Questions? +1 (202) 335-3939 Login
Trusted News Since 1995
A service for global professionals · Thursday, March 28, 2024 · 699,571,398 Articles · 3+ Million Readers

Republic of San Marino: IMF Executive Board Concludes 2018 Article IV Consultation

April 11, 2018

On March 22, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of San Marino.

San Marino’s economy rebounded in 2016, on the back of recovering domestic demand and important gains in employment. However, the growth momentum slowed in 2017 amid financial sector uncertainties around a sizable loss at the largest bank and a closure of a small bank.

Only moderate growth is projected in the near and medium term. The economy is projected to grow at 1.3 percent in 2018, driven by domestic demand. Private consumption is expected to recover gradually, and an externally-financed investment project will add a significant boost to investment, which otherwise lacks support from the deleveraging banking sector. Unresolved banking sector vulnerabilities could weight on growth prospect.

San Marino continues to pursue the path of internationalization and strives to improve transparency and the business environment. Despite recent initiatives in these areas, challenges remain to diversify the economy beyond banking and support stronger and sustained growth. At the same time, the banking system continues to face weak balance sheets and high non-performing loans while financial sector legacy costs have burdened public finances. Fiscal adjustments are envisaged in the 2018 budget, but the size of deficit and public debt is highly uncertain until the ongoing update of the Asset Quality Review is completed and identifies the full cost of banking sector repair.

Executive Board Assessment [2]

The Executive Directors welcomed San Marino’s recovery in economic activity in 2016, but noted that momentum slowed in 2017 and considerable challenges remain to address banking system vulnerabilities, which continue to weigh on growth prospects. In this regard, Directors concurred that a comprehensive strategy and decisive actions are needed to safeguard financial stability and limit further costs of the banking sector clean-up to public finances. In addition, they encouraged measures to preserve debt sustainability, and structural reforms to diversify the economy and support growth. Directors emphasized that the reform agenda is demanding and requires strong commitment from all stakeholders.

Directors stressed the importance of restoring banking sector soundness and dealing with the very high stock of nonperforming loans (NPLs). They urged the authorities to complete the recently initiated update of the Asset Quality Review (AQR), noting that the AQR is critical in clarifying the cost of banking sector repair. The process ahead should include upfront loss recognition, prompt bank recapitalization, and reduction of NPLs. Directors considered that a credible strategy for Cassa di Risparmio della Repubblica di San Marino (CRSM) should entail restructuring to return the bank to viability. At the same time, they underscored the need to strengthen central bank functions and bank oversight to mitigate future risks and to adopt high standards of governance, accountability, and transparency.

Directors agreed that a fiscal strategy is needed to safeguard debt sustainability while securing resources for pro-growth policies. Although the fiscal cost of bank recapitalization is highly uncertain, Directors saw the need for sustained fiscal measures, including increasing tax revenue through reform of indirect taxation, and improving the quality and efficiency of spending. They noted that pension reform could help free resources for other areas and saw scope for better prioritization within the current reform proposal. Directors also noted that developing debt management capacity while establishing access to external financing would help enhance the government’s ability to respond to shocks.

Directors encouraged structural reforms to improve the business environment, reduce the cost of doing business, and increase labor market flexibility to diversify the economy beyond the financial sector and attract more foreign investment. They welcomed the progress made on the AML/CFT agenda and encouraged the authorities to continue improving the effectiveness of measures to safeguard financial integrity, including by strengthening risk-based supervision of banks.

Directors welcomed the recent initiative to compile balance of payments statistics and encouraged the authorities to continue improving data provision and compliance in line with international standards.

San Marino: Selected Economic Indicators, 2014–18

Projection

2014

2015

2016

2017

2018

Activity and Prices

Real GDP (percent change)

-0.9

0.6

2.2

1.5

1.3

Unemployment rate (average; percent)

8.7

9.2

8.6

8.0

7.4

Inflation rate (average; percent)

1.1

0.2

0.6

0.9

1.0

Public Finances (percent of GDP) 1/

Revenues

23.2

21.4

21.8

21.1

21.8

Expenditure

22.4

21.7

22.1

21.4

22.1

Overall balance

0.8

-0.3

-0.3

-0.3

-0.3

Government debt

19.6

20.3

22.5

56.6

55.5

Money and Credit

Deposits (percent change)

4.0

Private sector credit (percent change)

1.0

Net foreign assets (percent of GDP)

5.6

-3.9

External Accounts (percent of GDP)

Balance of goods and services

32.6

32.2

32.8

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

392.0

367.2

Exchange Rate (average)

Euros per U.S. dollar

0.75

0.90

0.90

0.89

0.82

Real exchange rate vis-à-vis Italy

100.9

101.0

101.6

101.4

102.4

Financial Soundness Indicators (percent)

Regulatory capital to risk-weighted assets

11.4

12.7

13.6

Bad loans to total loans

16.1

18.5

18.7

Loan loss provision to total loans

30.3

28.6

26.6

Return on equity (ROE)

-21.4

-9.0

-10.5

Liquid assets to total assets

32.4

29.8

29.5

Liquid assets to short-term liabilities

65.4

58.9

59.1

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

1/ For the central government.


[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] 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: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email: MEDIA@IMF.org

Powered by EIN Presswire


EIN Presswire does not exercise editorial control over third-party content provided, uploaded, published, or distributed by users of EIN Presswire. We are a distributor, not a publisher, of 3rd party content. Such content may contain the views, opinions, statements, offers, and other material of the respective users, suppliers, participants, or authors.

Submit your press release