S&P Global Affirms Andorra's 'A-/A-2' Credit Rating with Stable Outlook

S&P Global Affirms Andorra's Sovereign Credit Rating

S&P Global Ratings announced on November 7, 2025, its decision to affirm the Principality of Andorra's long- and short-term foreign and local currency sovereign credit ratings at 'A-/A-2'. The rating agency maintained a stable outlook for the microstate, citing a balance of robust economic fundamentals and ongoing structural challenges.

Rating Rationale: Strengths and Economic Performance

The affirmation of Andorra's credit rating is primarily driven by its sustained budgetary surpluses, low government debt, and a solid external financial position. S&P Global noted that Andorra's economy has demonstrated significant growth, expanding at nearly three times the average rate of the euro area. This growth is largely fueled by key sectors including tourism, construction, and private banking. The tourism sector, in particular, has seen an expansion beyond traditional winter skiing months, contributing to overall economic vitality. Financial services and construction also experienced strong growth in 2025, with government policies aimed at improving housing affordability further supporting the latter.

S&P Global projects Andorra to maintain a robust budgetary performance through 2028. The principality recorded a surplus of 2.8% of GDP in 2024, surpassing initial government expectations due to better-than-anticipated tax revenue growth. The country's net government assets are expected to remain solid, with net general government debt projected to reach negative 34% in 2028, an improvement from negative 31.5% in 2024.

Key Challenges and Constraints Identified

Despite these strengths, S&P Global highlighted several factors that temper the rating. These include the delayed realization of economic benefits from the EU Association Agreement, limitations in data transparency, particularly concerning external accounts, and constrained monetary flexibility. Andorra utilizes the euro as its official currency but lacks direct access to European Central Bank (ECB) financing, relying instead on a temporary repo line. The approval process for the EU Association Agreement faces delays as member states deliberate on ratification requirements. Furthermore, Andorra's small, landlocked economy, heavily reliant on tourism and private banking, renders it vulnerable to external shocks.

Economic Outlook and Future Prospects

Looking ahead, S&P Global forecasts Andorra's GDP growth to moderate to 2.2% in 2025, aligning with broader eurozone trends, with an average annual growth of 1.7% projected over 2026-2028. The current account surplus is expected to remain substantial, hovering around 16% of GDP between 2025 and 2028. The banking sector demonstrates considerable strength, holding external assets that exceed nonresident borrowing by nearly $5 billion, equivalent to 112% of GDP.

The Andorran government is actively pursuing economic diversification, affordable housing initiatives, infrastructure development, and digitalization. The 2026 budget allocates €5 million towards research and development, public housing, and critical infrastructure projects. Authorities are also planning a pension reform, anticipated by early 2026, to enhance the long-term sustainability of public finances and mitigate potential deterioration of social security accounts, alongside solid tax collection efforts.