AFD - 2019 Universal registration document

PRESENTATION OF AFD

Activities of the Agence Française de Développement Group in 2019

political turbulence , with the resignation and exile of President Morales after a strongly contested electoral process. Several countries in which AFD operates in the South and East of the Mediterranean are characterised by high levels of public debt and significant external financing requirements, which are sources of downward pressure on foreign exchange reserves. These budgetary and external risks weigh on their abilities to meet the challenges posed by sluggish growth (in 2019 , growth in the North Africa-Middle East region were 0,8% , according to the IMF) with high levels of unemployment, which generate social tension. Growth in Turkey was slightly positive in 2019 at 0.9% , sustained by a countercyclical budgetary policy and restarted growth in lending by the government banks. The slowdown in business activity combined with depreciation of the Turkish pound since 2018 led to an increased rate of non-performing loans. A high level of external debt is maturing in the next 12 months, exposing Turkey to a significant refinancing risk in a context of reduced confidence by foreign investors and in terms of the available liquidity in foreign currencies. 2019 in Tunisia saw the organisation of general elections, which is a relatively unfavourable context for budgetary consolidation. The sustainability of public debt (77% of GDP in 2018, 89% with public guarantees), of which over 70% is labelled in foreign currencies, depends on the future government’s desire and ability to negotiate a new programme with the IMF in 2020. Growth, down compared to 2018, was 1.5% and remain insufficient to meet the country’s socio-economic challenges. In Lebanon , demonstrations on an unprecedented scale forced the government to resign in October 2019. Since then the country has plunged into an economic and banking crisis. The growing external financing requirement in Jordan (14.2% of GDP in 2019) reflects the high current account deficit and the amortisation of several international bonds maturing between 2019 and 2022. Egyptian growth remained dynamic in 2019, at 5.5% , supported by gas production and the tourism sector. The reforms carried out as part of the IMF programme have enabled public debt and the current account deficit to be reduced and foreign exchange reserves to be reconstituted. In Morocco , growth has seen a slowdown trend since 2012 and should decrease to 2.7% in 2019 , due to the poorer performance of the agricultural sector. Over the same period, external and budgetary vulnerabilities decreased, although public debt remains high at 84% of GDP at end-2018. The Moroccan model of growth is struggling to generate sustained, inclusive growth. In Sub-Saharan Africa , growth stayed level in 2019 at 3.3% . The external environment was less promising than in 2018 with lower prices for oil, which several major economies in the region export. One feature of the continent is the variety of growth trends among the countries. Countries poor in natural resources have shown growth nearly three times faster (6.0% in 2019) than that of the oil-exporting countries (2.1%) and of other countries rich in natural resources (2.7%). Growth in Nigeria was 2.3% in 2019. In the medium term, the pace of GDP growth is expected to barely match population growth, due to high structural constraints such as infrastructure gaps, low private investment and vulnerability in the banking sector. In South Africa , the weak

effects of the implementation of stricter regulatory measures designed to correct the financial imbalances and change the debt momentum. The government’s more accommodating policy to attenuate the impact of the trade war on the economy, however, had the consequence of a continued indebtedness of agents and particularly local authorities and risks accentuating financial vulnerabilities, that have already led to difficulties for several small and medium sized banks in the country. India’s growth continued to fall below expectations due to the slowdown in domestic demand. In Indonesia , business growth estimated at 5.0% in 2019 has been strong for a decade, upheld mainly by domestic demand. That trend, however, has helped fuel a current deficit in the balance of payments since 2011, financed by a massive infusion of foreign funds, mostly of short maturity. Vietnam also maintained a high rate of growth, estimated at 6.5% in 2019, taking full advantage of its position in international value chains and consumption by a booming middle class. A marked slowdown in Chinese demand, however, could affect its exports of intermediate goods and equipment. The growth rate in Sri Lanka is estimated to have been 2.7% in 2019 owing to negative fallout on the tourism sector from the April 2019 attacks, aggravating the risks associated with high public debt. Business activity significantly slowed in the Latin America and Caribbean region in 2019 , to 0.1% for the year, affected by unfavourable external conditions and did so despite an improvement in international financial conditions. Growth in Brazil was 1.2% in 2019 , remaining weak primarily under the effect of the global slowdown and low levels of investment. Public debt was around 90% of GDP at the end of 2019 with an upwards trajectory, despite the ratification of the retirement reform by the Senate in October 2019. In Argentina , the new depreciation of the peso in August 2019 (-40% compared to the USD year-on-year) led to a new contraction in GDP of 2,1 % over the year. Public debt, over 75% denominated in foreign currencies, reached 88% of GDP at year end 2019 and led the IMF to declare it unsustainable, opening the way to a restructuring of the market debt. The significant decrease in exchange reserves pushed the Central Bank to reintroduce capital control measures. On the political side, the presidential election of October 2019 saw the victory in the first round of the Peronist opposition ticket Fernandez-Kirchner, who took office in December. In Mexico growth has slacked since 2015 and was zero in 2019 due to weak investment, a slowing of private consumption and American industrial production and uncertainties related to the new government’s economic policy. The slowdown in inflation has, however, allowed the Central Bank to start monetary easing whilst the budgetary discipline seems to be preserved at this stage. In Colombia , growth continued to accelerate in 2019 , to 3.5% , under the effect of dynamic domestic demand. Ecuador , highly dependent as it is on oil prices, began a consolidation of government spending that led a contraction of real GDP of 0.5% in 2019 . The government was forced to backtrack on certain public expenditure reduction measures (fuel price subsidies) designed to continue the adjustment under the programme with the IMF, due to violent demonstrations. Bolivia has also seen

1

21

UNIVERSAL REGISTRATION DOCUMENT 2019