Investing.com -- S&P Global Ratings has revised its outlook on Andorra from positive to stable, citing expected delays in structural improvements. The ratings agency affirmed its ’A-/A-2’ long- and short-term foreign and local currency sovereign credit ratings on the country.
The revision reflects anticipated delays in realizing the economic benefits of the planned EU Association Agreement, slower-than-expected improvements in Andorra’s banking system’s liquidity, and ongoing data gaps related to the government’s external debt service. These factors are balanced by Andorra’s strong public finances, robust underlying external position, and solid policy effectiveness.
The rating could be lowered if there is a reversal in recent progress in the financial sector’s liquidity management and financial supervision standards, or if a shift in budgetary policy leads to an increase in government debt. Conversely, the rating could be increased if the prospects for the financial sector’s liquidity management, the government’s external data dissemination, and economic gains from the EU Association Agreement improve more rapidly than currently anticipated.
The outlook revision reflects a slower pace of materialization for positive structural pressures on Andorra’s rating. These pressures include enhanced liquidity options for Andorran banks, economic benefits from the planned EU Association Agreement, and improvements to external data. The authorities are actively addressing these structural factors, but their realization may take longer than expected due to potentially lengthy processes at the EU and national levels and lingering negotiations with Eurosystem counterparts, compounded by heightened global macroeconomic uncertainty.
Andorra’s economy relies on tourism, trade, and its large financial sector, as well as its neighbors’ economic performance. The country would benefit from tapping into the EU common market, but delays in finalizing the approval of the EU Association Agreement means benefits to Andorra’s exports and economic prospects are likely to materialize later than initially anticipated.
Despite structural factors, short-term economic risks remain elevated. U.S. tariffs on global imports, including a 10% tariff on Andorran goods, have contributed to significant economic volatility. However, the implications for the domestic economy are more limited.
Economic growth in Andorra is comparable to that of its peers. Following a robust 3.4% in 2024, growth is forecast to dip to 1.4% in 2025 due to the deteriorating outlook for the eurozone. Thereafter, an annual average rebound of around 1.8% is forecast in 2026-2028.
Andorra’s government is in a net asset position and is committed to the prudent management of public finances. The country’s minimum effective tax rate is 3%, and the maximum corporate tax rate is 10%, which is below the global minimum of 15% recommended by the Organization for Economic Co-operation and Development (OECD) for companies with a turnover of more than €750 million. However, the implications of the minimum effective rate are considered to be negligible at this stage.
Andorra’s government financing needs are covered until 2027. In 2025, net government assets are about 24% of GDP and are set to remain reasonably stable. Government debt is low compared to peers, at just above 30% of GDP, and Andorra benefits from large government assets in its social security fund.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.