Page 107 - Economic report 2020

signed DTAs: France, Spain, Luxembourg, Liechtenstein, Portugal, the United Arab Emirates, Malta,
Cyprus, San Marino and Hungary.

It is also important to remember that in 2020, Andorra became the 190th member of the
International Monetary Fund (IMF), bringing it credibility and improving the country’s rating,
offering a safety net in extreme circumstances where there is a lack of funding in the market, and
providing the support of specialist expert advisers in areas as diverse as macroeconomic statistics
and financial supervision.

In the IMF’s declaration, published on 20 June 2022, the body highlighted that Andorran banks
are well capitalised, have a high level of liquidity and have reduced the default rate. Equally, as in
many other small countries with a large banking sector, the vulnerabilities associated with the private
banking model and internationalisation strategy, including excessive dependence on foreign finance
and major off-balance sheet assets under management, require close supervision. Reinforcing liquidity
supervision and providing the Andorran Financial Authority (AFA) with greater financing and funds
would help towards this. The IMF also highlighted that the ongoing consolidation of the banking
system could improve the profitability of the system, but should not result in lower competition.

As for Andorra’s sovereign rating, Standard & Poor’s rating agency (S&P), after improving Andorra’s
rating in 2022, improved it again in May 2023, putting it at BBB+/A-2, with a positive outlook.
The improved outlook is based on the return to fiscal surpluses after the deficits caused by the
pandemic and the continued reduction of the debt-to-GDP ratio, which is expected to continue
until 2026. Standard & Poor’s also chose to value the high level of resilience in economic growth,
despite the adverse effects of the energy crisis over the last year, and the policies towards
macroeconomic stability which have allowed for correction of certain vulnerabilities. In this 105
respect, the agency highlights the Government’s commitment to pushing structural reforms such
as the emergency liquidity mechanism for the
financial sector, implemented in accordance The rating agencies maintain or
with international reserves, and the reform improve Andorra’s rating.
of the pensions system, which should enable
medium-term sustainability. Another important
aspect is that negotiation of the Association Agreement with the EU will lead to greater alignment
of the legal framework for regulating and supervising the financial system, which will enhance the
resilience of the national financial sector. Finally, the agency’s report highlights the improvement
in statistical data production, which allows for more reliable information about Andorra’s external
position; these data reflect a high recurring surplus in the current account balance.

For its part, Fitch Ratings has maintained its rating of the Andorran economy as A-, with a stable
outlook in 2023, confirming the July 2022 rating. In the report, the agency indicates that the
analysis is based on prudent fiscal management by the Government and also remarks on the high
resilience of the Andorran banking sector, which presents high capital and liquidity ratios.

Finally, on 26 July 2023, Moody’s published its rating for the Principality and maintained it at Baa2
with a stable outlook. The agency highlighted the soundness of Andorran institutions, pointing
to Andorra’s improved integration within the international framework, and considered that the Andorran economy: developments in the main sectors | XII. Services
Association Agreement with the European Union could create new business opportunities.
Equally, Moody’s also valued the soundness of the fiscal framework and the strong recovery in
public finances after the impact of Covid-19.