Presenting his Medium Term Budget Policy Statement, which lays the groundwork for the 2006 budget, Manuel said the deficit for this fiscal year would amount to 1 percent of gross domestic product (GDP), versus earlier estimates of 3.1 percent.
This follows robust economic growth in the continent's biggest economy during the year and strong revenue collection - which is now expected to be 30.2 billion rand ($4.55 billion) higher than forecast in the 2005 budget.
"We are hitting the sweet spot. You can see that from the way the numbers are aligning," Manuel told reporters.
"In aggregrate terms it might look like we are battening our hatches but we are not," he said, adding that the government had the funds to spend on an infrastructure spending drive, but was waiting for projects to be finalised.
Manuel surprised many by further easing foreign exchange regulations for banks and unit trusts, taking another step towards gradually scrapping all remaining controls after a sustained period of currency stability.
Banks will now be able to invest up to 40 percent of their domestic capital outside the country, with a 20 percent limit on assets outside the African continent. Previously banks could not invest freely outside South Africa.