NAIROBI, Kenya May 20- Kenya’s 2010/2011 financial budget is expected to be read on June 10 Finance Minister Uhuru Kenyatta has said.
In the last financial year, budget the government set aside Sh866 billion with most of the money (Sh606.7billion) going towards recurrent expenditure.
As this year\’s Budget approaches, the government is set to cut down on its domestic borrowing as it seeks long-term borrowing tools to fund the economic activities.
This comes at a time when the cost of financing local debt has become unsustainable.
Currently domestic debt stands at close to Sh653 billion while external debt stands at Sh536 billion.
Speaking to journalists on Thursday, Finance Assistance Minister Oburu Odinga said the interest paid on local debt instruments was higher than that paid on external ones.
“It is more expensive to borrow locally because of the interest paid and the duration in which to service those loans,” Mr Odinga said.
He added that the medium term plan was to reduce domestic debt, concentrating on concessionary loans with longer repaying periods and lower interest rates.
He was however confident that the Treasury was carefully managing its debt levels highlighting that the current ratio of debt to gross domestic product (GDP) was at 36 percent.
“Right now we are below our threshold on debt levels which is currently pegged at 40 percent of GDP,” he said.
The move also comes at a time the government finds financing of loans difficult. This has prompted the Central Bank of Kenya to try to mitigate the problem by bringing interest rates down through a variety of measures.
World Bank Country Director Johannes Zutt welcomed the move arguing it would help ease the pressure on the economy.
“The Financing terms for such loans are such that two thirds of what is signed ends up being a grant. The interest rate is also pegged at 0.75 percent and if I was to borrow at that rate I would borrow as much as I could,” Mr Zutt said.
They were speaking during the signing of a $160 million (Sh12.5 billion) loan agreement for the financing of the Kenya Municipal Program and the Kenya Youth Empowerment Project.
Sh7.6 billion will be used for the municipal program focusing on strengthening local governance, institutions, and physical infrastructure, with the ultimate objective of improving service delivery in 15 municipalities.
It will also improve the viability of the five largest cities and all provincial capitals.