IMF Warns of Fiscal Challenges Ahead for San Marino

Washington, D.C. - The International Monetary Fund (IMF) has issued a report warning that San Marino’s public debt is set to peak this year and then decline moderately thereafter, but only if the country implements ambitious fiscal measures.

Public Debt on the Rise

The report notes that the pandemic response and large-scale support to the financial system have significantly increased public debt, which now stands at 105% of GDP. While interest payments are expected to remain manageable, the size of San Marino’s Eurobond and its short 3-year maturity pose new challenges in the event of less benign international financial conditions.

Recommendations for Fiscal Sustainability

The IMF recommends a comprehensive reform strategy to strengthen fiscal sustainability, including:

• Structural reforms to improve revenue collection and public spending efficiency
• Bold action to tackle the large amount of non-performing loans (NPLs) in the banking system

“We have come through a unique shock, but now need to address long-standing challenges to secure sustainable growth,” said an IMF spokesperson. “The country’s strong recovery provides an opportunity to strengthen its fiscal position and improve its banking system.”

Fiscal Consolidation Needed

The report recommends that San Marino aim for a combined consolidation of its central government balance and pension fund of around 4% of GDP over the next three years. This would require:

• Significant efforts to reduce exemptions and loopholes in the tax system
• Introduction of a value-added tax (VAT)
• Linking social spending benefits to indicators of income and financial wealth

Strengthening the Banking System

The IMF also urges San Marino to strengthen its banking system by:

• Increasing reserve requirements
• Enforcing liquidity requirements strictly
• Prioritizing reforms to improve the business climate, digitalization, and labor market flexibility to boost long-term growth.

Conclusion

The report concludes that while San Marino has made progress in recent years, it still faces significant challenges ahead. “Without ambitious fiscal measures, the country’s rollovers will have to be undertaken in a precarious fiscal situation,” warned the IMF spokesperson.

Contact: Meera Louis Phone: +1 202 623-7100 Email: media@imf.org Twitter: @IMFSpokesperson