AFD - Universal Registration Document 2020

PRESENTATION OF AFD Activities of the Agence Française de Développement Group in 2020

Having entered into the crisis with fragile economic situations and deteriorated public finances, Argentina and Ecuador were severely affected in 2020 (projected real GDP down -11.8% and -11% respectively) but in the summer found an agreement with their private creditors to restructure their international bonds. Although the spread of the epidemic has been more limited there than in other regions, Africa is also expected to experience an economic shock of an unprecedented magnitude in 2020, with a recession of -2.6%. In North Africa, Egypt is expected to maintain positive growth over FY 2019/20 (+3.5%) and FY 2020/21 (+2.8%) despite pressures on its traditional sources of currency, affected by the crisis: tourism, remittances and revenues from the Suez Canal. Having somewhat restored its budgetary and external room for manoeuvre since 2016, Egypt was able to rapidly take counter-cyclical budgetary and monetary measures with the support of the IMF and donors, and gain access to international financial markets to cover its need for external financing. In Tunisia, the limited budgetary room for manoeuvre due to high public debt (nearly 100% of GDP) and a difficult political context weighed on the authorities’ ability to respond to the crisis. Like Tunisia, exposed to the impact of the crisis on tourism and demand from European countries (textiles, cars), Morocco is expected to experience a recession of similar magnitude (-7.4%) in 2020. The impact of the crisis on growth is particularly strong for commodity-exporting countries, with an average contraction of -4% for oil-exporting countries and -4.6% for other commodity exporters. A modest recovery (+3.1%) is expected by 2021, constrained by the lack of capacity of African countries to conduct expansionary budgetary policies. The deterioration of the economic situation in South Africa, which has been taking place for several years, is expected to worsen as a result of the crisis. A GDP contraction of -7.5% is expected in 2020, while public debt is expected to rise sharply (+20 percentage points of GDP compared to 2019) to 82% of GDP. In southern Africa, Zambia and Angola, economies dependent on copper and oil exports respectively, also saw their vulnerable economic situations worsen following the crisis (recessions expected by -4.8% and -4% respectively) while their public debts reached unsustainable levels (120% of GDP in both countries). Nigeria’s GDP is also expected to fall by -3.2% in 2020, driven by low oil prices, reduced production under the OPEC+ deal and lower domestic demand due to the lockdown. Already permanently weakened by the oil-price shock of 2014, the CEMAC is likely to experience a significant recession in 2020 (-3.2%) which could undermine the adjustment efforts undertaken under IMF programmes and slow recovery of foreign exchange reserves in the region. In terms of economic activity, the countries of West Africa (Benin, Côte d’Ivoire, Ghana, Guinea) and East Africa (Kenya, Ethiopia, Tanzania) generally seem to be more resilient to the crisis, with positive growth rates, while nearly 30 African countries are likely to experience a recession this year. According to the latest World Bank estimates, in 2020, global poverty is expected to increase for the first time since 1998, with more than 26 Ǿ million people falling into extreme poverty in sub -Saharan Africa alone. This impoverishment is likely to continue in 2021 and beyond.

In Eurasia, the decline in growth is largely due to oil-importing countries (Armenia and Georgia) due to higher-than-expected economic losses from crisis-related containment measures, but also to weak trade, a collapse in tourism, and a sharp fall in remittances from Russia. According to IMF projections, the oil-exporting countries in this region (Azerbaijan, Kazakhstan and Uzbekistan) will also record a decline in economic activity in 2020 of -1.6% on average, but it will be relatively moderate by comparison with oil-exporting countries in other parts of the world. Uzbekistan, in particular, should avoid recession (growth expected to reach +0.7% in 2020), having benefited from the rise in gold prices and favourable weather conditions for agricultural production. In Turkey, the IMF anticipates a contraction in real GDP of -5% in 2020, which seems conservative, given the significant support from public banks to bank credit growth since the beginning of the year. In 2020, foreign investors approved the economic policy guidelines, responding to the primacy of short-term economic growth over macroeconomic balances (inflation and twin deficits). The massive and futile use of foreign exchange reserves to defend the pound has increased the liquidity and external refinancing risk. In the Middle East, the impact of the health crisis on the tourism sector will lead to a recession of -3% in 2020 in Jordan, which continues to benefit from the financial support of the international community, in a context of continued deteriorating public finances. As for Lebanon, it has been experiencing a deep and multifaceted economic crisis since 2019, materialised by a default on sovereign debt in March Ǿ 2020. The depreciation of the local currency (which has lost 70% of its value on the parallel market since the end of 2019), the application of informal controls on capital movements by all banks, and foreign exchange shortages have triggered a hyperinflation spiral, which has led to food shortages, power cuts and increased poverty. In August, a strong explosion at the port of Beirut caused significant loss of life and enormous material damage. It also led to the resignation of the government and to a new wave of demonstrations, with no prospects of a way out of the crisis at this stage. Latin America and the Caribbean was the region hardest hit by the crisis in 2020, reflecting difficulty it had in stemming the epidemic. Compared with the average of other emerging regions, the greater impact of the crisis was due to a greater exposure of Latin American economies to intensive contact sectors (hospitality, tourism and entertainment), both in terms of jobs and GDP. The IMF projects a contraction of economic activity of -7.4%. In particular, the GDP of the two main economies in the region, Mexico and Brazil, is expected to fall, respectively, -8.5% and -4.5% in 2020. Mexican domestic demand (consumption and investment) and the service sector are suffering from the prolonged effects of the lack of a fiscal stimulus, while oil production is at an all-time low. In Brazil, the less stringent lockdown measures than in some countries, and the fiscal and monetary stimulus led by the authorities, seemed to foster a dynamic recovery in consumption and activity in the second half of 2020. The budget deficit reached -16.8% of GDP in 2020, thus contributing to the acceleration of the upward trend in public debt (101.4% of GDP at the end of 2020).

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2020 UNIVERSAL REGISTRATION DOCUMENT