Page 55 - economic report 2021

or the creation of activities linked to coupling and the creation of an added value in Andorra that
takes advantage of a market niche.

Both exchange rate trends and changes in international trade regulations are major factors
influencing the re-exportation of products. In 2021, the euro depreciated 7%, favouring Andorran
exports outside the Eurozone but at the same time creating less favourable conditions for importing
products from countries outside the monetary union for subsequent re-exportation to the Eurozone.

As for regulation, Andorra is in the process of negotiating an association agreement with the
EU. These negotiations, which started in 2015, were delayed by the effects of Brexit and the
pandemic, but the Government has already announced that the referendum on the association
agreement will be at the end of 2023 or beginning of 2024. Among other aspects, this agreement
would allow for the free circulation of goods in chapters 1 - 23 of the harmonised system while
continuing to exclude tobacco from the customs union for a transition period of 30 years, to allow
for conversion of the sector. This could open up new opportunities for trade between Andorra
and the EU, especially since the EU has been putting legislative obstacles in place in recent years
that limit the opportunities for re-exportation from Andorra.

The reduced f nancing capacity in 2020 For the second consecutive year, the Balance of
can be explained by declining tourism. Payments and International Investment Position
of the Andorran economy is available, which
quantifies the economic relationship between
the residents of this economy and the residents of the rest of the world, according to the principles
set out in the International Monetary Fund’s (IMF) sixth Balance of Payments and International
Investment Position Manual (BPM6). The 2020 balance of payments (latest available) shows that 53
the Andorran economy has a financing capacity (current account + capital account) of €393.23
million, lower than the €507.86 million of the previous year. Of the total current account, the entry
of goods and services shows a positive balance of €100.3 million; primary income (from work and
investments), a positive balance of €330.6 million, and secondary income a negative balance of
-€37.9 million. The importance of the goods and services account clearly demonstrates that the
Principality of Andorra is an exporter of services (with a balance of €1,022 million) and importer of
goods (with a balance of -€922 million). The reduction in financing capacity in 2020 can basically
be explained by the reduction in the positive balance of services due to the drop in foreign tourism
caused by the pandemic. For its part, the ratio of the current account balance as a percentage of GDP
was 15.5% in 2020, lower than the 18% in the previous year but still the highest of the European
countries and one of the highest in comparison with other demographically similar countries.

Chart 7.4 The Andorran economy: general developments | VII. The foreign sector
CURRENT ACCOUNT BALANCE AS % OF GDP. 2020

Source: Department of Stat st cs.