Rating agencies Standard & Poor’s and Fitch Ratings have revised their perspectives on the Principality of Andorra from stable to positive. Both agencies respectively published a note on Friday evening in which they both recognize the resilience of Andorra´s public finances and the strong economic recovery in face of the crisis caused by the SARS-CoV-2 coronavirus pandemic.

The Ministry of Finance highlighted that these two evaluations support the work carried out by the Government in different fields: the management of COVID-19 both from a Health and Economic support policies provided for companies and citizens standpoint; and a budget and public debt management one.

Fitch Ratings re-affirms the BBB+ rating

Fitch Ratings re-affirmed the Principality´s BBB+ rating which they emitted in their last publication in July 2021. The agency expects a strong recovery in the Andorran GDP growth, despite its drop in 2020 as a consequence of the pandemic.

The agency points out “a strong recovery in the arrival of tourists”, coinciding with a “high” rate of vaccination, “the high capacity in the ICU and in generalized testing”. A number of factors, which according to Fitch Ratings, “have been effective in mitigating the pandemic´s economic impact in 2021”. In fact, the evaluators remark that the “high influx of tourists” continued during the winter months despite rising numbers COVID-19 cases and, for this reason, they expect the economy to be “widely resistant to the Omicron variant unless border mobility restrictions return”.

In terms of debt percentage with regards to the GDP, the report highlights Andorra´s ratio, though having increased since the start of the pandemic when it was at 35,4% of the GDP thanks to a history of tax surpluses, it is currently lower than the average of that of countries rated at BBB by the agency. In this sense, the agency expects this ratio to gradually diminish, from the maximum reached in 2021 of 50,4% of the GDP, to 41,2% in 2023.

Fitch Ratings determines that the advances made in the strategy for financial diversification by the Executive have succeeded in increasing sources of financing, helping in extending mid-term debt maturity. As an example of this they give the first international issuing of sovereign bonds in April 2021 and the international issuing of debt for 175 million euros in October of the same year.

Furthermore, the ratings agency also highlights the work carried out by Andorra to join the IMF in October 2020, obtaining the missing statistical data and publishing payment balances. A fact which, they indicate, “strengthened our confidence in the solidity of Andorra´s position in the exterior”.

Finally, Fitch Ratings underlines that Andorra´s banking sector has sufficient margin to withstand the consequences of the pandemic.

Standard & Poor’s qualifies Andorra again with a BBB/A-2

For their part, Standard & Poor’s (S&P) revised their perspective on Andorra from stable to positive and re-affirmed its qualification of BBB/A-2, which they determined in their release in July 2021. In the note issued on Friday evening, the evaluator expects an accelerated economic recovery in the Principality coinciding with a reduction in public debt with respects to the GDP between 2021 and 2022.

The agency highlights that Andorra´s budgetary resilience que la resilience mitigates the risks linked to the evolution of the COVID-19 pandemic. Furthermore, in their note, S&P especially recognizes the entry into the International Monetary Fund (IMF) in October 2020 as a contributing factor to the country´s economic resilience.

Standard & Poor’s affirms that the maintaining of measures which support the economic network and the progression of the SARS-CoV-2 vaccination campaign have also boosted consumption. In terms of sectors, they highlight the growth of construction, financial services, services and commerce. With regards to tourism, the agency signals a recovery during the summer season of 2021 with a higher influx of visitors over the year´s third trimester, reaching similar levels to those in 2019.

In this sense, the evaluator expects Andorra´s economic recovery to continue throughout 2022 and, simultaneously highlights that the unemployment rate “is well below the euro zone average”.

Regarding the diversification in sources of financing, Standard & Poor’s positively values the first issuing of international bonds in April 2021 and the one in October, considering its role in extending debt maturity.

Finally, Standard & Poor’s states the importance of reaching an association agreement with the European Union.

Text: Govern d’Andorra