SOUTH Africa's second post apartheid budget, unveiled recently by the finance minister Mr Chris Liebenberg, has once again demonstrated the commitment of the country's new rulers to fiscal discipline and free market reforms.

Yet in spite of a series of business-friendly measures - most notably a one per cent cut in the balance of payments deficit - local and foreign investors are still looking nervously beyond the budget to what might happen in the short-term future.

It is not that South Africa's economy is faring badly growth Is expected to reach 4 per cent this year and inflation, in single figures, is at a 20-year low. Nor did Mr Liebenberg fail to make all the right noises.

The ambitious plans of President Nelson Mandela's government to improve the lot of South Africa's poor blacks have been tempered with economic reality. The government envisages a 10 per cent increase in total expenditure, to be off-set by a 13.5 per cent increase in revenue. Extra revenue is to be raised by a new 17 per cent tax on gross earnings in the pampered, pensions sector and by more strenuous collection. Meanwhile VAT is being held steady and changes to the tax tables should see many lower and middle-income earners take home more money.

Secondary company tax drops 25 to 15 per cent per cent, and Johannesburg Stock Exchange struggling through a belated Big Bang, will be heartened by a 50 per cent cut in the marketable securities tax, now down to 0.5 per cent. Most importantly, the deficit is to be cut from 30 billion rand to 28.8 billion rand down from six to 5.1 per cent of gross domestic product just what the markets wanted.

This cut still allows for increased spending in key areas of social policy like health, education and the cornerstone "reconstruction and development policy", which will this year receive 75 billion rand to improve black lifestyles, skills and incomes. For South Africa's poor, Mr Liebenberg said, 1996/97 would be "the year of delivery".

But while business has welcomed the government's reaffirmation of its belief in fiscal rectitude and trade liberalisation, the budget's positive message is, for the time being, still overshadowed by the on-going crisis over exchange rates and exchange controls.

Since mid-February the rand has slumped from 3.65 to the dollar and now fluctuates at around four to the dollar, a barrier it at one point breached. Its decline was fuelled by a variety of factors - by rumours that President Mandela was in ill-health, by perceptions that it was simply over-priced and - not least - by rumours of an imminent relaxation in the regulations which prevent South African residents and institutions from investing their money abroad.

The most recent slump came earlier this month when a fresh rumour that the budget would relax exchange controls saw the rand drop six cents to 3.94 before Reserve Bank intervention brought it back up to 3.929, where it is continuing to trade.

Most South African analysts now feel the rand has reached its proper level, and may even rise in the months ahead. But until the finance ministry or the Reserve Bank take definite action on exchange controls they expect the Rand markets to be subject to frequent bouts of nerves, creating an uncertain climate for vital foreign investment.

Both Mr Liebenberg and the Reserve Bank governor, Mr Chris Stats, have said repeatedly that South Africa is committed to cutting exchange controls back to the international norm. The only question is when will this will happen The rand crisis of recent weeks is believed to have set back the programme more than a little.

In an effort to quell the panic Mr Stals last week reiterated assurances that the Reserve Bank would adopt a gradualist approach to ending capital controls, rather than going for a one-off "big bang" in the aftermath of the budget. "It's a medium, longer-term policy to phase out exchange controls gradually," he said. "We don't think the fundamentals really changed in the last few weeks," he added.

Many analysts say they expect the rand to begin rising again once this gradual reform is set in motion. Mr Nick Barnard of BOE NatWest said he thought the first relaxation in exchange controls could come in late March or early May to provide broad guidance to the nervous markets.

The first relaxation is likely to permit pension and insurance institutions to move some of their money offshore. At present they can only do so through complicated share swaps, but Mr Barnard believes early reforms might allow them to move around 5 per cent of their cash flow overseas.

This amount - around £500 million - would still be considerable less than the 10 per cent of their total assets which the institutions have indicated they would like to invest in foreign markets. Following the recent crisis Mr Barnard now believes that the total removal of exchange controls could be spread over two to three years.

Mr Rudolf Gouws of the Rand Merchant Bank thinks the readjustment in the rand should work to South Africa's benefit. Despite the recent selling, he expects capital inflows to remain high this year, probably not much less than the 21.7 billion rand which flooded into the country last year.

Much of this will, however remain in the form of short-term portfolio investment, vulnerable to any further run on the rand. Reliant on foreign cash (which is exempt from exchange controls) to fund its deficit and fuel recovery, South Africa's government is unlikely to be too laissez-faire when it comes to safeguarding the currency. Having seen what has happened elsewhere in Africa, Mr Mandela's government is determined not to be strangled by inflation and debt.