MTBPS fallout, renminbi debt risks

South Africa’s Finance Minister Enoch Godongwana couldn’t have wished for a better response from investors to this week’s Medium-Term Budget Policy Statement (MTBPS) and his decision to lower the inflation target. But we would caution that there’s a lot of work to do to meet the fiscal targets and there are a couple of key flashpoints over the coming year. Meanwhile, the IMF warned this week of risks associated with recent agreements between several African countries and China to swap dollar-denominated debt owed to Beijing into renminbi. While such deals may help to reduce debt servicing costs, they introduce currency risks associated with securing access to renminbi.