Page 104 - economic report 2021

other eight with which Andorra already signed DTAs: France, Spain, Luxembourg, Liechtenstein,
Portugal, the United Arab Emirates, Malta and Cyprus.

On the other hand, on 4 December 2018, ECOFIN decided to consider Andorra a cooperative
country. This was a milestone because the EU considers Andorra to be fully cooperative regarding
tax matters.

In 2019, the banks of the Principality of Andorra became part of the SEPA, after Andorra joined
on 1 March 2019. The SEPA (Single Euro Payments Area) is the area where citizens, businesses
and other stakeholders can make and receive payments in euros, inside and outside their national
borders, on the same conditions and irrespective of their location.

Moreover, in 2020, Andorra became a full member of the Council of Europe Development Bank (CEB),
giving it access to a line of sovereign debt and
various lines of finance for aspects such as health, The IMF makes a posit ve evaluat on of
education, environment or job protection.
the capitalisat on of Andorran banks.
In 2020, Andorra became the 190th member
of the International Monetary Fund (IMF), providing credibility and improving the country’s rating,
offering a safety net in extreme circumstances where there is a lack of funding in the market, and
providing the support of specialist expert advisers in areas as diverse as macroeconomic statistics
and financial supervision.

In the IMF’s declaration, published on 20 June 2022, the body highlighted that Andorran banks are
well capitalised, have a high level of liquidity and have reduced the default rate. Equally, as in many
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other small countries with a large banking sector, the vulnerabilities associated with the private
banking model and internationalisation strategy, including excessive dependence on foreign
finance and major assets off the balance sheet under management, require close supervision.
Reinforcing liquidity supervision and providing the Andorran Financial Authority (AFA) with
greater financing and funds would help towards this. The institution also highlighted that the
ongoing consolidation of the banking system could improve the profitability of the system, but
should not lead to less competition.

Standard & Poor’s and Fitch improve As for Andorra’s sovereign rating, the rating
The Andorran economy: developments in the main sectors | XII. Services
their rat ngs for Andorra to BBB+ agencies Standard & Poor’s and Fitch Ratings
revised their outlooks from stable to positive
and A-, respect vely. in their respective notes published in January
2022. Equally, in July 2022, Fitch Ratings
reassessed the country with the best rating since it started to rate the Principality in 2015. The
agency rated it as A- with a stable outlook, higher than the last rating of BBB+. The factors that
lead to this improvement are the resilience of public finances and the strong economic recovery
through the rebound in tourism. Moreover, the agency predicts that from 2022, the Government’s
fiscal balance will become a surplus, and rates positively the financial diversification of Andorra’s
debt and the task carried out since joining the IMF in October 2020, with new statistical data and
the publication of the balance of payments. Moreover, it considers that the Andorran economy
has been well insulated from the effects of the war in Ukraine, so the inflation forecast is lower
than for the Eurozone countries.

For its part, Standard & Poor’s rating agency (S&P) also improved its assessment of Andorra
and put it at BBB+/A-2 with a stable outlook, the best rating from the agency for Andorra since
2014. In the July 2022 report, the assessors highlighted that the improvement reflects Andorra’s
economic and budgetary recovery since 2021 and the strong momentum in growth over the