of the sector. In this vein, the first round of in-depth examinations should be completed expeditiously. Directors recommended that the introduction of deposit insurance should await the strengthening of financial sector supervision. They welcomed the authorities' decision to participate in the Financial Sector Assessment Program.

Directors considered that maintaining competitiveness will be key to sustaining growth. To accommodate service sector demand for skilled labor, a further easing of restrictions on hiring non-residents and residency may be appropriate. Directors welcomed the improvements in the business climate, including the planned streamlining of public administration, and encouraged the authorities of Italy and San Marino to finalize the cooperation agreement between the two countries. They looked forward to further progress in adjusting San Marino's legislation to the highest international anti-money laundering standards.

Directors welcomed the improvements in fiscal, financial, and monetary statistics, and encouraged the authorities to further reduce the lags in data production and dissemination. They supported the authorities' decision to participate in the General Data Dissemination Standard.

San Marino: Selected Economic and Social Indicators, 2001-07

  2001 2002 2003 2004 2005 2006 2007
          Est. Proj.

  (Annual percentage change, unless noted otherwise)

Output and prices


Real GDP 1/

5.5 0.3 3.9 4.6 5.0 5.0 4.9


5.5 0.7 0.5 2.8 1.2 2.8 ...

Unemployment rate (end of year; in percent)

2.9 3.9 4.1 3.4 3.6 3.3 ...

Inflation rate (annual average) 2/

2.8 2.3 2.5 1.4 1.7 1.7 1.5

Nominal GDP (in millions of euros)

911 935 995 1,061 1,134 1,213 1,293
  (In percent of GDP)

Consolidated government


Overall balance

... 0.8 5.2 3.4 5.8 2.0 0.8

Primary balance

... 1.0 5.4 3.7 6.1 2.3 1.1

Gross debt (loans)

... 5.3 4.7 5.4 4.6 3.6 3.1
  (In percent of GDP, end of period)

Net foreign assets


Deposit money banks

60.4 139.2 101.1 61.2 70.3 ... ...

Central bank

15.2 17.1 20.0 24.5 26.4 ... ...
  (In percent of GDP, unless noted otherwise)

External accounts


Trade balance 3/

-6.0 -9.7 -9.5 -5.1 ... ... ...

Exports 3/

184.8 177.6 177.1 186.1 ... ... ...

Imports 3/

191.5 187.9 185.5 190.2 ... ... ...

Compensation of employees, net

9.2 9.7 9.1 8.9 ... ... ...

Gross international reserves (in millions of U.S. dollars)

133.5 183.4 252.7 355.6 354.0 ... ...

Number of tourists (in millions) 4/

3.0 3.1 2.9 2.8 2.1 2.1 ...

Exchange rate (euros per U.S. dollar, end of period)

1.1 1.1 0.9 0.8 0.8 0.8 ...

Social indicators


GDP per capita (current US$, 2005)



Population (2006)


Population density (2006, persons per km2)


Life expectancy (2006)








Sources: Sammarinese authorities; U.S. Department of State; and IMF Staff estimates. Data for 2006-07 are Fund Staff estimates and projections.

1/ IMF staff estimates for 2005

2/ Data break in 2004. Data for 2004 onward are based on new CPI (December 2002=100).

3/ Based on national accounts data.

4/ Data break in 2005 due to change in methodology for calculation.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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