IMF Executive Board Concludes 2013 Article IV Consultation with the Republic of San Marino

Public Information Notice (PIN) No. 13/54
May 17, 2013

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. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2013 Article IV Consultation with the Republic of San Marino is also available.

On May 3, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with San Marino.1


San Marino is experiencing a deep and prolonged recession, with the decline in GDP since 2007 amounting to a cumulative 28 percent. The global financial crisis put an end to the traditional business model built around bank and tax secrecy, bringing about a large outflow of non-resident deposits and an associated compression of banks’ balance sheets. Weak external demand and the difficulties faced by many Sammarinese firms due to the country’s continued inclusion in Italy’s tax black list have also contributed to the recession.

System-wide deposit outflows have now abated, and preliminary indications point to an increase in deposits in some institutions in recent months. This is allowing banks to gradually rebuild their liquidity buffers. However, Cassa di Risparmio della Repubblica di San Marino, the largest bank, remains undercapitalized following heavy losses from its investment in the Italian Delta group. Moreover, the economic recession is leading to mounting non-performing loans across all banks, with the gross non-performing loan ratio now close to 25 percent for the system as a whole.

The global crisis has led to a significant decline in budget revenues. However, San Marino’s sizable pre-2008 budget surplus, combined with recent tax measures and efforts to restrain expenditures, have helped contain the deficit at some 3 percent of GDP. Fiscal reserves accumulated before the crisis have been used to finance recent budget deficits thereby keeping public debt low, but these reserves are now largely exhausted.

International assessments have recognized the progress made by San Marino in unwinding laws protecting bank and tax secrecy, while the exchange of information with other jurisdictions has also been stepped up. San Marino has recently ratified key agreements with Italy on double taxation and prevention of tax fraud, financial cooperation, and economic cooperation, which now await ratification by the Italian parliament.

Executive Board Assessment

Executive Directors noted that San Marino’s economy is facing financial and fiscal challenges in the near term, as well as uncertain medium-term prospects. Accordingly, Directors emphasized the need to preserve financial stability, rebuild fiscal buffers, and push ahead with structural reforms to develop new sources of growth.

Directors considered that, notwithstanding the recent recapitalization, the largest bank will need more capital to meet prudential requirements. They agreed that, if public capital is injected, the state should acquire equity in the bank commensurate with its share in the recapitalization, and take control of its management and board. A credible restructuring plan will also be needed to bring the bank back to profitability.

Directors noted with satisfaction that the banks’ large liquidity buffers should accommodate further potential deposit outflows, and that their capital positions are generally strong—the largest bank excepted. Nonetheless, they cautioned against complacency given rising non-performing loans, and welcomed the authorities’ heightened oversight of the banking system. Although bank resolution tools are generally effective, Directors stressed the importance of establishing the central bank as the sole authority for bank resolution.

Directors welcomed the authorities’ intention to rebuild fiscal buffers, in view of the economic uncertainties and large contingent liabilities from the banking system. Although the planned tax reform would make the tax system more efficient, Directors felt that fiscal adjustment in the period ahead would be more effective if some tax exemptions in the plan are reversed or the decline in personal income tax rates is more limited. Directors also noted that the current level of public wages, pensions, and health spending is unsustainable, and recommended cutting back outlays in these areas, while protecting the most disadvantaged.

Directors welcomed the steps taken to dismantle tax and bank secrecy, and the increased exchange of information with other jurisdictions. Recent cooperation agreements with Italy, once ratified, will further entrench San Marino’s commitment toward openness and transparency. Directors agreed that further improvement of relations with Italy is a necessary condition for a revival of the Sammarinese economy and its growth drivers.

Directors noted the critical challenge of finding new growth sectors to replace lost activities in San Marino. They stressed the need to improve cost competitiveness and looked forward to implementation of planned labor market reforms.

San Marino: Selected Economic and Social Indicators, 2008–14

GDP per capita (2011): 63,650 U.S. dollars Life expectancy at birth (2010): 83.2 years

Population (December 2011): 32,166 persons Literacy, adult (2008): 96 percent

          Estimate   Projection
  2008 2009 2010 2011 2012   2013 2014






Activity and Prices



Real GDP (percent change)

-5.1 -12.2 -7.5 -2.5 -4.0   -3.5 0.0

Domestic demand

-6.4 -10.5 -10.4 -1.0  

Final consumption

-2.3 0.2 -6.3 -1.8  

Fixed investment

-5.9 -15.5 -20.0 1.6  

Net exports (contribution to growth)

-0.3 -4.4 0.4 -1.8  


1.5 -18.3 -12.1 -12.4  


1.8 -18.5 -14.0 -13.3  

Employment (percent change)

3.5 -0.3 -0.8 -2.2 -1.0  

Unemployment rate (average; percent)

3.1 4.5 4.9 5.5 6.9  

Inflation rate (average; percent)

4.1 2.4 2.6 2.0 2.8   1.6 0.9

Nominal GDP (millions of euros)

1768.1 1610.3 1484.6 1460.7 1442.2   1414.2 1426.3




Public Finances (percent of GDP) 1/




21.0 20.6 22.8 20.7 20.5   20.1 20.1


20.8 22.8 24.9 24.4 23.4   23.0 23.2

Overall balance

0.2 -2.3 -2.1 -3.6 -2.9   -2.9 -3.1

Government debt

14.4 18.5 19.2 18.6 20.3   25.8 28.6


3.7 3.9 3.8 3.2 6.9   12.1 15.1

Net account payables

10.6 14.6 15.4 15.4 13.4   13.7 13.5

Government deposits (millions of euros)

263.9 256.9 218.2 154.1 72.9   72.9 72.9




Money and Credit



Deposits (percent change)

16.1 -18.7 -18.0 -12.5 -1.6  

Private sector credit (percent change)

12.2 -5.5 -6.6 -20.0 -13.3  

Net foreign assets (percent of GDP)

31.0 9.7 27.6 47.0 36.5  

Commercial banks

2.3 -23.3 6.2 30.1 20.8  

Central bank

28.7 33.0 21.4 16.8 15.7  




External Accounts (percent of GDP)



Balance of goods and services

24.7 25.4 26.1 23.4  


223.5 204.7 195.8 176.6  


198.8 179.3 169.8 153.3  

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

706.8 790.3 449.2 341.9 308.6  




Exchange Rate (average)



Euros per U.S. dollar

0.68 0.72 0.76 0.72 0.78  

Real exchange rate vis-à-vis Italy

101.37 103.05 104.12 103.37 103.16  




Financial Soundness Indicators (percent) 2/



Regulatory capital to risk-weighted assets

16.9 16.9 15.6 14.1 12.5  

Bad loans to total loans

n.a. 2.9 5.9 10.1 9.9  

Loan loss provision to total loans 3/

2.6 3.9 6.3 10.5 10.9  

Return on equity (ROE)

10.0 -14.4 -24.4 -24.4 -21.1  

Liquid assets to total assets


Liquid assets to short-term liabilities


Sources: IMF; International Financial Statistics; Sammarinese authorities; World Bank; and IMF staff calculations.

1/ For the central government. Does not include possible costs of future bank recapitalization as well as potential savings from the planned tax reform and expenditure review. 

2/ For 2012, latest available. 

3/ Based on total loan loss provision, which covers nonperforming and performing loans.

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. An explanation of any qualifiers used in summings up can be found here:


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