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Kenya spending to rise by 25%

By Vision Reporter

Added 11th June 2009 03:00 AM

EAST AFRICAN BUDGETS 2009

NAIROBI
Kenya plans to boost spending by nearly a quarter in the 2009/10 fiscal year to boost development and stimulate east Africa’s largest economy as it navigates the global downturn.

EAST AFRICAN BUDGETS 2009

NAIROBI
Kenya plans to boost spending by nearly a quarter in the 2009/10 fiscal year to boost development and stimulate east Africa’s largest economy as it navigates the global downturn.

EAST AFRICAN BUDGETS 2009

NAIROBI
Kenya plans to boost spending by nearly a quarter in the 2009/10 fiscal year to boost development and stimulate east Africa’s largest economy as it navigates the global downturn.

Finance minister Uhuru Kenyatta said on Thursday in his budget speech that spending would rise by 23.7% to 866 billion ($11.1b) with 109.5 billion shillings borrowed from domestic markets to fund the budget.

The budget deficit was forecast to hit 6.6% of gross domestic product, a level analysts said could be over-reaching. It was expected to decline to 4.2% of GDP in 2010/11.

“I’m a bit concerned about the projected rise in public spending, which is financed by a larger deficit,” said Stuart Culverhouse, head of research at Exotix, a frontier market specialist in London.

“"I would have preferred to see greater fiscal discipline rather than fiscal stimulus,” he said.

With a gross domestic product of about $35b, Kenya is the region’s economic powerhouse even though it has no minerals or hydrocarbons to boast of.

But growth plunged to 1.7% in 2008 from 7.1% in 2007 due to post-election violence, drought and the global scenario, which has hit key agricultural exports, tourism and remittances from Kenyans abroad.

“We project a modest recovery with the national cake growing by only 3%,” Kenyatta told parliament, adding that inflation should ease to an average annual rate of 13.2% this year compared to 26.2% in 2008.

Development spending was slated at 258.9 billion, a whopping 82.6% increase from 141.8 billion the year before.

The roads’ budget will more than double to 50.5 billion shillings, followed by 30.6 billion for energy, and 24.7 billion for water and irrigation.

Kenyatta said altogether 140 billion shillings would be spent on roads, railways, ports, energy and high-speed Internet, which is expected to take off late this year with the arrival of the submarine fibre-optic cables.

Like other economies in the region, Kenya wants to improve its infrastructure to make up for decades of under-investment. Businesses complain dilapidated infrastructure hinders efficient operations, swells their costs and deters foreign investors.

Agriculture, however, remains the backbone of Kenya’s economy. Exports of flowers, vegetables, tea and coffee are the country’s biggest foreign exchange earner. Tourism is the second biggest employer and hard currency earner after farming.

Kenya is targeting 569 billion shillings of revenues in 2009/10, or 22.4% of GDP.

Kenyatta said the budget anticipated 6 billion shillings in privatisation proceeds.

But markets are concerned that a heavy borrowing programme on domestic markets could push up short-term interest rates and crowd out investment in the private sector.

“The Kenyan budget will probably be taken poorly by the local bond market, given the forecast of a 6.6% of GDP budget deficit. Not surprisingly, spending increases seem geared to infrastructure and agriculture,” said Richard Segal, Africa specialist and head of macro-economic research at UBA Capital.

Kenyatta sought to reassure anxiety over borrowing. “We have had to strike a balance between supporting growth and medium-term debt sustainability,” he said. “We are in a position to comfortably borrow in the short-term.”

Central bank governor Njuguna Ndung’u also said money borrowed locally would not crowd out the private sector because it would be spent on public projects like infrastructure, thus boosting the overall economy.

Kenya may revive plans for a debut Eurobond issue of 33.6 billion shillings that was postponed due to the global scenario and a lowering of its credit ratings. It will provide some new external funding and ease some worries in local markets.
- Reuters

Kenya spending to rise by 25%

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