The International Monetary Fund (IMF) has released its concluding statement following the 2025 Article IV mission to Andorra, highlighting the country's economic performance and challenges. The statement reflects the preliminary findings of IMF staff after their official visit.
Andorra's economy is performing well, presenting a chance to tackle significant long-term challenges. Authorities have strengthened the macro-financial framework and reinforced buffers. However, despite high absolute GDP per capita, growth has been stagnant over the last 50 years, mainly driven by population increases. Population aging and climate change pose both economic and fiscal concerns. Structural reforms are necessary to stimulate investment and productivity.
In 2024, Andorra's economy grew at an estimated rate of 2.1%, supported by services, banking, and construction sectors. Inflation decreased to 2.6% by year-end, with a tight labor market limiting slack. The current account surplus was substantial at 15.1% of GDP in 2024.
Looking ahead, real GDP growth is expected to slow down to potential levels with forecasts of 1.7% in 2025 and further decline from 2027 onwards. Inflation is projected to stabilize at around 1.7%. Short-term risks include global economic uncertainties and potential adverse shocks such as geoeconomic fragmentation or commodity price fluctuations.
Medium-term challenges include stagnating income growth affecting aging populations and climate change impacts on an economy heavily reliant on winter tourism. Life expectancy is high while fertility rates are low, indicating rapid population aging which will impact GDP growth and fiscal liabilities due to pension and healthcare costs.
Policy recommendations emphasize using Andorra's solid macroeconomic position for implementing structural reforms aimed at diversifying the economy, enhancing resilience, unlocking investment opportunities, increasing productivity levels, and addressing aging costs alongside climate change impacts.
The recently negotiated EU Association Agreement (EUAA) could support reform efforts if approved but may also present new challenges.
Maintaining disciplined fiscal policies within a strong framework is crucial given future spending pressures from aging populations and climate adaptation needs. Precautionary borrowing strategies should continue with public debt management targeting reductions down to 30% of GDP by 2026.
Strengthening bank resilience during profitable periods remains essential amid international expansion opportunities brought about by a possible EUAA facilitating private banking services abroad while fostering domestic market dynamism yet increasing competition risks domestically.
Ambitious structural reforms focusing on diversification investments alongside accelerating climate adaptation strategies will be critical for sustaining Andorra’s long-term economic health amidst evolving global conditions."
"The mission thanks the authorities and all our counterparts for constructive dialogue during this official visit," concluded the IMF statement.