Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with the Principality of Andorra.
The Andorra economy is showing resilience and is growing slightly above its long-term potential despite external headwinds. Growth is estimated at 2.3 percent in 2023, driven by the service sector and a record number of visitors. With limited economic slack, the labor market is tight with almost no unemployment (1.2 percent at 2023Q3), resulting in significant wage pressures. Inflation remained high in 2023, at 5.6 percent, driven by second-round effects from wage increases and generalized price pressure in services and imported goods. Despite a shortage in affordable housing, a substantial increase in foreign residents helped match high labor demand.
Going forward, GDP is expected to slow to its lower long-term potential, estimated at 1.5 percent. Real GDP growth is forecasted at 1.8 percent in 2024 and at 1.5 percent from 2025 onwards, comparable to average growth in the euro area. Inflation is projected to subside from 4.3 percent in 2024 to 2 percent only by end-2025, in line with price developments in neighboring countries and domestic second-round effects. Risks to the outlook are balanced, though subject to substantial uncertainty and bottlenecks. Downside risks include a slower than expected global growth, more persistent inflation, and tighter for longer monetary policy in the region. Emerging fault lines and structural bottlenecks—as housing affordability issues, labor shortages, and climate change—cloud the medium-term outlook. On the upside, greater than expected regional growth and lower inflation would increase tourist flows and investments, while the adoption of the EU Association Agreement would open up new markets over the medium-term. Solid macroeconomic buffers serve as buffers to mitigate downside risks should they materialize.
Executive Board Assessment[2]
Executive Directors commended Andorra's resilience to external headwinds and the authorities' sound macroeconomic management, that allowed to rebuild solid buffers. While risks to the outlook are balanced, Directors noted challenges stemming from persistently high inflation, a tight labor market, and housing affordability. They emphasized the importance of preserving prudent policies and advancing structural reforms to promote economic diversification and lift medium‑term growth.
Directors welcomed the authorities' commitment to fiscal prudence which together with an effective fiscal framework and proactive debt management strategy, have enabled Andorra to restore fiscal space and reduce debt. They agreed that the fiscal stance should remain tight to support disinflationary efforts and further strengthen buffers. Directors concurred that channeling available fiscal space toward higher infrastructure and affordable housing would help tackle structural bottlenecks. They also encouraged the authorities to pursue healthcare reform and build consensus to implement needed pension reforms given population aging.
Directors welcomed the strength of Andorra's financial system. They emphasized that continued monitoring of risks is needed given the large size of banks and their international exposure. They commended the introduction of the lender of last resort facility and encouraged further strengthening the resolution framework. Directors agreed that ensuring that the Andorran Financial Authority is autonomous and fully resourced is key. They welcomed the recently negotiated EU Association Agreement and encouraged the authorities to ensure its smooth implementation once adopted.
Directors emphasized the importance of removing structural bottlenecks to boost growth and diversify the economy, and noted the opportunities stemming from the EU Association Agreement. They welcomed the priority given to improving housing affordability and addressing potential labor shortages. Noting the progress made, Directors encouraged continued efforts in governance, anticorruption and AML/CFT frameworks, and in closing data gaps, with IMF technical assistance. They also encouraged enhancing digitalization and accelerating climate change adaptation efforts.
Andorra: Selected Social and Economic Indicators, 2020–28 |
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I. Social Indicators |
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Population (2021) |
79,535 |
Population at risk of poverty (percent, 2020) |
13 |
||||||||
Per capita income (2021, euros) |
36,840 |
Human Development Index Rank (2021) |
40 (out of 189) |
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Gini Index (2020) |
32 |
Life expectancy at birth (2021) |
82.4 |
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II. Economic Indicators |
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Projections |
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2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
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NATIONAL ACCOUNTS AND PRICES |
(annual change, percent, unless otherwise indicated) |
||||||||||
Real GDP |
-11.2 |
8.3 |
9.6 |
2.3 |
1.8 |
1.5 |
1.5 |
1.5 |
1.5 |
||
Nominal GDP |
-10.2 |
11.1 |
14.2 |
7.3 |
4.9 |
4.0 |
3.3 |
3.3 |
3.2 |
||
GDP deflator |
1.1 |
2.6 |
4.2 |
4.9 |
3.0 |
2.4 |
1.8 |
1.7 |
1.7 |
||
(contribution to nominal GDP growth, percentage points) |
|||||||||||
Consumption |
-0.7 |
7.2 |
7.0 |
5.9 |
3.6 |
2.7 |
2.4 |
2.6 |
2.5 |
||
Private |
-3.3 |
6.3 |
6.7 |
3.5 |
1.7 |
1.6 |
1.5 |
1.7 |
1.6 |
||
Public |
2.6 |
0.9 |
0.3 |
2.4 |
1.9 |
1.1 |
0.9 |
0.9 |
0.9 |
||
Investment |
-3.5 |
-1.2 |
4.5 |
1.5 |
0.6 |
0.8 |
0.5 |
0.4 |
0.3 |
||
Private 1/ |
-3.1 |
-1.1 |
4.1 |
0.7 |
0.1 |
0.4 |
0.3 |
0.2 |
0.1 |
||
Public |
-0.4 |
-0.2 |
0.4 |
0.9 |
0.6 |
0.4 |
0.2 |
0.2 |
0.2 |
||
Net exports of goods and services |
-6.0 |
5.1 |
1.9 |
0.7 |
0.6 |
0.4 |
0.4 |
0.3 |
0.4 |
||
Exports |
-16.8 |
16.9 |
19.8 |
6.7 |
4.2 |
3.2 |
2.9 |
2.8 |
2.8 |
||
Imports |
-10.7 |
11.8 |
18.0 |
6.1 |
3.6 |
2.8 |
2.5 |
2.4 |
2.4 |
||
Prices |
|||||||||||
Inflation (percent, period average) |
0.1 |
1.7 |
6.2 |
5.6 |
4.3 |
2.4 |
2.1 |
1.7 |
1.7 |
||
Inflation (percent, end of period) |
-0.5 |
3.3 |
7.2 |
4.6 |
3.8 |
2.0 |
1.7 |
1.7 |
1.7 |
||
Unemployment rate (percent) |
2.9 |
3.3 |
2.1 |
1.5 |
1.5 |
1.5 |
1.5 |
1.5 |
1.5 |
||
EXTERNAL SECTOR2/ |
(percent of GDP, unless otherwise indicated) |
||||||||||
Current account |
15.5 |
14.1 |
17.3 |
17.3 |
17.5 |
17.6 |
17.7 |
17.7 |
17.8 |
||
Balance on goods and services |
4.0 |
8.2 |
8.8 |
8.8 |
9.0 |
9.0 |
9.1 |
9.1 |
9.3 |
||
Exports of goods and services |
63.7 |
72.6 |
80.9 |
81.6 |
81.9 |
81.8 |
82.0 |
82.0 |
82.2 |
||
Imports of goods and services |
59.7 |
64.5 |
72.2 |
72.9 |
72.9 |
72.8 |
72.8 |
72.9 |
72.9 |
||
Primary income, net |
13.1 |
7.6 |
9.9 |
10.0 |
10.0 |
10.0 |
10.0 |
10.0 |
10.0 |
||
Secondary income, net |
-1.5 |
-1.7 |
-1.4 |
-1.4 |
-1.4 |
-1.4 |
-1.4 |
-1.4 |
-1.4 |
||
Capital account |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financial account |
17.5 |
13.7 |
17.9 |
17.3 |
17.5 |
17.6 |
17.7 |
17.7 |
17.8 |
||
Errors and omissions |
1.9 |
-0.4 |
0.7 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross international reserves (millions of euros) 3/ |
41.9 |
138.1 |
338.4 |
338.4 |
338.4 |
338.4 |
338.4 |
338.4 |
338.4 |
||
FISCAL SECTOR |
(percent of GDP, unless otherwise indicated) |
||||||||||
General Government 4/ |
|||||||||||
Revenue |
41.3 |
37.9 |
39.7 |
38.8 |
38.5 |
39.4 |
39.5 |
39.5 |
39.6 |
||
Expenditure |
42.3 |
39.0 |
34.9 |
36.1 |
36.6 |
36.8 |
36.8 |
36.9 |
37.0 |
||
Interest |
0.6 |
0.7 |
0.7 |
0.6 |
0.5 |
0.6 |
0.5 |
0.7 |
0.7 |
||
Primary balance |
-0.5 |
-0.4 |
5.5 |
3.2 |
2.4 |
3.2 |
3.2 |
3.3 |
3.2 |
||
Net lending/borrowing (overall balance) |
-1.1 |
-1.2 |
4.8 |
2.6 |
1.9 |
2.6 |
2.7 |
2.6 |
2.5 |
||
Public debt |
46.4 |
48.6 |
39.1 |
36.4 |
34.7 |
33.4 |
32.3 |
31.3 |
30.8 |
||
Central Government 5/ |
|||||||||||
Revenue |
20.6 |
19.4 |
21.7 |
19.7 |
20.3 |
20.4 |
20.4 |
20.4 |
20.5 |
||
Expenditure |
24.6 |
22.0 |
18.7 |
19.3 |
20.0 |
19.9 |
20.1 |
20.0 |
20.2 |
||
Interest |
0.5 |
0.7 |
0.7 |
0.5 |
0.5 |
0.5 |
0.5 |
0.5 |
0.7 |
||
Primary balance |
-3.4 |
-1.9 |
3.6 |
0.9 |
0.8 |
1.0 |
0.9 |
0.9 |
1.0 |
||
Net lending/borrowing (overall balance) |
-4.0 |
-2.6 |
2.9 |
0.4 |
0.3 |
0.5 |
0.4 |
0.4 |
0.3 |
||
Public debt |
43.7 |
46.3 |
37.1 |
34.5 |
32.9 |
31.7 |
30.7 |
29.7 |
29.3 |
||
BANKING SECTOR6/ |
(percent, unless otherwise indicated) |
||||||||||
Regulatory capital to risk-weighted assets |
22.5 |
21.5 |
19.5 |
20.2 |
… |
… |
… |
… |
… |
||
Nonperforming loans to total gross loans |
6.1 |
5.2 |
3.3 |
3.5 |
… |
… |
… |
… |
… |
||
Credit to nonfinancial private sector |
|||||||||||
Level (percent of GDP) |
150.3 |
135.2 |
116.6 |
102.7 |
… |
… |
… |
… |
… |
||
Corporates |
76.8 |
68.8 |
61.8 |
56.2 |
… |
… |
… |
… |
… |
||
Households |
73.5 |
66.4 |
54.8 |
46.5 |
… |
… |
… |
… |
… |
||
Growth (nominal) |
-0.7 |
-0.1 |
-2.4 |
-7.5 |
… |
… |
… |
… |
… |
||
Corporates |
-1.8 |
-0.6 |
1.8 |
-0.4 |
… |
… |
… |
… |
… |
||
Households |
0.6 |
0.4 |
-6.8 |
-14.9 |
… |
… |
… |
… |
… |
||
Credit to public sector |
|||||||||||
Level (percent of GDP) |
6.1 |
2.7 |
2.2 |
1.8 |
… |
… |
… |
… |
… |
||
Growth (nominal) |
-27.2 |
-50.2 |
-8.4 |
-10.9 |
… |
… |
… |
… |
… |
||
Memorandum Items |
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Exchange rate (€/USD, period average) 7/ |
0.88 |
0.85 |
0.95 |
0.92 |
… |
… |
… |
… |
… |
||
Nominal GDP (millions of euros) |
2,531 |
2,811 |
3,210 |
3,446 |
3,613 |
3,756 |
3,880 |
4,007 |
4,137 |
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Sources: Govern d'Andorra Department of Statistics, Andorran authorities, Eurostat, and IMF staff calculations. |
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1/ The contribution of private investment is derived as a residual. Since the fiscal accounts are covered at the general government level, investments of state-owned enterprises are subsumed under private investment. |
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2/ Balance of Payments data are only available starting from 2019, with the exception of the goods and services balance, which are available starting from 2017. Data for 2021 are an estimate. |
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3/ The increase of gross international reserves in 2021 is due to the general SDR allocation made in August 2021 to all IMF members. The 2021 SDR allocation for Andorra was of SDR 79.1 million. In 2022 €100 million were deposited at the Bank of Spain as gross international reserves. In addition, €40 million have been deposited at the Banque de France, and €60 million at the Nederlandsche Bank as gross international reserves. |
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4/ The general government comprises the central government, local governments and the social security fund. |
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5/ The central government comprises Govern d'Andorra, as well as nonmarket, nonprofit institutional units. |
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6/ 2023 data refers to 2023Q3, which is preliminary and not audited. |
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7/ The table reports the exchange rate €/USD because Andorra is a euroized economy. |
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[1]Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
