June 3 (Bloomberg) -- South Africa’s rand weakened against the dollar as President Jacob Zuma pledged to create 4 million jobs over the next five years by boosting public spending to counter the nation’s first recession in 17 years.

The rand lost as much as 2 percent to 8.1071 to the dollar, and traded 1.4 percent weaker at 8.0625 as of 4:31 p.m. in Johannesburg, paring its advance this year to 18.1 percent.

Zuma, whose rise to power was backed by South African trade unions, is under pressure to boost the economy after it shrank an annualized 6.4 percent in the first quarter. The government plans to expand public works, targeting 500,000 new posts in the next seven months, Zuma said today in his first state-of-the- nation address since his inauguration on May 9.

“Economic-stimulus measures cost money, so the question is whether South Africa can afford the increase in the budget deficit that will be required to fund this program,” said Stanislava Pravdova, an emerging-market analyst at Danske Bank in Copenhagen. “The economy is still in recession so there is not that much revenue coming in for government.”

The rand slipped versus 13 of the 16 most-actively traded currencies monitored by Bloomberg, losing 0.7 percent against the euro to 11.4513.

South Africa plans to develop a “scaled-up” industrial plan that will focus on manufacturing, services and construction to help create jobs, and to build a more “inclusive economy” by developing rural areas, Zuma said.

‘Comparatively Healthy’

The Congress of South African Trade Unions, the country’s largest labor federation, says the economy may lose 1 million jobs this year unless government boosts spending and accelerates interest-rate cuts to alleviate the economic slowdown.

“We’re living in unique times so an expanded fiscal deficit to fund increased social spending and expanded public investment is not altogether unexpected,” said Timothy Ash, head of emerging-market economics at Royal Bank of Scotland Group Plc in London. “There may be some concern about the sustainability of the deficit but I’d be pretty sanguine about it as South Africa is in a comparatively healthy fiscal position.”

South Africa’s budget deficit is forecast to widen to 3.8 percent of gross domestic product in the year through March 2010, the highest in a decade, according to government estimates. That compares with an average of “about 5 percent for most of emerging Europe,” according to Ash.

MTN Deal

Declines in the rand were stemmed by speculation India’s Bharti Airtel Ltd. may succeed in its bid to purchase a 49 percent stake in Johannesburg-based MTN Group Ltd. The deal would also require MTN and its shareholders to purchase a 36 percent stake in Bharti in a merger that BNP Paribas SA says may result in a net inflow of $5.8 billion into South Africa.

“The way the deal is presented right now, it could result in a substantial inflow into South Africa, which would be positive for the rand in the short-term,” said Shahin Vallee, an emerging-market currency strategist in London at BNP, France’s largest bank. “Speculation that the deal will go ahead is the main thing that’s keeping the rand at relatively strong historical levels.”

Government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 adding two basis points to 8.32 percent. The bond’s price, which moves inversely to the yield, fell 16 cents to 124.84 rand.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

Last Updated: June 3, 2009 11:47 EDT