{ "title": "Principality of Andorra: Staff Concluding Statement of the 2025 Article IV Mission", "publication": "IMF News, February 11, 2025", "sourceUrl": "https://www.imf.org/en/news/articles/2025/02/11/andorra-cs-2025", "canonical": "https://www.imf.org/en/news/articles/2025/02/11/andorra-cs-2025", "overlayPath": "/en/news/articles/2025/02/11/andorra-cs-2025/index.md", "summary": "Principality of Andorra: Staff Concluding Statement of the 2025 Article IV Mission", "publishDate": "2025-02-11", "sections": [ { "heading": "Overview", "content": "- The Andorran economy is doing well, creating a window to address substantial long-term challenges.\n- Authorities have consolidated the macro-financial framework and reinforced buffers.\n- Real GDP per capita has remained flat over the last 50 years, with growth largely driven by population increases.\n- Population aging and climate change present key economic and fiscal concerns; ambitious structural reforms are needed to unlock investment and lift productivity." }, { "heading": "Economic outlook and risks", "content": "- 2024 growth: \"2.1 percent\", driven by the service, banking and construction sectors.\n- Inflation: \"2.6 percent\" at end-2024.\n- Current account surplus: \"15.1 percent of GDP\" in 2024.\n- Bank performance in 2024: supported by high interest margins and increased fees and commissions.\n- Forecasts:\n - Real GDP growth: \"1.7 percent\" in 2025 and \"1.5 percent\" from 2027 onwards.\n - Inflation: projected to stabilize at \"1.7 percent\" over the medium term.\n- Short-term risks (downside): greater global uncertainty, deepening geoeconomic fragmentation, supply disruptions, recurrent commodity price fluctuations, reversal of monetary policy loosening.\n- Upside: stronger demand for service-oriented economies in Europe could lead to faster growth than projected.\n- Solid buffers mitigate risks." }, { "heading": "Medium-term structural challenges", "content": "- Demographics:\n - Andorra expected to age rapidly due to long life expectancy and low fertility rates, removing an engine for GDP growth and creating fiscal liabilities.\n- Fiscal cost estimates to 2050:\n - Pension system expenditures will rise by \"6.7 percentage points\".\n - Healthcare expenditures will increase by \"2 percentage points\".\n- Climate change:\n - More frequent climate shocks can affect the economic cycle in an economy largely reliant on winter tourism.\n - Structurally warmer temperatures will require extensive adaptation." }, { "heading": "Policy priorities and recommendations", "content": "- Overarching priority: use the solid macroeconomic position and credible policy framework to implement far-reaching structural reforms to diversify the economy, unlock investment, lift productivity, and address aging and climate change.\n- EU Association Agreement (EUAA):\n - If approved by referendum, could support reform momentum and bring challenges; preparedness is essential.\n- Fiscal policy:\n - Maintain disciplined fiscal policy within the fiscal framework to provide room for public investment.\n - The 2025 budget:\n - Foresees a deficit of \"0.9 percent of GDP\".\n - Staff forecasts a small surplus of about \"0.3 percent of GDP\" due to past practice of adjusting expenditures with revenues.\n - Fiscal framework limits: overall deficit limit of \"1 percent of GDP\" and central government debt ceiling of \"40 percent of GDP\".\n - Room exists for higher public spending targeted to growth-enhancing investment: social and affordable housing, upskilling the workforce and addressing labor shortages, connectivity to support economic diversification, and investments to lift potential growth.\n - Under-execution of budgeted public investment is customary; delivering on investment plans should be a policy objective.\n- Pension and healthcare reforms:\n - Pension reform is overdue; options include increasing contribution rates, reducing conversion rates, and increasing the retirement age.\n - Healthcare reform should aim to contain long-term costs while raising healthcare revenues; potential measures in 4 areas: (i) enhance cost efficiency, (ii) strengthen preventive care, (iii) increase revenues for healthcare while preserving equity, and (iv) improve governance.\n - The National Pact should continue to strengthen the healthcare system.\n- Broader measures:\n - Domestic revenue mobilization and migration policies can help buffer long-term fiscal costs of aging.\n- Climate and fiscal space:\n - Public investment needs to increase to meet climate mitigation targets and support private sector adaptation.\n - Precautionary borrowing and rapid reduction in public debt provide flexibility.\n - Debt management achievements: projected public debt down to \"30 percent of GDP\" by 2026; maturity lengthened to \"6.3 years\"; public debt service remains low.\n - Authorities should monitor market conditions for an upcoming debt maturity of \"€500 million\" public bonds in 2027 and consider further diversifying debt and extending maturity to decrease rollover risks and mitigate interest rate risk." }, { "heading": "Banking sector and financial stability", "content": "- Banking fundamentals: large capital and liquidity buffers; sector displays solid fundamentals.\n- Supervisory recommendations:\n - Remain vigilant given the large size of the banking sector.\n - Use available supervisory tools to complement each other, support the lender of last resort facility introduced in 2022 with continued close supervision, and maintain a well-designed resolution framework.\n - Activation of a countercyclical capital buffer in 2024 was timely.\n- International expansion and EUAA implications:\n - Banks have been expanding in the EU with independent subsidiaries focused on private banking.\n - The EUAA would facilitate expansion, notably in asset management, and could create a more dynamic domestic market but also increase competition.\n - Authorities should work closely with banks to prepare for the transition and safeguard financial stability." }, { "heading": "Structural reforms to unlock investment and raise productivity", "content": "- Priority reform areas:\n - Address frictions, notably labor and housing shortages:\n - Public investment in education and well-designed immigration policies to improve knowledge capital and raise labor productivity.\n - Recent housing measures: extension of existing rental contracts; creation of a public affordable housing park; tax incentives for owners offering affordable housing; suspension of tourist accommodation licenses; fees on empty houses; fees on real estate purchases by foreigners.\n - Authorities should aim for market-based incentives for affordable housing while minimizing distortions.\n - Create a business environment conducive to higher investment:\n - Reduce administrative rigidities, promote access to financing, implement measures to attract and retain talent.\n - Support development of higher value-added sectors, including the digital economy:\n - Limited space for manufacturing implies focusing on digital economy; government policies include the \"2022 Law on the digital economy\", entrepreneurship, and innovation and the \"Digitalization Strategy 2020-2030\".\n- EUAA and association benefits:\n - Association signals commitment to deeper integration and institutional reinforcement with EU standards.\n - Empirical evidence suggests benefits build up over time and depend on well-designed domestic reforms during the accession/association period, materializing via structural reforms, greater capital accumulation (notably FDI), and higher productivity.\n - Transition periods for sectors such as telecom and banking mitigate disruption risks; fiscal space can cover transition costs.\n - Preparedness reduces potential downsides like greater regional competition.\n- Climate adaptation:\n - Andorra's higher altitude makes it less exposed than other winter tourism locations; accelerate climate adaptation strategy to enact policies, support higher value-added services and diversify away from winter tourism." }, { "heading": "Selected social and economic indicators (highlights)", "content": "- I. Social indicators\n - Population (2023): \"85101\"\n - Population at risk of poverty (percent, 2020): \"13\"\n - Per capita income (2023, euros): \"40511\"\n - Human Development Index Rank (2021): \"40 (out of 189)\"\n - Gini Index (2020): \"32\"\n - Life expectancy at birth (2024): \"83.9\"\n- II. Economic indicators — selected figures and projections\n - Real GDP annual change (percent): \"2.1\" in 2024; \"1.7\" in 2025; \"1.6\" in 2026; \"1.5\" in 2027.\n - Nominal GDP annual change (percent): \"5.0\" in 2024; \"3.7\" in 2025; \"3.4\" in 2026; \"3.3\" in 2027; \"3.2\" in 2028.\n - GDP deflator (percent): \"2.9\" in 2024; \"1.9\" in 2025; \"1.8\" in 2026.\n - Inflation (percent, period average): \"2.2\" in 2024.\n - Inflation (percent, end of period): \"2.0\" in 2024.\n - Current account (percent of GDP): \"11.6\" in 2022; \"15.1\" in 2023; \"17.0\" in 2024.\n - Exports of goods and services (percent of GDP): \"80.9\" in 2022; \"83.7\" in 2023; \"83.8\" in 2024; \"84.1\" in 2025.\n - Imports of goods and services (percent of GDP): \"72.2\" in 2022; \"71.8\" in 2023; \"71.6\" in 2024; \"71.7\" in 2025.\n - Gross international reserves (millions of euros): \"338.4\" in 2022; \"338.7\" in 2023; \"399.0\" in 2024.\n - General government revenue (percent of GDP): \"39.7\" in 2022; \"38.0\" in 2023; \"37.9\" in 2024.\n - General government expenditure (percent of GDP): \"34.9\" in 2022; \"35.9\" in 2023; \"36.5\" in 2024.\n - Public debt (percent of GDP): \"38.9\" in 2022; \"35.5\" in 2023; \"33.7\" in 2024; projected \"30.0\" in 2028.\n- Banking sector indicators\n - Regulatory capital to risk-weighted assets: \"20.3\" in 2022; \"21.2\" in 2023.\n - Credit to nonfinancial private sector (level, percent of GDP): \"116.4\" in 2022; \"101.3\" in 2023; \"94.5\" in 2024.\n - Credit to corporates (percent of GDP): \"61.8\" in 2022; \"55.1\" in 2023; \"51.1\" in 2024.\n - Credit to households (percent of GDP): \"54.6\" in 2022; \"46.2\" in 2023; \"43.4\" in 2024.\n - Growth (nominal) of credit to nonfinancial private sector: \"-1.7\" in 2022; \"-5.2\" in 2023; \"-2.0\" in 2024.\n- Memorandum items\n - Exchange rate (€/USD, period average): \"0.95\" in 2022; \"0.92\" in 2023; \"0.97\" in 2024.\n - Nominal GDP (millions of euros): \"3,210\" in 2022; \"3,501\" in 2023; \"3,676\" in 2024; \"3,811\" in 2025; \"3,942\" in 2026; \"4,070\" in 2027.\n\nPrincipality of Andorra: Staff Concluding Statement of the 2025 Article IV Mission\n\n---\n\n Content in this bundle\n\n- Press Release-English\n - Press Release-English (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Press Release-English (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Principality of Andorra and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2025/02/11/andorra-cs-2025" } ], "bullets": [ "[Markdown version](/en/news/articles/2025/02/11/andorra-cs-2025/index.md)", "[Structured JSON version](/en/news/articles/2025/02/11/andorra-cs-2025/index.json)", "[Bundle manifest](/en/news/articles/2025/02/11/andorra-cs-2025/bundle-manifest.json)", "Published: February 11, 2025", "The Andorran economy is doing well, creating a window to address substantial long-term challenges.", "Authorities have consolidated the macro-financial framework and reinforced buffers.", "Real GDP per capita has remained flat over the last 50 years, with growth largely driven by population increases.", "Population aging and climate change present key economic and fiscal concerns; ambitious structural reforms are needed to unlock investment and lift productivity.", "2024 growth: \"2.1 percent\", driven by the service, banking and construction sectors.", "Inflation: \"2.6 percent\" at end-2024.", "Current account surplus: \"15.1 percent of GDP\" in 2024.", "Bank performance in 2024: supported by high interest margins and increased fees and commissions.", "Forecasts:", "Short-term risks (downside): greater global uncertainty, deepening geoeconomic fragmentation, supply disruptions, recurrent commodity price fluctuations, reversal of monetary policy loosening.", "Upside: stronger demand for service-oriented economies in Europe could lead to faster growth than projected.", "Solid buffers mitigate risks.", "Demographics:", "Fiscal cost estimates to 2050:", "Climate change:", "Overarching priority: use the solid macroeconomic position and credible policy framework to implement far-reaching structural reforms to diversify the economy, unlock investment, lift productivity, and address aging and climate change.", "EU Association Agreement (EUAA):", "Fiscal policy:", "Pension and healthcare reforms:", "Broader measures:", "Climate and fiscal space:", "Banking fundamentals: large capital and liquidity buffers; sector displays solid fundamentals.", "Supervisory recommendations:", "International expansion and EUAA implications:", "Priority reform areas:", "EUAA and association benefits:", "Climate adaptation:", "I. Social indicators", "II. Economic indicators — selected figures and projections", "Banking sector indicators", "Memorandum items", "**Press Release-English**", "[Principality of Andorra and the IMF](https://www.imf.org/en/countries/and)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "related": [ { "title": "Press Release-English", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/news/mission-concluding-statement/2025/principality-of-andorra-cat-staff-concluding-statement-of-the-2025-article-iv-mission.pdf", "summary": { "path": "/-/media/files/news/mission-concluding-statement/2025/principality-of-andorra-cat-staff-concluding-statement-of-the-2025-article-iv-mission.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/news/mission-concluding-statement/2025/principality-of-andorra-cat-staff-concluding-statement-of-the-2025-article-iv-mission.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2025/02/11/andorra-cs-2025/index.md", "json": "/en/news/articles/2025/02/11/andorra-cs-2025/index.json", "bundleManifest": "/en/news/articles/2025/02/11/andorra-cs-2025/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:37:49.132Z" }