San Marino upgraded to 'BBB+/A-2' by S&P on improved metrics

S&P Global Ratings has upgraded the Republic of San Marino's sovereign credit rating to 'BBB+/A-2' from 'BBB-/A-3' with a stable outlook, citing significant improvements in its fiscal and external metrics. The agency highlighted a projected reduction in net government debt-to-GDP to approximately 32% by 2027/2028, a robust current account surplus of 22.4% of GDP in 2023, and a substantial decline in banking sector non-performing exposures to 17.7%. This positive assessment further acknowledges San Marino's wealthy economy, stable institutions, and the potential for enhanced growth from its upcoming association agreement with the EU.

Analysis

S&P Global Ratings has executed a significant two-notch upgrade on San Marino's sovereign credit rating to 'BBB+/A-2' with a stable outlook, reflecting a dramatic improvement in the nation's credit fundamentals. The primary driver is a substantial revision in fiscal projections, with net government debt-to-GDP now forecast to reach approximately 32% by 2027-2028, a stark contrast to the previous 60% estimate. This fiscal consolidation is complemented by a remarkably strong external position, evidenced by a current account surplus that expanded to 22.4% of GDP in 2023. Furthermore, the banking sector has made critical progress in de-risking, with the gross non-performing exposure (NPE) ratio plummeting to 17.7% from 56.2% at the end of 2022, largely attributed to the work of the asset management company SGA. The upgrade is underpinned by a resilient, high-income economy with a GDP per capita of nearly $60,000 and a stable growth forecast of 1.1% through 2028. A key future catalyst is the forthcoming association agreement with the EU, set to take effect in 2026, which could unlock further growth potential by enhancing market access.

Key Decisions for Investors

• For fixed-income investors, the two-notch upgrade to 'BBB+' warrants a re-evaluation of San Marino's sovereign debt, as the improved credit profile should translate into tighter credit spreads and a lower risk premium.
• The successful fiscal and banking sector reforms provide a positive case study for sovereign turnarounds, but the low market impact score indicates this is an idiosyncratic event with limited contagion or relevance for major global asset classes.
• Investors should monitor the implementation of the EU association agreement in 2026, as its successful execution represents a key potential upside to the baseline real GDP growth forecast of 1.1%.
• Despite substantial progress, the non-performing exposure ratio of 17.7% remains a residual risk in the banking sector that requires continued monitoring as a potential source of financial instability.