Pretoria - The South Africa'an government cannot afford pay demands from thousands of public service workers and hopes a deal can be reached next week before a strike widens to nearly a million workers, a minister said on Friday.

Several thousand public servants stopped work on Thursday and union leaders said about a million workers could strike next week over wages.

The labour action has had little impact so far on Africa's biggest economy but a broader strike including customs officers, healthcare workers and other state services could disrupt the economy.

Public Service and Administration Minister Richard Baloyi told reporters that unions representing the workers had until August 4 to agree to the government's latest offer.

"The pen is dropping on Wednesday. If it isn't dropping, the ink dries. We have to put this issue behind us," he said.

Baloyi said the government had other priorities, including infrastructure building, schools and police stations, and any additional spending on wages would stretch sparse resources too thinly.

"There is no leader in South Africa who will say that the government should stop increasing the number of police, nurses, teachers and other categories of public servants in order to use the money that the government has to pay for the salary increments for existing public servants," he said.

Baloyi said the government had already exceeded its budget with its initial offer to state employees.

Workers - including nurses, teachers and immigration officers - have rejected the government's 6.5% wage offer and are demanding an 8.6% increase and a R1 000 monthly housing allowance.

Baloyi said the government had raised its offer on the housing allowance to R630 per month and urged the unions to accept. Its 6.5% wage increase offer remained. The government is concerned that giving nearly a million workers increases of double the inflation rate of 4.2% will fan inflation and hurt efforts to trim a budget deficit of 6.7% of gross domestic product.

Public sector unions in the country's largest umbrella labour group Cosatu have threatened to join the PSA strike as early as next week, swelling the number of potential strikers to 900 000. That would be the biggest public works stoppage in three years.

However, analysts expect a deal as the two sides have narrowed their differences and the government has a track record of buckling in wage negotiations with organised labour, a long-time ANC ally.

  - Reuters