In February, the IMF published the conclusions of its latest report examining Andorra’s performance in 2024 and its prospects for the coming years. The report reflects a positive outlook for the Principality, with an expanding economy and a budget tailored to the country’s needs. However, structural challenges remain, and addressing them will be crucial in order to ensure that development will be sustainable in the medium and long terms. The main points of the report are outlined below.
Table of contents:
- Andorra’s economy grew by 2.1% in 2024
Medium-term risk factors
The financial sector
Access to housing
Economic diversification and reform
Rating agencies’ assessments
Andorra faces the challenge of sustainable growth
Andorra’s economy grew by 2.1% in 2024
The International Monetary Fund states in its latest report that economic growth was slightly better than expected. All thanks to the services, banking and construction sectors. Inflation gradually declined, ending the year at 2.6%, and the current account surplus remained high at 15.1% of GDP.
However, the report also notes that real GDP per capita has remained virtually unchanged over the past 50 years, with growth driven mainly by population growth. Economic expansion is expected to moderate to 2025, with projected growth 1.7%, which could slow to 1.5% from 2027. Inflation could fall to 1.7% in the future.
The report highlights the fact that despite the global economic challenges, Andorra (like other service-orientated European countries) could grow more than expected.
Medium-term risk factors
The report warns of structural challenges that could affect the Andorran economy in the coming years. One of the main factors is the ageing of the population, driven by high life expectancy, which could halt GDP growth and increase fiscal costs for pensions and healthcare. It therefore recommends pension reform, a subject on which the Andorran government has been working for some time. Similarly, the reform of the healthcare system, which is linked to the ageing of the population, is also in progress.
Another problem to consider is the changing climate, which could affect the country’s economy, especially in “snow tourism”. Adaptation will therefore be necessary in order to minimise the impact on the tourism sector.
The financial sector
The IMF highlights the solid performance of the Andorran banking sector in 2024, driven mainly by higher interest margins and higher fees and commissions. This growth has strengthened the profitability of financial institutions, and represents a positive development in a stable economic context.
However, the Agency stresses the importance of maintaining strict supervision of the sector, given its significant weight in the country’s economy. The banking sector is a fundamental part of the Andorran financial system, so it is essential to ensure its stability and soundness so as to avoid risks that could affect the economy as a whole.
The report also notes that Andorra continues to make progress in aligning its regulatory framework with international standards, which is vital when increasing transparency and strengthening confidence in the financial sector. The implementation of stricter supervisory measures would help to minimise vulnerabilities and ensure the long-term sustainability of the banking system.
Access to housing
The IMF notes that economic growth and rising property prices have made access to affordable housing more difficult for a significant proportion of the population. This poses both social and economic challenges.
In this context, the IMF recommends increasing the availability of housing for rental and public investment in affordable housing.
Economic diversification and reform
The report stresses the importance of diversifying the Andorran economy to encourage investment and increase productivity. In this context, it considers that the Association Agreement with the European Union, which is still to be approved by referendum, could facilitate the implementation of reforms, although it would also pose new challenges.
Rating agencies’ assessments
Credit rating agencies play a pivotal role in evaluating the creditworthiness and economic stability of nations, thereby furnishing investors and financial markets with a benchmark of risk associated with sovereign debt.
In 2024, all three major global rating agencies maintained their previous ratings, reflecting a perception of stability in Andorra’s economic and financial risk.
• Standard & Poors
They confirmed Andorra’s ‘A-/A-2’ rating, with a positive outlook, in the final quarter of 2024. This highlighted the country’s economic strength and its ability to meet its financial obligations.
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• Fitch Ratings
In their latest assessment, of October 2024, Andorra’s rating was confirmed at ‘A-‘ with a stable outlook. The agency notes that the country has a Gross Domestic Product (GDP) per capita and good governance indicators that both exceed the average among similarly rated nations. Fitch states that Andorra’s prudent fiscal policy has been instrumental in maintaining fiscal and economic stability.
• Moody’s
Moody’s has maintained Andorra’s rating at ‘Baa1’ with a stable outlook. This assessment, dated January 2025, indicates medium credit quality, with moderate risk. It suggests that the Andorran economy is considered sufficiently solid to meet its financial obligations, although it could be subject to certain economic or financial risks.
Andorra faces the challenge of sustainable growth
The International Monetary Fund (IMF) recognises Andorra’s economic stability and capacity for growth, but stresses the importance of implementing structural reforms to ensure long-term sustainable development. Aspects such as the ageing population, the impact of the changing climate and housing affordability are important matters that the country will need to address in the coming years. Andorra became the International Monetary Fund’s 190th country in 2020. Since then, that agency has been closely monitoring Andorra’s economic developments, providing analysis and recommendations to strengthen its stability and growth.