## IMF Staff Concludes Visit to San Marino

_IMF News, April 9, 2024_

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## Bibliographic details
- Published: April 9, 2024

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### Mission timing and statement
- IMF mission visited San Marino during April 3-9, 2024.
- Statement by Borja Gracia, IMF mission chief for San Marino.
- Note: "End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion."
- "Discussions will continue in the context of the Article IV consultation scheduled to take place in September."

### Growth and labor market
- "Growth in 2023 remained positive, thanks to the dynamic service sector, although manufacturing growth slowed down from historically high levels."
- Manufacturing: key driver during 2021-22; "slowed last year due to weak external demand and higher costs."
- Manufacturing exports "have stabilized at high levels."
- Services: "showed resilience and the labor market remains tight with close to full employment."
- 2024 outlook: "Growth in 2024 is projected to be around 1 percent, showing a moderate recovery, but uncertainty related to the volatile international environment weighs on the growth outlook."

### Fiscal policy and public finances
- "Prudent fiscal policy continued in 2023, but further consolidation efforts are needed to sustain these gains and ensure a strong fiscal position."
- Government actions: "appropriately saved inflation revenue windfalls and prudently indexed public sector wages and pensions below inflation containing spending pressures."
- Vulnerabilities: San Marino is "a euroized small open economy with remaining vulnerabilities in the financial sector and limited fiscal buffers."
- Recommended fiscal actions:
  - "Further consolidation is needed through tax policy reforms and improvements of spending efficiency."
  - "A further recalibration of the pension system focused on addressing the challenges of an aging population, generous benefits and low penalties for early retirement will be needed to ensure the long-term sustainability of the pension system."

### Banking sector, NPLs, and profitability
- Progress on NPLs:
  - Efforts "reached a milestone with the establishment of the Asset Management Company and the introduction of calendar provisioning consistent with the European framework."
  - "The securitization and Cassa di Risparmio della Repubblica di San Marino’s decision to write off legacy assets have substantially reduced NPLs."
  - "The establishment of the government guarantee below expected recovery values minimizes fiscal risks."
  - Caveat: "any undercapitalization that could arise from these developments should be promptly addressed with credible capitalization plans."
- Profitability and liquidity:
  - "Higher interest rates have significantly improved the profitability of banks without deteriorating the quality of the loan portfolio so far."
  - "The liquidity of the banking system increased last year too."
  - Structural concerns: "the structural profitability of most banks remains low."
  - Risks: "with increasing deposit rates, interest margins will decrease impacting profitability. Profitability can also be affected by increasing NPLs given weak economic activity."
- Policy recommendations for banks:
  - "Banks should use profits earned last year to increase capital buffers."
  - "Banks should improve structural profitability by restarting efforts to reduce high operational costs that have stalled over the last few years."
  - Follow the recommendation of the Central Bank of San Marino on capitalization and cost reduction.

### EU association agreement
- The EU association agreement "offers an opportunity to further integrate San Marino’s economy in Europe and attract foreign investment by reducing costs."
- Potential benefits:
  - "Increase economic integration with the EU and expand market access by simplifying procedures and reducing legislative barriers."
  - "Opportunity to strengthen Sammarinese public institutions as they adopt European standards and deepen their relations with EU counterparts."
- Challenges:
  - "Adopting the European financial framework will impose significant costs on the Central Bank of San Marino that will have to be addressed."

*Press Release No. 24/110 — April 9, 2024, IMF Staff Concludes Visit to San Marino*

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## References

- [Italy and the IMF](http://www.imf.org/external/country/ITA/index.htm)
- [Republic of San Marino and the IMF](http://www.imf.org/external/country/SMR/index.htm)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2024/04/09/pr24110-san-marino_