VII. Funding and financial framework

The Government’s weak fiscal position was compounded by its limited financing options. Historically, the Government depended on domestic sources, including government deposits and funding from banks, so that it has a limited policy space in the face of adverse economic conditions. This is all the more so in view of the persistent weaknesses within the Sammarinese banking sector and the low level of development of the domestic bond market, which, despite improvements, continue to constrain the liquidity buffers of the Central Bank of San Marino (CBSM). This situation changed in February 2021, when the Government resorted to the international bond market by issuing a three-year euro 340 million note with a 3.25 per cent coupon, equivalent to 36.75 per cent of the projected public revenues (net of clearing entries) for the same year.

In addition, the Republic of San Marino now stands to benefits from international and European financial institutions. In June 2019, it became the 70th shareholder of the European Bank for Reconstruction and Development, with euro 2 million in capital subscription as of June 2022. The Republic of San Marino also benefits from the Council of Europe Development Bank, which, in 2020, approved a euro 10 million loan with a 15-year maturity to support the Government’s COVID-19 emergency response package.

The Government sees external loans as a measure of last resort and is focused on developing the financial market and improving its fiscal position. In this respect, it is working closely with the International Monetary Fund to gradually rebuild fiscal buffers, including by restricting state support to the banking system; implementing an ambitious fiscal adjustment that relies on both revenue the reduction of expenditures; and enhancing the national debt and cash management capacity.93

Most recently, and with a view to minimize its rent bill, it has allocated euro 2 million for building new Government offices.94 Moreover, the Government is keen on exploring the use of Publicprivate partnerships (PPPs), which fall under the responsibility of the Economic Development Agency-Chamber of Commerce of the Republic of San Marino. 95 PPPs were used all but once for financing the construction of a multi-storey public car park for public in the 1990s.

VIII. Recommendations

Below are proposed recommendations for the consideration of the government of the Republic of San Marino. The recommendations are organised by priority area and are sequenced along a timeframe, which spans from short-term (0-2 years) to medium (2-5 years) and long-term (>5 years).

93 See, International Monetary Fund, different staff reports. Available at: https://www.imf.org/en/Countries/SMR 94 See, article 31 of Law No. 94 of 24 June 2022. In addition, and pursuant to Article 2 of the said law, up to euro 15.9 million were earmarked for acquiring real estate for accommodating Government buildings, State-owned enterprises and international organisations. 95 https://www.agency.sm/area-news-generica/2021/12/20/ase-cc-una-partnershipo-pubblico-privata-al-servizio-delsistema-paese

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