20210610-IMF-Principality_of_Andorra_2021_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Principality_of_Andorra_51页_1mb

Summary of IMF Country Report No. 21/107: Principality of Andorra

Core Content

The IMF conducted its 2021 Article IV consultation with the Principality of Andorra, evaluating its economic performance and policy framework. The consultation concluded on June 11, 2021, following discussions from March 19 to April 8, 2021, and the staff report was finalized on May 18, 2021.

Main Economic Indicators

• Real GDP Growth (annual change, %):

  • 2017: 0.3
  • 2018: 1.6
  • 2019: 2.0
  • 2020: -11.8
  • 2021: 5.8
  • 2022–2026: 4.1–1.5

• Nominal GDP Growth (annual change, %):

  • 2017: 1.5
  • 2018: 2.6
  • 2019: 3.4
  • 2020: -11.9
  • 2021: 6.5
  • 2022–2026: 5.3–3.2

• GDP Deflator (annual change, %):

  • 2017: 1.1
  • 2018: 1.0
  • 2019: 1.4
  • 2020: -0.1
  • 2021–2026: 0.6–1.7

• Inflation (period average, %):

  • 2017: 2.6
  • 2018: 1.3
  • 2019: 0.7
  • 2020: 0.3
  • 2021–2026: 0.5–1.7

• Unemployment Rate (%):

  • 2017: 1.7
  • 2018: 1.5
  • 2019: 1.8
  • 2020: 2.9
  • 2021–2026: 3.0–1.7

• Public Debt (% of GDP):

  • 2013–2019: 37.8–51.5
  • 2020: 56.7
  • 2021–2026: 49.1–35.7

• Central Government Debt (% of GDP):

  • 2013–2019: 34.3–48.4
  • 2020: 53.8
  • 2021–2026: 49.1–35.7

• Net Lending/Borrowing (overall balance, % of GDP):

  • 2013–2019: 0.3–1.1
  • 2020: -4.3
  • 2021–2026: -3.3–1.1

Key Economic Context

• Andorra is a euroized economy with a strong reliance on tourism and banking services.
• The country has maintained political stability and a good track record of fiscal discipline.
• The economy is highly integrated with Spain and France, especially in tourism and trade.
• The euro serves as a monetary anchor, with the country's economy heavily dependent on the eurozone.
• The formal use of the euro is governed by a Monetary Agreement with the EU, which includes strict laws against counterfeiting and money laundering, and full adoption of EU financial regulations.

Impact of the Pandemic

• The pandemic severely impacted Andorra's economy, especially in 2020, due to its reliance on tourism and cross-border activities.
• Tourism and domestic services fell in the first half of 2020 due to containment measures, but rebounded in the summer.
• With French and Spanish borders closed, hotels and ski resorts lost significant revenue.
• Despite high case numbers, fatality rates were among the lowest globally due to strong hospital capacity and protective measures.
• Vaccination rates were comparable to EU countries, with about 40% of the population receiving at least one dose.

Fiscal and Financial Sector Measures

• The authorities implemented fiscal and financial support measures, including:
  • Expenditure measures worth 2.2% of GDP (healthcare and support for pandemic-affected sectors).
  • Revenue measures worth 0.4% of GDP.
  • Government guarantees worth 9% of GDP for bank loans to liquidity-strapped companies.
• These measures led to a central government deficit of -4.3% of GDP and public debt reaching 48% of GDP in 2020.
• The financial sector saw a rise in nonperforming loans (NPLs) and a slowdown in credit growth due to low demand.
• The banking system is diversified, with assets in 13 other countries and a large share of non-interest income.
• Banks have high reported capital and profits but face challenges due to legacy NPLs and potential future risks.

Outlook and Risks

• Real GDP growth is expected to rebound in 2021, but the outlook remains highly uncertain.
• Risks are tilted to the downside in the short term, mainly due to slow vaccination rates and the potential for renewed lockdowns.
• In the medium term, GDP growth is expected to converge to regional averages.
• The recovery depends on the containment of the virus and the effectiveness of policy measures to mitigate the crisis's scarring effects.

Policy Recommendations

• Fiscal Policy:

  • Maintain emergency fiscal support until the recovery is firmly underway.
  • Increase public investment to strengthen the recovery and support long-term growth.
  • Ensure debt remains at manageable levels.
  • Continue to build international reserves for precautionary purposes.

• Financial Sector:

  • Reassess bank capital buffers in light of risks from large domestic exposures and related party lending.
  • Strengthen supervision of nonperforming loans and improve anti-money laundering (AML) compliance.
  • Monitor the impact of pandemic-related policies as they expire.

• Governance and Transparency:

  • Improve transparency by disseminating official statistics in line with international standards.
  • Participate in the Enhanced General Data Dissemination System (EGDSS).
  • Further improve governance by ratifying the United Nations Convention against Corruption.

Conclusion

• The Executive Board commended Andorra's preparedness and response to the pandemic, particularly its targeted containment measures and emergency fiscal support.
• It emphasized the need to maintain emergency lifelines and continue fiscal support until the recovery is secure.
• The country's fiscal rule limits are being closely monitored, and the government is expected to bring debt back to sustainable levels over the medium term.
• The outlook for the economy remains uncertain, with risks heavily tilted to the downside in the near term.