Rating Action: Moody’s assigns Baa2 rating to Andorra’s May 2021 bond issuanceGlobal Credit Research – 17 Feb 2022Frankfurt am Main, February 17, 2022 — Moody’s Investors Service («Moody’s») has today assigned a rating of Baa2 to the Government of Andorra’s May 2021 senior unsecured bond issuance. This rating mirrors Andorra’s Baa2 long-term issuer rating. The senior unsecured bond ranks pari passu with all of the government’s current and future senior unsecured debt obligations. The Government of Andorra’s long-term issuer rating has a stable outlook.The rating was requested by the rated entity. In May 2021 Andorra issued debt of the amount of EUR 500 million.

RATINGS RATIONALEThe Baa2 rating assigned to the bond mirrors the issuer rating of the Government of Andorra. The senior unsecured bond ranks pari passu with all of the government’s current and future senior unsecured debt obligations. The government intends to use the proceeds from the issuance to refinancing existing obligations and invest in key priority projects such as green and social expenditures.The Government of Andorra’s issuer rating is supported by solid institutional and governance capacity and strong public finances including a relatively low debt burden, high debt affordability and large public sector liquid assets. The issuer rating also captures Andorra’s credit challenges, including its very small size, constrained growth potential and absence of a lender of last resort. In addition, the high relative size of the country’s banking sector represents a key credit challenge given the adverse impact a shock to the banking system would have on the economy and the country’s public finances.The stable outlook reflects Moody’s expectations that Andorra’s credit profile in terms of economic and fiscal strength will remain resilient to the pandemic environment. The stable outlook considers the intrinsic strengths of Andorra’s institutions and fiscal metrics, with prudent policymaking underpinned by low political risk. This is balanced by credit challenges that relate to the economy’s very small size and volatile nature, as well as to the country’s very large banking sector (600% of GDP in 2020) and fundamental limitations such as the absence of a lender of last resort.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSAndorra’s overall E issuer profile is moderately negative (E-3), reflecting the economic importance of winter tourism, a source of vulnerability in the context of climate change as warmer temperatures reduce the amount of snow available.We assess Andorra’s S issuer profile score as neutral to low (S-2). This reflects very high quality of health and safety, as well as strong access to basic services. While Andorra’s population is ageing, in line with other advanced economies, high activity and employment rates are credit strength.Andorra’s high institutions and governance strength is reflected in a positive G issuer profile score (G-1). Andorra scores well on global surveys assessing voice & accountability, regulatory quality and government effectiveness. The effectiveness and credibility of fiscal policy is solid.Andorra’s ESG Credit Impact Score is neutral-to-low (CIS-2), reflecting some exposure to physical climate risk, low exposure to social risks and, like many other advanced economies, strong governance and in general strong capacity to respond to shocks.The assignment of the debt rating required the publication of this credit rating action on a date that deviates from the previously scheduled release date in the sovereign release calendar, published on www.moodys.com.GDP per capita (PPP basis, US$): 51,989 (2020 Actual) (also known as Per Capita Income)Real GDP growth (% change): -11.2% (2020 Actual) (also known as GDP Growth)Inflation Rate (CPI, % change Dec/Dec): -0.2% (2020 Actual)Gen. Gov. Financial Balance/GDP: -2.8% (2020 Actual) (also known as Fiscal Balance)Current Account Balance/GDP: 14.5% (2020 Actual) (also known as External Balance)External debt/GDP: [not available]Economic resiliency: baa1Default history: No default events (on bonds or loans) have been recorded since 1983.On 25 January 2022, a rating committee was called to discuss the rating of the Andorra, Government of. The main points raised during the discussion were: The assignment of the Baa2 issuer rating for Andorra balances moderate economic strength, solid institutions and governance strength as well as fiscal strength, and an exposure to susceptibility to event risk driven by the banking sector risk.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGWHAT WOULD CHANGE THE RATING UPUpward pressures on the rating might develop over time should Andorra lift its economic trend growth in a sustained manner. Further diversification of the economy would be credit positive, broadening the sources of growth and making the country more resilient to shocks. A stronger banking system helping to limit the sovereign’s potential contingent liabilities would also be credit positive.

WHAT WOULD CHANGE THE RATING DOWNDownward pressures on the rating might result from an increase in the general government’s public debt. This would reflect a deterioration in the fiscal balance stemming from unfinanced new measures and/or a permanently weaker economic environment due to larger than expected scarring from the pandemic. Given the sector’s very large relative size, any deterioration in the quality of Andorra’s banking system would also be credit negative.The principal methodology used in this rating was Sovereign Ratings Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit