Press Release No. 25/390

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for The Republic of San Marino[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]

San Marino’s economy maintains positive momentum, as its new growth model proved to be resilient to successive shocks. The service sector has maintained strong momentum since the pandemic, benefiting from the continuing tourism boom and robust domestic consumption. However, subdued external demand for goods weighed on the manufacturing sector. Inflation has stabilized at 2 percent. With the economy booming, labor market conditions have tightened, reflected in employment at record high levels and strong wage growth.

The government achieved strong primary balance, thanks to revenue surprises and prudent expenditure. On the financial sector, the enforcement of calendar provisioning accelerated NPL reduction and, together with better-than-expected asset recoveries by the asset management company, reduced legacy vulnerabilities and fiscal contingent liabilities. Banks’ liquidity improved, reflecting increased confidence. However, critical challenges remain in the banking sector, due to the need to reduce operating costs, still large noninterest-generating assets, and tight capitalization in some banks.

GDP growth is estimated to be 1 percent in 2024 and is expected to strengthen to 1.2 percent in 2025, supported by the recovery of external markets, and a robust domestic demand benefiting from declining interest rates, strong labor market and domestic political stability. However, downside risks prevail due to elevated external risks related to trade tensions, commodity price fluctuations and prolonged uncertainty. Domestic risks stem from contingent liabilities in the financial sector. On the upside, faster implementation of the EU association agreement could lift growth.

Executive Board Assessment[3]

Executive Directors agreed with the thrust of the staff appraisal. They commended the Sammarinese economy’s resilience in navigating a challenging external environment, and its positive momentum, supported by successful diversification and prudent policies. However, they also noted downside risks, including from global uncertainties, trade tensions, and lingering vulnerabilities in the financial sector. At the same time, growth could receive a boost from faster implementation of the EU association agreement.

Directors welcomed the recent strong fiscal performance and substantial debt reduction, and emphasized the importance of continued fiscal consolidation for preserving macroeconomic stability and rebuilding buffers. They welcomed the recently approved income tax reform, and agreed that a well-designed VAT would help reduce economic distortions and facilitate integration with the EU single market. Additionally, they highlighted the need to improve public spending efficiency, contain growth in public wages, and ensure the long-term sustainability of the pension system. They welcomed the regular publication of the government’s medium-term fiscal strategy and called for the development of a strategy to strengthen debt management.

Directors recognized important progress in financial sector reforms but highlighted the need to address the remaining vulnerabilities. They noted improvements in banks’ liquidity and asset quality, as well as progress by the asset management company. Directors welcomed the implementation of calendar provisioning, the gradual replacement of perpetual bonds in the state-owned bank, and the removal of ownership restrictions to facilitate recapitalization. However, given the banks’ high levels of non-income-generating assets, elevated operating costs, and extensive branch networks, Directors stressed the need to strengthen capital and adjust cost structures to improve long-term viability. They encouraged initiatives to upgrade the regulatory framework in line with the EU association agreement and underscored the importance of further strengthening the AML/CFT framework.

Directors underscored that structural reforms are critical to support long-term growth. They stressed the need to increase labor market flexibility, facilitate real estate market functioning, increase energy efficiency, and invest in digitalization and network connectivity. They encouraged further efforts to improve the quality and the frequency of data. Directors also noted that the EU association agreement would enhance economic integration and attract foreign investment.

It is expected that the next Article IV Consultation with San Marino will be held on the standard 12-month cycle

Republic of San Marino: Selected Economic and Social Indicators, 2021–30

GDP per capita (2023): 59,415 U.S. dollars Population (2023): 34,130 persons   Life expectancy at birth (2018): 86.6 years Literacy, adult (2015): 96 percent           Proj.   2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Activity and Prices                       Real GDP (percent change) 14.4 7.9 0.4 1.0 1.2 1.3 1.2 1.3 1.3 1.3     Domestic demand 11.3 10.6 -8.5 2.1 1.5 1.0 1.4 1.1 1.1 1.1        Final consumption 3.5 9.9 0.1 2.2 1.7 1.1 1.1 1.0 1.0 1.0        Fixed investment 3.6 9.6 -4.7 0.1 1.5 2.5 2.5 2.5 2.5 2.5      Net exports 5.9 -0.1 6.8 -0.5 0.2 0.6 0.2 0.5 0.5 0.5        Exports 28.3 14.8 -5.1 -0.8 1.4 1.7 1.5 1.6 1.6 1.6        Imports 29.0 17.3 -9.8 -0.7 1.6 1.6 1.6 1.6 1.6 1.6   Contribution to real GDP growth (percent)                         Domestic demand 2.7 6.8 -0.8 1.2 1.2 1.0 1.0 1.0 1.0 1.0        Final consumption 2.0 5.1 0.0 1.2 0.9 0.6 0.6 0.5 0.5 0.5        Fixed investment 0.7 1.7 -0.8 0.0 0.3 0.4 0.4 0.4 0.4 0.4 Inventories 5.9 1.0 -5.6 0.3 -0.2 -0.3 -0.1 -0.2 -0.2 -0.2      Net exports 5.9 0.0 6.8 -0.5 0.2 0.6 0.2 0.5 0.5 0.5        Exports 46.7 27.3 -10.1 -1.6 2.6 3.0 2.7 2.9 3.0 3.0        Imports -40.8 -27.4 16.9 1.1 -2.4 -2.4 -2.5 -2.5 -2.5 -2.5   Employment (percent change) 1.4 3.7 3.7 2.4 1.8 0.7 0.3 0.3 0.3 0.3   Unemployment rate (average; percent) 6.4 5.1 4.2 4.4 4.4 4.4 4.4 4.4 4.4 4.4   Inflation rate (average; percent) 1.6 5.3 5.9 1.2 2.0 2.0 2.0 2.0 2.0 2.0   GDP deflator (percent change) 1.4 2.8 7.4 1.9 2.0 1.8 1.9 1.9 2.0 2.0   Nominal GDP (percent change) 16.0 10.9 7.8 2.9 3.2 3.2 3.1 3.2 3.3 3.3   Nominal GDP (millions of euros) 1,568.7 1,739.4 1,874.9 1,929.7 1,991.0 2,054.1 2,118.4 2,187.2 2,258.6 2,332.6                       Public Finances (percent of GDP) 1/                       Revenues 20.7 22.1 21.0 21.3 20.3 20.3 20.3 20.3 20.3 20.3   Expenditure 37.1 21.7 21.7 20.9 21.9 21.4 21.3 20.6 20.6 20.5   Overall balance -16.4 0.4 -0.7 0.4 -1.6 -1.1 -1.0 -0.3 -0.3 -0.2

Republic of San Marino: Selected Economic and Social Indicators, 2021–30 (Concluded)

GDP per capita (2023): 59,415 U.S. dollars Population (2023): 34,130 persons   Life expectancy at birth (2018): 86.6 years Literacy, adult (2015): 96 percent           Proj.   2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Primary balance net of bank support -2.2 2.9 2.4 3.2 1.3 1.6 1.6 1.6 1.6 1.6   Government debt (official) 62.6 69.5 67.3 62.4 60.8 59.8 58.8 57.1 55.2 53.3 Public debt 2/ 77.2 70.6 68.3 62.8 61.3 60.3 59.3 57.5 55.6 53.6                       Money and Credit                       Broad Money (BM) (percent change) 4.9 1.4 0.6 3.6 … … … … … …   Private sector credit (percent change) -10.8 0.0 -23.6 -3.2 … … … … … …   Net foreign assets (percent of GDP) 137.3 119.6 94.9 96.6 … … … … … …      Commercial banks 87.4 89.2 56.8 61.0 … … … … … …      Central bank 49.9 30.3 38.1 35.6 … … … … … … \                     External Accounts (percent of GDP)                     Current Account 5.4 13.6 22.0 18.4 17.5 17.8 17.1 16.3 15.4 15.1      Exports 174.1 195.5 186.0 181.0 179.7 179.2 178.1 177.0 175.9 175.5      Imports 158.5 173.1 155.0 151.1 150.4 149.8 149.6 149.4 149.2 149.2   Gross int. reserves  (millions of euros) 842.5 533.0 739.6 734.8 734.8 734.8 734.8 734.8 734.8 734.8                       Financial Soundness Indicators (percent)                       Regulatory capital to risk-weighted assets 14.4 14.6 16.7 18.2 … … … … … …   NPL ratio 59.0 53.1 21.0 16.9 … … … … … …   NPL coverage ratio 65.0 69.8 33.6 35.3 … … … … … …   Return on asset (ROA) 0.3 0.3 0.8 1.0 … … … … … …   Liquid assets to short-term liabilities 44.0 43.1 50.1 56.1 … … … … … … Sources: International Financial Statistics; IMF Financial Soundness Indicators; Sammarinese authorities; World Bank; and IMF staff. 1/ For the central government. 2/ Central government (official) debt plus Social Security Fund and BNS debt.

 

[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.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/sanmarino page.

[3] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.