The latest report from the International Monetary Fund (IMF) assures that the Andorran economy is registering a better than expected economic recovery. The Minister of Finance and Spokesperson, Eric Jover, the Secretary of State for International Financial Affairs, Marc Ballesta, and the IMF's head of mission for Andorra, Rodolphe Blavy, presented the latest edition of the report. "Andorra's economy is recovering strongly after a deep recession caused by the pandemic," Blavy noted.
The indicators managed by the international organization reflect the growth of the economy in 2021, of 8.9%, after having been the country with the greatest economic decline in 2020 with a fall of 11.2%. The IMF forecast for 2022 rises to 4.5%, but the agency itself has already indicated that depending on the progress forecast for this year, the final growth figure may be double digits.
In fact, the data for the first quarter of Andorra's gross domestic product (GDP) indicate a spectacular figure: the Principality's economy grew by 17.3%, much higher than neighboring countries. In the first quarter, Spain has grown by 6% and France has not registered any growth. Eric Jover pointed out that this magnificent result motivates him “that the winter season has worked very well. Activities linked to tourism, services and construction have allowed this economic rebound that has surprised the IMF”. The forecast regarding inflation is not so optimistic by the IMF. The cost of energy will cause inflationary spikes during 2022 and early 2023.
The report also asks Andorra to slightly increase its deficit in order to ensure that economic growth is sustained with a greater diversification of the economy. The Finance Minister and Spokesperson stated that in relation to indebtedness "budgetary modifications are going to be carried out to go along these lines." Given that the State's indebtedness continues to be low and that "the IMF describes it as sustainable, it makes sense to assume a little more deficit to leverage higher growth." Regarding the reform of the pension system, the IMF considers it a priority. For this, it proposes to increase the retirement age and contributions, in addition to promoting private company plans.
A special mention of the report of the international organization has occupied the control of the bank. According to the IMF, Andorran banks are well capitalized and highly liquid, but indicates that due to vulnerabilities associated with the private banking model and internationalization strategy, including excessive reliance on foreign funding and management of large assets outside of balance, close supervision is required. For this reason, the IMF requests a more relevant role, if possible, from the Andorran Finance Authority (AFA) with greater financing and more staff. The AFA is the body that oversees the supervision and control of the financial and insurance market and the rights of customers. The report indicates that the ongoing consolidation of the banking system could improve the profitability of entities, but should not do so as a result of less competition.
Another aspect highlighted by the report with the aim of growing the Andorran economy is a series of measures such as diversifying the economy, boosting investment and developing human capital. To this end, the IMF points to the need to reduce bureaucratic procedures and administrative rigidity, as well as improve access to credit that would support diversification and boost investment. The report places special emphasis on the value of capturing labor talent, and in this sense it considers it important to facilitate immigration requirements if it is thus possible to attract highly qualified workers.
Regarding the levels of governance, the organization considers that Andorra needs more efforts to improve the quality and exhaustiveness of the data and align the anti-corruption framework with international standards. The country must also address capacity issues and close data gaps, including refining balance of payments data and developing other real, financial statistics needed for effective surveillance.
