KEY ISSUES Context: The global crisis and tense relations with Italy triggered a 30 percent GDP contraction since 2008 and a sea change in San Marino’s off-shore banking model. The banking system has undergone deep restructuring, with several banks intervened and the largest bank requiring large injections of public capital. The economic downturn and bank recapitalization needs have put significant pressure on public finances. Nevertheless, the very recent exit from the Italy’s tax black list should facilitate the recovery and the transition to a new growth model. Challenges: Lay foundations for sustainable growth by advancing the cleanup of the banking system, realign fiscal policy with new economic realities, and integrate into international markets. Key policy recommendations: ? Financial sector policy. Complete recapitalization of the largest bank, diluting shareholders unconditionally and taking control of the board and management. For all banks, step up on-site supervisions to ensure adequate provisioning, and undertake an external asset-quality review coupled with appropriate contingency plans if capital needs are identified. ? Fiscal policy. Further consolidation of 3 percent of GDP is needed over the medium term to put public debt on a sustainable path and rebuild buffers. ? Structural policy. Stay committed to openness and transparency to fully normalize relations with the international community; improve nonprice competitiveness to facilitate the reallocation of resources to the nonbanking sector. Traction of past Fund advice: The authorities have recognized plausible losses in the largest bank in line with Fund advice, but the modalities of public recapitalization remain problematic. The 2014 budget delivers significant savings, consistent with past Fund advice.
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|Size: ||2.7 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2014|
|ISBN: ||9781484358825 (DRM-EPUB)|
|Copying:||of 20 selections every 20 days allowed|
|Printing:||of 20 pages every 20 days allowed|
|Read Aloud: ||not allowed|