Kenya will cut its net domestic borrowing for fiscal 2015/16 by nearly a quarter to 168.2 billion shillings ($1.65 billion), as it reduces spending by one per cent of GDP, the finance minister has.
Net domestic financing amounted to 27.7 billion shillings in the first half that ended on December 31 against a target of 106.6 billion, the finance ministry said, prompting it to review its borrowing plans.
Lower borrowing during the six months were accompanied by sluggish revenue collections, unnerving investors, who were already concerned the government was living beyond its means.
The new net local financing target, contained in a supplementary budget that is yet to be approved by the cabinet and the national assembly, will reduce the budget deficit from the initial 8.7 per cent of gross domestic product, Henry Rotich told Reuters.
A budget policy document posted on the Treasury's website showed the budget deficit will narrow to 8.0 percent, though not to less than seven per cent, as the minister had previously said.
The expenditure cuts had been considered carefully to ensure they do not hurt the country's economic prospects, Rotich said.
"We have made very careful cuts so it doesn't impact on the growth," he said. The government expects the economy to expand by 6.1 per cent this year.
Net foreign financing will be raised to 346.49 billion shillings, 5.4 per cent of GDP, from 340.53 billion shillings, the finance ministry said, to compensate for the reduced domestic borrowing.
External borrowing this fiscal year include a syndicated loan and project-specific loans from other countries and international organisations like the World Bank.
The budget deficit is projected to slide to 6.8 per cent in the 2016/17 fiscal year, Treasury said in the budget policy statement.
Rotich said they were engaging ratings agencies in order to have them reflect recent economic developments and upgrade Kenya's rating of B1, which has been in place for years.
"We still feel that Kenya is underrated. There are many other indicators we should point to a much better rating than what we have," he said, citing Kenya's move to a low middle-income country status and the discovery of oil in the north.
"We should be at BB, BB- or something like that."
Kenya was in support of the re-election of Christine Lagarde as the managing director of the International Monetary Fund after she was nominated for the post, Rotich added.