Reuters International

South Africa's Finance Minister Pravin Gordhan delivers his 2016 budget address to the parliament in Cape Town, February 24, 2016. REUTERS/Mike Hutchings/File Photo

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By TJ Strydom

JOHANNESBURG (Reuters) - South Africa's Finance Minister Pravin Gordhan is not being investigated for espionage over his part in establishing a surveillance unit in the revenue service and does not face arrest, the state prosecutor and police said on Monday.

The elite Hawks police unit is investigating a tax surveillance unit within the South African Revenue Service (SARS) set up in 2007 when Gordhan was the commissioner of the revenue authority.

Gordhan, who headed SARS from 1999 to 2009, has said the spy unit set up at the tax agency was lawful.

The National Prosecuting Authority head Shaun Abrahams asked South Africans to "stop deriving political mileage of this matter," after media reports last week that the minister's arrest was imminent.

"There are no charges of espionage being investigated against minister Gordhan," Abrahams told a news conference.

"In the event that the minister is implicated, I will make the decision at the conclusion of the investigation as to whether or not any person or persons must be prosecuted, including the minister."

Hawks spokesman Hangwani Mulaudzi had said earlier Gordhan was not a suspect and that police were not singling out the finance minister in its investigation of the surveillance unit.

The Sunday Independent reported at the weekend that Hawks chief Berning Ntlemeza had sent Gordhan's lawyers a letter to reassure him he would not be arrested.

Gordhan, who was reinstated as finance minister in December, said last week that a newspaper report of his imminent arrest was an attack on the Treasury.

The rand firmed briefly after the news Gordhan faced no arrest, touching 15.5230 per dollar in early trade from a close of 15.6355 on Friday. The currency was flat as of 0940 GMT.

The currency had weakened last Monday to a two-month low after the newspaper report on Gordhan's arrest. The report was denied by the presidency, police and prosecutors.

The report had raised concerns of a repeat of the run on the rand and bonds in December after President Jacob Zuma changed finance ministers twice in a week. It also comes as South Africa is trying to fend off a credit ratings downgrade.

Moody's earlier this month left its rating of South Africa's debt at Baa2, two levels above sub-investment grade, but assigned a negative outlook, saying risks to implementation of structural and fiscal reforms remained a factor.

Fitch and Standard & Poor's rate the country one notch above sub-investment grade and plan to release their reviews in June.

(Writing by Olivia Kumwenda-Mtambo; Editing by James Macharia and Janet Lawrence)

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