Although slowing in 2009, the South African economy was still expected to grow at a rate of 1,2% said Finance Minister Trevor Manuel in his 2009 Budget speech on Wednesday.

This, he added, was the lowest rate since 1998, and was largely attributed to the plummeting commodity prices, which generated lower export earnings, as well as weaker consumer spending, and slowing private sector investment.

"We expect output growth to improve in 2010, supported by public infrastructure spending, lower interest rates, the 2010 FIFA World Cup, and a recovery in the world economy. But trading conditions are tough and are likely to deteriorate further in the short term," said Manuel.

Total government spending for the year would amount to R834-billion (up from R721-billion in 2008), which included the second allocation of the R60-billion loan to Eskom, and an unallocated contingency reserve of R6-billion.

The National Treasury's revised estimate of revenue for 2008/9, on the other hand, was R14,2-billion less than it planned in the 2008 budget.

For the year ahead, the main budget revenue estimate was R50-billion lower than projected in February last year, against the background of slower growth, depressed trade and declining company profits.

Real growth in spending on public services would average 5,1% over the next three years, and education continued to receive the largest investment (17% of the total expenditure), and would receive R140,4-billion, up 14% from last year.

The budget this year added R13,2-billion to its social grants programme, lifting it to a R118,1-billion allocation.

Health services would receive R86,9-billion; housing and community amenities received a R73,2-billion slice of the budget pie; public order and safety would receive R75,5-billion in funds; general public services R51,3-billion; defence R34,7-billion; environmental protection R5,6-billion; recreation and culture R7,7-billion; and economic affairs R179,6-billion.

Manuel noted that there were five principles guiding the budget planning this year, and these were: protecting the poor; creating employment, investing in infrastructure; promoting competitiveness; and fiscal sustainability.

Commenting on the sustainability of public finances, Manuel said that the National Treasury was tasked with responding to the global economic downturn, without putting South Africa's long-term financial position at risk.

He stated that the consolidated government budget deficit would rise to 3,8% of gross domestic product (GDP) in 2009/10. Debt service costs would remain moderate over the next three years, at about 2,5% of GDP. The deficit would move down to 1,9% by 2011/12.

South Africa's public debt stood at 23% of GDP, down from 48% in 1996. Manuel said this was achieved through a bold and decisive macroeconomic strategy that was able to confront the problem.

"Reducing the budget deficit was neither easy nor popular, but it was the right thing to do. And the outcome is that, year by year, the burden of debt service costs has declined and resources have been released to spend on education, health care, housing and infrastructure," stated Manuel.

He added that the National Treasury could announce a countercyclical fiscal stimulus, on the strength of a secure and sustainable fiscal position.

The current account deficit was expected to fall sharply from 8,1% of GDP in 2008, to 6,3% in 2009, and average 6,7% over the medium term.

"As a large net oil importer, South Africa will benefit from the lower oil price. Gold's safe-haven status has supported a relatively high bullion price - at 115% above its average level since 1994," the National Treasury noted.

A strong contributing factor to the current account deficit was said to be the deterioration in the trade balance, which moved from an almost balanced position in 2004, to a deficit of more than 2% of GDP in less than two years.

Remaining true to the long-term goal of a 6% economic growth rate, the National Treasury said that government needed to prevent a large rise in the debt burden, which would severely limit future resources for growth and the expansion of the social wage.

A supportive monetary stance was also required, and lower inflation in the months ahead should contribute to moderating interest rates.

Government said its fiscal stimulus sought to prevent a reversal of improvements in living standards achieved over the past decade. Policy initiatives would support increasing investment in public infrastructure, the protection of low-income households, job creation through public works programmes, and partnerships between the public and private sectors to finance investment.

South Africa's growth slowed to 3,1% in 2008, after averaging about 5% over the previous three years.

Meanwhile, growth in the global economy was expected to slow to 0,5% in 2009, from 3,4% the previous year, while growth in developing countries dropped from 6,6% in 2008, to 3,3% in 2009.

Manuel also emphasised that government departments were asked to identify efficiencies, and said cuts amounting to R19-billion were effected in the final stages of preparing the 2009 budget.

He added that stronger action in the pursuit of efficiency and better targeted expenditure would be required. "There is insufficient control on foreign travel, advertising and public relations activities and consultancy services," he said.