- The Andorran economy continued to outperform expectations with growth surprising on the upside in 2025.
- Growth is projected to moderate and inflation will remain elevated in 2026 due to the war in the Middle East.
- In the absence of policy action, growth could be lower over the medium term and population aging will increase public expenditures on pensions and healthcare.
Washington, DC: On April 27, 2026, the Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Andorra.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2] The Andorran economy continued to outperform expectations. Growth in 2025 surprised on the upside for the second consecutive year, at an estimated 3.9 percent, driven by strong activity in financial services, real estate, and construction. Inflation eased to 2.4 percent in 2025 but is on an upward trend, while labor market is operating at near full employment. The current account surplus remains very large, estimated at 15.9 percent of GDP in 2025.
Growth is projected to slow to 2.1 percent in 2026 and then steadily converge to its long run potential of 1.5 percent by 2030. Inflation is projected at around 3 percent in 2026 before converging to the euro area inflation target of 2 percent by the end of 2027. Staff’s baseline assumes oil and gas prices that are broadly consistent with closing future prices as of mid-March 2026 and incorporates the impact on main trading partners. Risks to the growth outlook are tilted to the downside with short-term risks mainly stemming from external factors. Weaker growth among trading partners due to prolonged war in the Middle East or new trade tensions could weigh on foreign demand and push inflation higher through import prices. Recent temporary road closures underscore Andorra’s vulnerability to disruptions in cross-border infrastructure.
Absent timely reforms, medium-term growth could be lower. In the absence of policy action, population aging will increase public expenditure on pensions and healthcare, placing growing pressure on public finances. Labor shortages could worsen if housing affordability is not improved. Climate change poses additional risks, as rising temperatures and more frequent extreme weather events may cause more frequent disruptions in the tourism sector and infrastructure, putting additional emphasis on continuing diversification efforts. Approval of the EU Association Agreement represents an upside risk by supporting economic diversification and enhancing resilience to shocks.
Executive Board Assessment[3]
Directors agreed with the thrust of the staff appraisal. They welcomed Andorra’s continued economic resilience and prudent fiscal management, which supported growth and allowed rebuilding of solid buffers. Directors noted, however, that near‑term risks stemming from the war in the Middle East are expected to moderate near‑term growth and exert upward pressure on inflation. They also emphasized that medium‑ to long‑term challenges could additionally weigh on growth and fiscal sustainability. In this context, Directors encourage the authorities to maintain a balance between prudent fiscal management and growth‑enhancing reforms while keeping continued vigilance over the financial system.
Directors welcomed the authorities’ prudent fiscal management, which has resulted in sustained surpluses and a declining public debt ratio. They agreed that the looser fiscal stance in 2026 is broadly appropriate against the backdrop of slowing growth, while stressing the importance of standing ready to tighten the stance if price pressures persist. Over the medium term, Directors emphasized that maintaining prudent fiscal policy remains essential in a euroized economy. They encouraged the authorities to make effective use of available fiscal space for well‑targeted, growth‑enhancing public investment. Directors underscored the importance and urgency of timely pension and healthcare reforms to address population aging and safeguard long‑term fiscal sustainability.
Directors welcomed the assessment that the financial sector remains strong, noting banks’ solid profitability, capitalization, and liquidity. They looked forward to the upcoming Financial Sector Assessment Program as an opportunity to assess vulnerabilities and reinforce financial sector resilience. They commended the efforts to make AML/CFT supervision increasingly risk‑based.
Directors emphasized the importance of advancing structural reforms to lift potential growth, enhance productivity, and diversify the economy. They welcomed the authorities’ efforts to deepen regional integration and highlighted the potential benefits of the European Union Association Agreement in supporting diversification, improving market access, and attracting investment, while noting associated transition costs requiring close monitoring. Directors encouraged continued progress in implementing the National Plan for Innovation and Diversification and strengthening public‑private collaboration.
Directors welcomed recent improvements in data compilation, timeliness, and dissemination, including progress on external sector statistics and tourists flow data. They encouraged further efforts to close remaining data gaps to strengthen policy analysis and decision‑making.
READ MORE: https://www.imf.org/en/news/articles/2026/05/04/pr26134-andorra-imf-concludes-2026-article-iv-consultation
