On behalf of our Liechtenstein authorities, we thank staff for the insightful policy discussions and the thorough analysis and assessment presented in their first report on Liechtenstein, the Fund’s newest member country since October 2024. The authorities concur with the staff’s appraisal and underline their appreciation of staff’s valuable recommendations. The report highlights Liechtenstein’s extraordinarily strong economic fundamentals, while introducing the key characteristics of the country’s economy to a wider audience. The authorities consent to the publication of the report.

Key characteristics of the economy

With a small, strongly industrialized, and highly export-oriented economy, Liechtenstein is one of the wealthiest countries in the world on a per capita basis. The industrial sector accounts for over 42 percent of GDP; a further 20 percent are provided by the internationally oriented financial sector. Liechtenstein’s institutions and political system are highly stable, and its government is committed to a liberal market economy, with a focus on creating stable conditions and a prudent regulatory framework. The country is well-integrated into the global economy as a member of the World Trade Organization and the European Free Trade Association. Liechtenstein joined the European Economic Area in 1995, and since then has been fully participating in the European Single Market, on an equal footing with the European Union (EU) member states, like Iceland and Norway. It maintains strong ties with its German-speaking neighbors and has shared a customs union and currency with Switzerland for more than a century. Liechtenstein’s economy is highly diversified, driven by specialized, innovative, and export-oriented manufacturing companies that often serve as global champions in niche markets. The country is home to globally active companies as well as to a high number of small- and medium-sized enterprises. Expenditures on research and development, accounting for around 6.5 percent of GDP, are the highest in the world and primarily stem from private companies. The government’s structure is lean, maintaining a public spending ratio of below 22 percent of GDP. Taxes are generally low. The standard of living is exceptionally high with life expectancy exceeding 84 years, and absolute poverty is nonexistent. The economy is highly attractive to commuters, with more employees than residents working in the country. While the share of the financial sector in terms of GDP is relatively large, it remains highly stable due to well-capitalized and liquid banks, alongside strong oversight from the Financial Market Authority (FMA).

Outlook and risks

Given Liechtenstein’s strong reliance on exports, a global economic slowdown or intensified geopolitical fragmentation could negatively affect the country’s recovery after the contraction of its economy in 2022-23. As a small and open economy highly sensitive to global developments, maintaining adherence to a rules-based global order is of paramount importance. Past downturns have demonstrated that businesses in Liechtenstein tend to retain their workers to preserve specialized skills. The government has supported these efforts through short-term work compensation schemes, for example during the COVID-19 pandemic, which was facilitated by the accumulation of fiscal buffers over decades. Liechtenstein’s businesses have also demonstrated resilience and flexibility, including in adapting to sharp appreciations of the Swiss franc and prolonged periods of negative interest rates. Meanwhile, the financial sector remains well-positioned to navigate economic uncertainty, with high capital and liquidity reserves.

Fiscal policy

Liechtenstein has virtually no public debt and is one of only eleven countries in the world with a AAA rating with a stable outlook by S&P Global. Its government reserves originate from the selective sale of state assets, combined with a prudent budgetary approach and conservative investment strategy. Five fiscal rules ensure that Liechtenstein’s budget remains consistently balanced. Over the past decade, this prudent approach has resulted in budget surpluses in nine out of ten years, with only a small deficit recorded in 2022. For 2025, the authorities project a balanced budget. As a result, Liechtenstein has accumulated substantial fiscal buffers, even during periods of economic downturn. Considering that the fiscal multiplier in a small, open economy is close to zero, fiscal policy focuses on strategic economic support on the supply side instead of broad demand-side economic interventions. This supply side support primarily aims at preserving production capacity—particularly specialized labor—to facilitate a swift recovery after a crisis. Against this background, the authorities consider that shocks are addressed adequately by fiscal policy, as evidenced by continuous achievement of policy objectives, notably stable employment even in severe downturns. Automatic stabilizers, such as progressive personal income taxes and unemployment benefits, are in place to help mitigate economic shocks during downturns. That said, the authorities share staff’s assessment that long-term spending needs will become increasingly important given the effects from climate change and an aging population. They also recognize the importance of investing in growth-enhancing infrastructure and public services to support sustainable economic development. Importantly, the authorities recognize that fast-evolving geopolitical and economic circumstances call for an ongoing discussion on strategic spending needs. The authorities look forward to engaging in discussions with the Fund on these topics.

Financial sector

The banking and insurance sector in Liechtenstein accounts for approximately 11 percent of GDP, rising to around 20 percent when including all financial services such as tax advice, auditing, and other related services. The country is home to eleven banks managing over 490 billion Swiss francs in assets (including foreign subsidiaries). Liechtenstein’s banks have historically been well-capitalized, with all major banks maintaining Tier 1 capital ratios around 20 percent, well above the European average. Liquidity indicators reflect a strong funding base, asset quality is high among very low non-performing loan ratios, and banks continuously focus on a growth strategy, underscoring the resilience of their business model. The financial sector focuses on private banking and international wealth management, implying an international client base and certain associated (reputational) risks. In full recognition of these factors, Liechtenstein’s financial center strategy is firmly anchored in compliance with all international standards and regulations. The country was an early adopter of the automatic exchange of information in tax matters and has fully implemented the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives. Comprehensive AML/CFT policies as well as rigorous sanctions screening measures are in place and are constantly being updated. Liechtenstein maintains up-to-date beneficial ownership information across the entire financial sector, including fiduciary services, in full compliance with EU regulations. In 2022, MONEYVAL, the European regional body of FATF, praised Liechtenstein’s supervisory system for its effectiveness, resulting in the country being one of few in MONEYVAL’s regular follow-up procedure. Financial supervision is fully integrated into the European System of Financial Supervision, with the FMA serving as the independent national regulator. EU financial regulations are swiftly transposed into Liechtenstein law, allowing financial intermediaries from Liechtenstein to fully participate in the European Single Market with passporting rights. As part of the Swiss franc currency area, Liechtenstein’s financial sector is fully integrated into Switzerland’s financial market infrastructure. Macroprudential measures remain appropriate for addressing key financial risks, primarily stemming from the large financial sector and high household indebtedness. The authorities agree with staff’s recommendations to continuously update the macroprudential policy mix as necessary to continue ensuring financial stability.

Structural policies

Liechtenstein’s specialized economy depends on highly skilled workers, including commuters from neighboring countries. In 2023, Liechtenstein’s average unemployment rate was exceptionally low at 1.4 percent. However, as skills shortages remain a challenge, the authorities invest in education, innovation, and workforce development. In collaboration with the private sector, they are implementing measures to increase labor force participation among women and older workers. To address remaining gender differences in the labor market, including the gender wage gap, the authorities have, for example, expanded childcare options within schools and provide financial support for childcare costs. Extended parental leave will take effect in 2026. Discrimination—particularly based on gender, marital status, or pregnancy—is prohibited under both private and public law. Work on a comprehensive gender equality strategy is ongoing and is expected to be finalized until summer. The authorities also continue to invest heavily in critical infrastructure and productivity-enhancing investments, particularly in healthcare and transportation. Liechtenstein’s pension system is well-funded, with reserves in the first two pillars (basic public and mandatory occupational schemes) totaling 180 percent of GDP. Voluntary third pillar (private) savings supplement these reserves and support the country’s efforts to address financial pressures from an aging population.

Statistics

Liechtenstein is in its first year of membership in the Fund, and the authorities fully recognize the need to improve data timeliness to meet their obligations. Historically and in recognition of the small size of the country and its administration, they have prioritized minimizing administrative burdens on businesses, relying primarily on tax data for statistical reporting. While this approach ensures accuracy, it compromises timeliness. Going forward, the authorities will work closely with staff to enhance national accounts reporting and, subsequently, to establish balance of payments statistics. This effort will require strong collaboration among key institutions, and the government has already allocated additional resources to the Office of Statistics to pursue these tasks. Improving statistical quality and timeliness will—beyond meeting obligations towards the Fund—strengthen economic understanding and support more responsive policymaking, ultimately benefiting Liechtenstein and its people.