Finance Minister Uhuru Kenyatta increased the deficit as a
percentage of GDP to 6.8 percent from 6.6 percent, to fund a range of increased
spending in key areas like roads, during his budget speech last week.
The Economic Secretary at the Finance Ministry, Geoffrey
Mwau, said the government was cutting back on its local borrowing program.
"This (2010/11 budget) is not expansionary in any way.
We are getting back to a borrowing level that is affordable. We have already
started to put on the brakes. We are now in gear number three going down to two
and one," Mwau told Reuters.
The planned 105.2 billion shillings of borrowing for this
year is below this year's total borrowing of 126 billion shillings. The
government had initially planned to borrow 109 billion shilling for the 2009/10
year but was forced to borrow more by emergencies like drought.
In financial year 2009-10 Kenya sought to borrow 33 billion
shillings for infrastructure projects, but ended up taking an extra 1.8 billion
shilling after the bond offerings were over subscribed.
Kenya will use concessional loans, from major partners like
the World Bank and the African Development Bank, to cover 82 billion of the 188
billion shilling deficit. Treasury bonds and bills will account for 73.7
billion shillings in borrowing.
The economy was on track to attain a better-than-the government's
own forecast of 4-5 percent growth this year, Mwau said, without indicating the
likely outturn for the period.
"The price of basic commodities like vegetables is
still very affordable, because they are available. Crop production will be high
especially for cash crops, energy is also a major factor here," said Mwau,
in reference on ongoing rains.
He said Kenya faced risks ranging from the political
situation internally to from unforeseen events abroad like the Icelandic
volcano ash crisis, which hurt horticulture exports. Crises in the euro zone
have also weakened the local currency.
"The only thing we are worried about now are unexpected
shocks like what happened at Uhuru Park. You don't want things like that to
happen because they could scare away tourists and the sector could be
affected," he said.
"Investments could also be affected," he added,
referring to a deadly weekend explosion at a rally to campaign for the
rejection of a proposed new constitution.
Voters go to a referendum on August 4 to decide on the draft
charter, which Mwau said must pass for sustained growth.
"Unless you have a constitution passed you will still
see lingering concerns about political stability and when the constitution
passes, that is a major break for us," he said.
Mwau said strong exports and a healthy tourism sector meant
the shilling's exchange rate against the dollar would return to normal soon
after it weakened to a more than a five year low this month.
"In terms of the exchange rate, we are still within the
realistic band of course there is a little hitch coming from the euro crisis
but the macro-fundamentals are fine and that means we are going to see exchange
rate correct itself very quickly."
"We are being caught in that crossfire between the euro
and the dollar."
