Following a mission to San Marino, International Monetary Fund staff said the economy strengthened in 2025 but is losing momentum in 2026 as higher energy prices, global uncertainty and weaker external demand weigh on activity. GDP growth rose to 1.5 percent in 2025 from 1.0 percent in 2024, supported by export-oriented sectors and strong tourism, but staff expects growth to slow to 1.3 percent in 2026. The statement argues that fiscal policy should keep building buffers and lowering debt, while the banking system needs further work to improve profitability and capital despite better liquidity and asset quality. Preliminary data show the 2025 primary surplus increased to 2.4 percent of GDP from 1.5 percent in 2024, helped by strong income tax revenue and underspending. Staff said the recent income tax reform and expenditure discipline should lift the structural primary surplus to about 2.5 percent of GDP, and recommended avoiding new untargeted support measures, containing wage and pension indexation, and further recalibrating pension spending. In banking, the net non-performing loan ratio fell to 11.1 percent in 2025 and the asset management company recovery process has outperformed expectations, with the remaining government-guaranteed senior securities expected to be fully repaid by no later than mid-2027. Even so, staff said some banks still face legacy vulnerabilities, including tight capital and weak profitability, and that potential capital shortfalls linked to securitization, provisioning and regulatory alignment should be addressed through credible capitalization plans and stronger supervision. The statement also said faster implementation of the European Union Association Agreement would support the economy. Discussions will continue in the context of the Article IV consultation scheduled for later this year.

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