Finance Minister Trevor Manuel warned yesterday that the budget deficit, for many years surprising on the down-side, may come in higher than expected this financial year.

Addressing students at the University of the Western Cape, the Minister suggested there was no absolute value for a deficit, saying it was "no Holy Grail".

"The (Budget) deficit here in South Africa is set at 2,4% this year, but it might come in a bit higher than that," he said.

The deficit has come in below expectations for the past few years, declining to just 1,4% in 2002-03, on the back of strong revenue collection.

Manuel's warning comes just weeks after Neil Cole, the director of budget reform in the Treasury, advised the budgeted growth forecasts may have to be cut in November's Medium Term Budget Policy Statement.

He told Parliament's joint budget committee the weak global economy and high interest rates had forced gross domestic product (GDP) growth prospects lower.

Economic forecasts, Cole said, were showing revenue collected could be less than expected in 2003-04.

Manuel yesterday stressed the importance of macro-economic stability and the dangers of a volatile currency.

The government had made a choice to target price stability rather than the exchange rate, which meant there was no control over the currency's movements.

A volatile currency was bad for decision-making and made investment riskier.

A stable currency was obviously preferable, although pegging an exchange rate to a stronger unit, such as the dollar, as many developing countries had done, removed any competitive edge a small economy had.

The minister said unemployment remained South Africa's single biggest challenge, and in this regard, closing the skills gap and broad-based black economic empowerment (BEE) were important.

An effective BEE programme had to involve the transfer of ownership, and could not merely see blacks employed as "junior management" in white-owned companies.

"Ownership and control go together," he said.

Manuel was speaking at the launch of the 2004 Old Mutual-Nedbank budget speech competition, which invites university students from across the country to debate issues around economic growth and redistribution. – Sapa.