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International Monetary Fund. European Dept.

Building a stock of international reserve assets for precautionary purposes to cushion against balance of payments risks is especially important for a very open euroized economy. Moreover, Andorra does not have a lender of last resort for its large banking sector with sizeable nonresident deposits. Its reserve assets are currently limited to the reserve tranche position and the SDR holdings at the Fund, which amount to 2 percent of GDP. IMF staff estimate that the government’s liquidity needs are €334 million, equivalent to 12 percent of GDP, assuming that the banks have enough high-quality liquid assets to cover their liquidity needs. The liquidity gap of the government is, thus, 10 percent of GDP, but could be larger if the banking sector has one.