Fitch Ratings enhances the rating of Andorra and gives it an A.

Fiscal improvement: a new reality.

This state, like the rest of the countries of the world, has suffered a major crisis, derived from the consequences of what already, it seems to us, distant COVID19 pandemic.

The numbers were not very encouraging, but a series of government decisions were able to contain the impact and come up with an opportunity plan.

The general government deficit has been maintained at 1.1%, which is a much better result than the expected negative 3.5%.

As we anticipated in the introduction, a great responsible for this reality is in the new tourist tax, which has contributed to increase income in a sustainable way. Above all, now in the winter season, where a large influx of people in love with skiing is expected.

As a result, the agency now forecasts a general government surplus from 2023.

These improvements testify to the agency's willingness to adopt a flexible approach to forecasting and to take into account the complex interaction between economic activity and public finances.

Lower debt levels: much better than anticipated.

To understand this situation, the first thing is to understand the context.

In 2021, the ratio of public debt to GDP did not vary much from previous years.

It stood at 46.2% (up from 35.4% in previous years) and is expected to stand at 35.1% by 2024, according to Fitch Ratings.

However, the important thing is not the absolute number, but the opposite trend to the rest of the European countries and the speed with which this amount is reduced.

The reduction in indebtedness is expected to be greater in Andorra than in the rest of the European countries, thanks to a faster economic recovery and the fall in government deposits.

A reality that will be used to take measures to improve the private sector, generating an ecosystem of job creation and adequate investment to find opportunities.

International reserves: a powerful position in the future of governments.

International politics will play a key role in shaping the future of Andorra's relationship with the EU.

"This country is so small and so economically dependent on the EU that its future will be determined by what happens in Brussels," says Fitch.

The most likely outcome is that the country's accession negotiations will stall indefinitely.

In the meantime, the country will have to find its own way, based on its strong democracy, its "model constitution" and its thriving tourism industry.

As for resolving the outstanding issue of independence under EU supranationality rules, Fitch does not see this matter as intractable, noting that some other small European states, such as Finland and Ireland, have negotiated much tougher terms and managed to maintain full EU membership.

" Andorra needs to take the bull by the horns to negotiate a different path than other EU members," says Fitch.

The geopolitical situation of the country: what is the impact of the War between Ukraine and Russia?

According to the agency's estimates, so far, the economic impact of the Ukrainian crisis in Andorra has not been dramatic.

Inflation could reach 5%, compared to an estimated 6.5% in the euro-zone.

The reason for this is the country's long-term energy contract, which limits price rises.

The Andorran government has launched a law to improve the purchasing power of citizens in order to curb inflation, and that has only meant an expenditure of 0.3% of GDP.

On the other hand, they also estimate that the price of servicing the public debt will remain stable, although the cost of borrowing will increase.

As the situation gradually calms down and the economic and political situation in Ukraine stabilizes, the economic impact of the Ukrainian crisis will have a clearer picture.

Meanwhile, Andorra has proven to be a capable and resilient intermediary in the face of turbulence, and has so far weathered the challenge well.

Conclusions and future ratings: what can we expect from the future?

In its assessment, Fitch Ratings notes that Andorra's economic resilience depends largely on the country's ability to achieve economic and fiscal stability.

As for the advice they offer to improve, Fitch Ratings suggests that the country should focus on developing a more diverse set of economic sectors to diversify the country's economy and reduce its dependence on the tourism industry.

They also highlight the need for structural reforms to improve the business sector and make it more competitive in the international economy.

Finally, they recommend further integration with the European Union as a means of further strengthening the state's ties with the rest of the continent.

The overall message that Fitch Ratings expects to be drawn from this report is that it is imperative for Andorra to take steps to improve its overall economic situation to ensure that it can overcome future challenges and continue to thrive as an independent nation.