Bloomberg News

Kenya’s Budget Deficit Excluding Grants to Widen to 8.8% of GDP

June 16, 2011

June 16 (Bloomberg) -- Kenya’s budget deficit will widen to 8.8 percent of gross domestic project excluding grants in the year through June 2012, said Henry Rotich, the Treasury’s deputy director of economic affairs.

The deficit will expand from about 8.4 percent of GDP in the current financial year, Rotich said in a phone interview from Nairobi, the capital, today. Including grants, the shortfall will be 7.4 percent of GDP in 2011-12, Finance Minister Uhuru Kenyatta in his budget speech on June 8.

Faster inflation and persistent fiscal deficits have pushed up borrowing costs, with the yield on three-month Treasury bills reaching a nine-year high of 9.016 percent at the last auction on June 10. The country’s budget gap has widened every year since at least 2005, the International Monetary Fund said in April, with the overall debt rising to 48 percent of GDP from 39 percent in 2007-2008, according to the government.

“Our debt sustainability plan shows it’s still in a manageable position,” Geoffrey Mwau, economic secretary in the ministry of finance, said by phone yesterday.

The fiscal deficit excluding grants will narrow to 6.1 percent of GDP in 2012-2013 and 5 percent in 2013-2014, according to the finance ministry.

Lending Rates

The Central Bank of Kenya has increased the key lending rate by a quarter of a percentage point at each of its last two monetary policy meetings in March and May, pushing it to 6.25 percent in a bid to curb inflation. Consumer prices rose an annual 13 percent in May, the fastest pace in 25 months.

“Until we bring down inflation you are going to see a situation where the interest rates are high,” Mwau said from Nairobi. “We’d like cheaper borrowing of course, including for the government.”

The government plans to sell 83.7 billion shillings ($946 million) in Treasury bills and longer-dated bonds in 2011-2012, down 11.5 percent from last year, and 35.9 billion shillings in infrastructure bonds, according to a statement on the finance ministry’s website. It sold securities to build roads and power projects worth 30.5 billion shillings in 2010-2011.

Kenya has received commitments amounting to 35.3 billion shillings in donations from abroad for “development projects,” Kenyatta said on June 8, without providing a timeframe. External grants are earmarked mainly for expansion of geothermal power generation and road-building in Kenya, Rotich said.

--Editors: Philip Sanders, Ben Holland

To contact the reporter on this story: Sarah McGregor in Nairobi at

To contact the editor responsible for this story: Andrew J. Barden at

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