Fitch Ratings upgraded Andorra's long-term foreign currency issuer default rating to BBB+ from BBB, while maintaining its stable outlook.

The rating agency said the country's public-sector debt in 2017 fell to 37.6% of GDP, below 40% for the first time since 2011. The government debt ratio is expected to decline further and to reach 35% of GDP by 2020.

Fitch said Andorra's €9 million surplus in 2017 — 0.3% of GDP, down from 0.9% in 2016 — was affected by lower direct tax receipts. The rating agency said it expects a slightly greater deficit at the central government level compared with the government's 2018 budget. It expects a surplus of 1% of GDP in 2018 to decline to 0.7% by 2020 at the general government level because of lower surpluses in the social security sector.

Private-sector services and construction fueled real GDP growth of 1.9% in 2017, according to Fitch. The labor market has also improved, with unemployment declining to an average of 2.4% in 2017, down from 3.5% in 2016.

The rating agency also expects stabilization of activity in the financial sector and growth in other sectors to drive overall real GDP growth of 2.2% in 2018, and 2% in 2019 and 2020. In addition, inflation is expected to rise to 1.7% by 2020, from 1.5% in full-year 2018.

Fitch said Andorra's small economy, risks associated with a large banking sector and weak economic data availability and frequency should be measured against its improving public finances, political stability and wealth.

As part of its action, the rating agency also upgraded the country's short-term foreign currency issuer default ratings to F2 from F3.