THE Treasury will retain its power to control budgets and set economic policy even after President Jacob Zuma appointed a new planning commission and an Economic Development Ministry, said Lesetja Kganyago, the Treasury's director-general.

The appointment of Finance Minister Pravin Gordhan as a successor to Trevor Manuel, who will head the planning commission in the Presidency, demonstrated that there was policy continuity, Kganyago said in Dakar, Senegal, yesterday.

"Everyone said that the Treasury's wings were going to be clipped," Kganyago said. "Credit to President Zuma. By putting Trevor Manuel there, he has allayed the fears that this new policy czar in the Presidency would have had this difficult relationship with the Treasury."

The creation of a planning unit had raised concern among investors that the ruling African National Congress (ANC) wanted to trim Manuel's power, and that of the Treasury. Manuel has been finance minister since 1996.

Mathews Phosa, number six in the ANC hierachy, said last month that the Treasury had become a "Frankenstein" that was bullying other departments into limiting their expenditure.

Gordhan headed the South African Revenue Service since 1999, during which time tax collections more than tripled. He said on Monday that there should be an "ethos of cooperative governance" and that Zuma wanted "policy continuity".

Kganyago said the creation of an economic development ministry, led by Ebrahim Patel, would also not dilute the Treasury's powers. "We are going to see what it entails," said Kganyago, "but I don't see anything that is done in the Treasury that will have to go to economic development."

The Cabinet changes come at a time when investors have sold South African equities and bonds as the global financial crisis worsened, undermining growth in Africa's biggest economy.

The African Development Bank (AfDB) says SA's economy will contract 1,1% this year, the first decline in 17 years.

"When we tabled the budget in February, we expected the global economy to grow 0,5%," Kganyago said. "It is now expected to contract. This will impact on demand for exports."

Manufacturing fell an annual 11,7% in March after dropping a record 15,1% in February.

"Manufacturing is the second-largest sector in the economy," Kganyago said. The data "cannot bring any joy to any policy makers".

Kganyago was in Dakar for the annual meetings of the AfDB. He left for New York yesterday to give presentations to potential investors about the sale of a $1bn denominated bond.

Meanwhile, the bank has asked its directors for a fresh injection to treble its capital base to $100bn in order to help member states weather the economic downturn. The bank would have needed to recapitalise only in 2013 but the crisis prompted an unprecedented scramble for funding from members as liquidity in global markets dried up, putting strain on the bank's resources.

AfDB president Donald Kaberuka also asked the bank's directors to increase its soft loan capacity in order to support poorer states. The request to prop up its capital base comes after a joint international financial institution action plan to pool and leverage resources to help African countries as the global crisis wreaks havoc .

At the bank's meeting , Kaberuka said the bank had enough risk capital to conduct its normal business.

The last time the bank had a capital increase was in 1997 and in terms of its medium-term strategy, which runs from last year to 2012, the bank would receive a 14% annual increase, which meant it would not have needed a general capital increase until 2013. However, the medium- term strategy was formulated before the crisis started unfolding so, because the Group of 20 countries had asked multilateral institutions for increased interventions, the bank needed to talk about a capital top up, he said.

Kaberuka said the bank's directors had had positive discussions this week about the need to accelerate the replenishment of the bank's fund, and that he was confident the request for a capital increase would be approved.

The African development fund, which makes concessional loans available to poorer countries, has also been bolstered by 50% to $9bn.

Kaberuka said the fund had enough resources to meet the needs of poor countries, but that the bank also agreed to frontload the resources, so funding due to be committed by the end of the year had already been made available.

Deliberations on the general capital injection for the bank were still in progress, but the bank's president was hopeful that details of the replenishment would be well in progress by October. "We want a generous increase and are confident that we will get it. The increase should come pretty quickly," Kaberuka said.

With Mathabo le Roux, Bloomberg