IMF Executive Board Concludes 2021 Article IV Consultation with Principality of Andorra

Washington, DC: On June 7, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with the Principality of Andorra.

The COVID-19 pandemic has hit Andorra’s society and economy severely following a broad-based, job-rich growth in 2019. Tourism and domestic services fell with the stringency of containment measures in the first half of 2020 but rebounded strongly during the summer with the arrival of tourists and a temporary ease of stringency. With French and Spanish borders closed until recently, especially during the height of the ski season in the first quarter of 2021, hotels and ski resorts have already lost a major share of their annual revenue.

Universal testing might have enabled more targeted containment measures compared to the region. Despite the very high prevalence of COVID-19 cases per capita, fatality rates are among the lowest in the world as hospital capacity and protective equipment were quickly scaled up in response to the pandemic. So far, the pace of vaccination has been comparable to that of EU countries, and about 40 percent of the population have received at least one dose so far.

In response to the virus outbreak, the authorities undertook mitigating fiscal and financial sector measures. Expenditure measures worth 2.2 percent of GDP and revenue measures worth 0.4 percent of GDP included healthcare spending and financial support for pandemic-affected sectors and households. In addition, government guarantees worth 9 percent of GDP were made available for bank loans to liquidity-strapped companies. In the financial sector, debt moratoria provided relief to private sector borrowers. The COVID-related measures and lower revenues reduced the central government balance to -4.3 percent of GDP and increased government debt to about 48 percent of GDP in 2020.

Activity is estimated to have fallen by about 12 percent in 2020 and, under a baseline scenario without new widespread containment measures, is projected to partially recover by about 6 percent in 2021. The recovery rests on a strong rebound in private consumption and return of tourism. Government debt is expected to rise further to about 54 percent of GDP in 2021, before descending to the fiscal rule limit of 40 percent of GDP in the medium-term. The outlook is highly uncertain, with risks heavily tilted to the downside in the near-term and will crucially depend on the containment of the waves of infections in Andorra and the region; as well as on the success of policy measures to mitigate the scarring effects of the crisis.

Executive Board Assessment[2]

Executive Directors noted that the COVID-19 pandemic has hit Andorra severely, and commended the authorities for the preparedness of the healthcare system, the targeted containment measures, and the swift emergency policy support saving lives and livelihoods. With risks to the outlook tilted to the downside, Directors emphasized the need for maintaining emergency lifelines until the pandemic recedes and the recovery is firmly underway.

Directors noted that fiscal policy should remain supportive in the near-term and allow for higher public investment in the medium-term. While fiscal adjustment will eventually be necessary to bring the deficit and debt back to the fiscal rule limits, they considered that there is room for frontloading some of the public investment projects to accelerate the recovery while preserving debt sustainability. In particular, Directors welcomed the authorities’ environmental, digitalization, and diversification plans, which should support the recovery and long-term green growth.

Directors underscored the importance of building international reserves on a precautionary basis to cope with future liquidity needs of the government in the event of balance of payments stresses. They commended the authorities for their intention to promptly close existing liquidity gaps and noted that the expected general allocation of SDRs would help in this regard. In the absence of a lender of last resort, Directors called for strong supervision of banks’ liquidity risks.

Directors noted that banks have performed well in the past year, albeit with slow credit growth due to low demand. They encouraged the authorities to thoroughly assess the impact of the pandemic on bank capital and to continue monitoring and managing risks stemming from large exposures and related party lending. Directors also encouraged the authorities to further improve compliance with the AML/CFT framework, in particular in the area of the monitoring of cross-border flows to further guard against money-laundering risks.

Directors recognized the authorities’ commitment to transparency, commending them for producing balance of payments statistics in record time and for intending to participate in the Enhanced General Data Dissemination System. Directors encouraged further efforts to improve governance, including by ratifying the United Nations convention against corruption.

Andorra: Selected Social and Economic Indicators

I. Social Indicators

Population (2019)

77,543

Poverty Rate (percent, 2019)

13

Per capita income (2019, euros)

36,335

Human Development Index Rank (2019)

36 (out of 189)

Gini Index (2019)

35

Life expectancy at birth (2011)

81.9

II. Economic Indicators

Estimate

Projections

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

NATIONAL ACCOUNTS AND PRICES

(annual change, percent, unless otherwise indicated)

Real GDP

0.3

1.6

2.0

-11.8

5.8

4.1

3.6

2.8

1.5

1.5

Nominal GDP

1.5

2.6

3.4

-11.9

6.5

5.3

5.0

4.6

3.2

3.2

GDP deflator

1.1

1.0

1.4

-0.1

0.6

1.1

1.4

1.7

1.7

1.7

(contribution to nominal GDP growth, percentage points)

Consumption

3.4

2.5

-3.5

4.5

3.5

3.2

3.0

1.9

1.9

Private

1.8

1.6

-5.7

3.4

2.8

2.7

2.6

1.5

1.5

Public

1.6

1.0

2.2

1.2

0.7

0.5

0.5

0.4

0.4

Investment

2.3

1.8

-3.9

0.2

0.5

0.5

0.4

0.4

0.4

Private 1/

1.8

1.6

-2.5

-0.8

0.4

0.4

0.3

0.2

0.2

Public

0.5

0.2

-1.4

1.0

0.1

0.1

0.2

0.2

0.2

Net exports of goods and services

-3.0

-1.0

-4.5

1.7

1.3

1.3

1.1

0.9

0.9

Exports

0.8

1.1

-6.8

4.5

4.0

3.7

3.1

2.3

2.3

Imports

3.8

2.0

-2.3

2.8

2.7

2.3

2.0

1.4

1.4

Prices

Inflation (percent, period average)

2.6

1.3

0.7

0.3

0.5

0.9

1.3

1.6

1.7

1.7

Inflation (percent, end of period)

2.4

0.8

1.0

-0.2

0.6

1.1

1.3

1.6

1.7

1.7

Unemployment rate (percent)

1.7

1.5

1.8

2.9

3.0

2.4

2.0

1.8

1.7

1.7

EXTERNAL SECTOR

(percent of GDP, unless otherwise indicated)

Current account

18.0

14.2

15.5

16.4

17.3

18.0

18.5

19.1

Balance on goods and services

14.2

10.9

9.6

5.8

7.1

8.0

8.9

9.6

10.1

10.7

Exports of goods and services

76.6

75.4

74.0

76.3

75.9

75.9

75.8

75.5

75.4

75.2

Imports of goods and services

62.4

64.6

64.4

70.5

68.8

68.0

67.0

65.9

65.2

64.6

Primary income, net

9.7

9.7

9.7

9.7

9.7

9.7

9.7

9.7

Secondary income, net

-1.3

-1.3

-1.3

-1.3

-1.3

-1.3

-1.3

-1.3

Capital account

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Financial account

18.1

14.2

15.5

16.4

17.3

18.0

18.5

19.1

Errors and omissions

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross international reserves (millions of euros)

0.0

61.6

61.6

61.6

61.6

61.6

61.6

61.6

FISCAL SECTOR

(percent of GDP, unless otherwise indicated)

General Government 2/

Revenue

38.0

38.5

38.0

41.1

38.4

38.6

38.7

38.8

39.0

39.1

Expenditure

34.6

35.7

35.6

44.0

40.8

38.0

36.7

36.1

35.9

35.6

Interest

0.7

0.6

0.5

0.6

0.6

0.6

0.6

0.6

0.6

0.6

Primary balance

4.0

3.4

2.9

-2.3

-1.7

1.2

2.6

3.3

3.8

4.1

Net lending/borrowing (overall balance)

3.3

2.8

2.4

-2.9

-2.3

0.6

2.0

2.7

3.2

3.5

Public debt

37.8

36.3

35.4

51.5

56.7

51.9

43.0

41.0

39.5

38.1

Central Government 3/

Revenue

19.6

19.6

19.5

20.6

18.8

19.2

19.3

19.4

19.5

19.6

Expenditure

19.3

19.7

19.3

24.9

22.1

20.5

19.4

18.9

18.7

18.5

Interest

0.5

0.5

0.4

0.5

0.6

0.5

0.4

0.4

0.4

0.4

Primary balance

0.8

0.4

0.6

-3.8

-2.8

-0.9

0.3

1.0

1.3

1.5

Net lending/borrowing (overall balance)

0.3

-0.1

0.2

-4.3

-3.3

-1.4

-0.1

0.5

0.9

1.1

Public debt

34.3

33.2

32.7

48.4

53.8

49.1

40.4

38.4

37.1

35.7

BANKING SECTOR

(percent, unless otherwise indicated)

Regulatory capital to risk-weighted assets

20.4

21.8

21.7

Nonperforming loans to total gross loans

7.1

7.3

6.1

Credit to nonfinancial private sector

Level (percent of GDP)

147.9

135.9

151.4

Corporates

72.0

70.3

76.5

Households

75.9

65.6

74.8

Growth (nominal)

-5.0

-1.8

Corporates

0.9

-4.0

Households

-10.6

0.6

Credit to public sector

Level (percent of GDP)

7.5

7.5

6.2

Growth (nominal)

3.0

-27.2

Memorandum items

Exchange rate (€/USD, period average)

0.89

0.85

0.89

0.88

0.82

0.81

0.81

0.81

0.81

0.81

Nominal GDP (millions of euros)

2,656

2,725

2,818

2,484

2,645

2,784

2,924

3,058

3,155

3,256

Sources: Govern d’Andorra Department of Statistics, Andorran authorities, Eurostat, and IMF staff calculations.

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.

2/ The general government comprises the central government, local governments and the social security fund.

3/ The central government comprises Govern d’Andorra, as well as non-market public corporations and nonprofits.


[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:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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