IMF Staff Country Reports

The 2023 Article IV Consultation discusses that despite external shocks and higher interest rates, growth has remained resilient in San Marino. Prudent policies and access to international capital markets increased policy buffers to healthy levels. Despite volatile financial conditions, the government was able to rollover the Eurobond maturing next year. However, San Marino is a microstate subject to very high volatility and financial sector vulnerabilities remain, suggesting that larger-than-usual fiscal buffers are needed. High inflation and higher interest rates are eroding real income and putting pressure on firms’ healthy level of profitability. This, combined with weakening global demand will affect economic activity that while still positive, is decelerating in 2023. Given San Marino’s recent access to international capital markets and associated market discipline, the main priority is to advance the nonperforming loans securitization in a credible way that avoids forbearance and minimizes fiscal risks. This process and calendar provisioning can reveal capital needs at some banks that will need to be promptly addressed. A viable banking system will also require strengthening cost-efficiency and improving the quantity and quality of capital.