Fitch Affirms Andorra's A- Sovereign Rating with Stable Outlook

Fitch Ratings has affirmed Andorra's long-term sovereign debt rating at A- with a stable outlook, citing the country's strong economic and institutional foundations and low public debt levels.

The agency's report, released Friday evening, projects public debt at 30.9% of GDP in 2025—well below the 'A' peer median—declining to 28.8% by 2027. This path reflects ongoing fiscal surpluses and projected GDP growth of 2.8% in 2025, outpacing eurozone averages. High GDP per capita, governance indicators above those of comparable-rated nations, and cautious fiscal policies have sustained macroeconomic stability amid global uncertainties.

Andorra's banking sector remains robust, with assets equivalent to five times GDP, solid capital and liquidity positions, and regulations increasingly aligned with European standards. Access to ECB liquidity lines will strengthen further from the third quarter of 2026, offsetting the absence of a central bank. Government deposits equalled 11% of GDP at the end of 2025, offering room to manage the €500 million eurobond maturity—12% of GDP—due in February 2027 through cash reserves, debt repurchases, and possible prefinancing.

Progress toward EU alignment holds potential to bolster medium-term growth. Rising public spending on transport infrastructure, public housing, and healthcare will reduce surpluses to an average 1.5% of GDP in 2026-2027, compared with 3.2% last year. The 2026 budget directs €21 million to public housing to ease affordability issues. The First Home programme, launched this year, provides 100% public guarantees on qualifying mortgages and full interest subsidies for up to seven years, creating only limited contingent liabilities.

Challenges persist due to Andorra's small size and narrow economic base. Structural pressures include labour shortages, population ageing, and housing market strains, which have prompted targeted government measures. Energy dependence is acute, with over 90% of consumption imported and petroleum products accounting for 70% of primary energy use. Imported goods and services comprise 45% of the CPI basket, heightening sensitivity to oil prices. Fitch expects an average of $70 per barrel in 2026, falling to $60 by mid-year, but a sustained $100 level could push eurozone inflation up 1.3 percentage points—with amplified effects in Andorra.

Pension costs, at 5% of GDP among Europe's lowest, could rise nearly 6 points over the next two decades according to IMF projections. Immigration-fuelled population gains and social security fund assets at 48% of GDP will postpone deficits beyond 2026.

The stable outlook anticipates sustained prudent economic management.