Kenyan Government to `Unwind’ Stimulus in 2011-12, Finance Ministry Says

Kenyan Government to `Unwind' Stimulus in 2011-12, Finance Ministry Says

Kenyan Government to `Unwind' Stimulus in 2011-12, Finance Ministry Says

By Sarah McGregor

Kenya plans to roll back stimulus spending in the next fiscal year to keep debt under control as East Africa’s largest economy gains strength, said Geoffrey Mwau, economic secretary at the Finance Ministry.

The slowdown in spending aims to “end any inflation tendencies and restore public finances to a sustainable path,” Mwau said in Nairobi, Kenya’s capital, today. The government will probably present the budget to Parliament in June.

Government spending in the fiscal year through June 2012 is expected to fall to 31.8 percent of gross domestic product from 32.9 percent in 2010-11, Mwau said. The budget deficit will narrow to about 5.3 percent of GDP from 6.8 percent over the same period, he said.

Expenditure this year was pegged at 998.8 billion shillings ($12.3 billion) on top of which a supplementary spending plan announced in October added 3.5 billion shillings to finance the implementation of a new constitution enacted in August. The state’s “total available resources” in 2011-12 will amount to 978.7 billion shillings, Mwau said.

Kenya plans to cut domestic borrowing by about 10 percent to 95 billion shillings in the fiscal year through June 2012, aiming to ensure debt levels are sustainable, Henry Rotich, deputy director of economic affairs at the Finance Ministry, said Oct. 25.

International Bond

Kenya wants to reduce domestic debt, while continuing to tap low-interest financing from abroad, Mwau said.

The government hasn’t factored in the sale of an international bond to budget proposals for the next fiscal year, Mwau said in an interview. While the sale of the bonds remains a possibility, the country is “still studying the situation,” he said. “The global environment is still a little shaky.”

Kenya postponed a sovereign bond sale more than two years ago after the global financial crisis reduced investors’ appetite for risk.

Kenya’s economy is expected to grow 5.7 percent in 2011, from a projected 5.2 percent last year, and expand an average of 6.5 percent in the medium term, Mwau said. Threats to economic expansion include the possibility of poor rains early this year, which could “weaken” agriculture, he said. Kenya is the world’s largest exporter of black tea.

The Central Bank of Kenya has cut the benchmark interest rate by 2.5 percentage points since March 2009 to boost commercial bank lending and help the economy recover from the global crisis, drought and post-election violence in 2008. The reductions haven’t stoked inflation which has remained below the 5 percent target since March. The rate of price growth is expected to “hover” about 5 percent this year, Mwau said.