San Marino Imf Tender

An International Monetary Fund IMF mission led by Borja Gracia visited San Marino during February 27-March 3 2023 to discuss with the Sammarinese authorities recent economic developments and the challenges that weakening activity and higher interest rates will pose for San Marino. At the conclusion of the visit Borja Gracia IMF mission chief for San Marino made the following statementSan Marino showed remarkable resilience last year underpinned by strong external demand. Robust manufacturing production and tourism supported GDP growth estimated at above 4 percent in 2022 as activity and employment exceeded pre-pandemic levels. However with increased uncertainty high energy prices and a weakening global environment economic activity is expected to decelerate this year. Risks are tilted to the downside including from geopolitical developments heightened commodity prices and volatile financial markets.While fiscal policy performed well in 2022 reform efforts particularly in tax policy should continue. Revenues were buoyant supported by higher inflation and the government contained expenditures. As a result the primary deficit which is net of support for banks improved from 2.3 of GDP to close to balance between 2021 and 2022. In the near term keeping prudent indexation of public wages and pensions will be key to further contain expenditures. However medium-term challenges persist. The approved pension reform focused on the revenue side is a step forward but further recalibration of pension spending will be needed to ensure the long-term sustainability of the system. Amidst a weakening economic environment and heightened uncertainty tax policy reforms will be critical to put debt in a clear declining path that ensures fiscal sustainability and facilitates the rollover of the Eurobond. Further structural reform efforts to increase the potential of San Marinos economy and make it more resilient would also strengthen the fiscal position.Efforts to improve the capitalization and profitability of banks continue and are bearing some fruits but risks remain. The system has shown remarkable stability with deposits continuing to grow. However progress to reduce costs halted and profitability remains fragile. Despite recent improvements vulnerabilities in the system remain given very large nonperforming assets and weak capitalization. In this connection plans to reduce nonperforming assets through an Asset Management Company AMC and the introduction of calendar provisioning by the Central Bank of San Marino are steps in the right direction. The implementation of this strategy scheduled for the second half of the year should not be delayed further. However this should be done in a way that avoids fiscal risks by establishing a conservative ceiling for the envisaged public guarantee to senior bonds and forbearance by ensuring that the transfer of nonperforming loans does not delay the full recognition of legacy losses.Discussions will continue in the context of the Article IV consultation scheduled to take place in September.We would like to thank our counterparts for excellent discussions.