Kenya eyes budget deficit of 6.9pc in 2016/17 fiscal year

What you need to know:

The deficit for this fiscal year is expected to decline to Sh522.3 billion ($5.11 billion), 8.1 per cent of gross domestic product, from Sh569.2 billion, 8.7 per cent of GDP, where it was set in a June budget, the Treasury said in the draft budget policy statement.

Kenya is targeting a budget deficit of 6.9 per cent of GDP in the 2016/17 fiscal year (July-June), from a revised 8.1 per cent this fiscal year, the Ministry of Finance said in a draft budget policy statement.

The country has ramped up spending in recent years, to build a modern railway, new roads and electricity plants, driving up the budget deficit and unnerving investors.

The deficit for this fiscal year is expected to decline to Sh522.3 billion ($5.11 billion), 8.1 per cent of gross domestic product, from Sh569.2 billion, 8.7 per cent of GDP, where it was set in a June budget, the Treasury said in the draft budget policy statement posted on its website.

The narrower deficit will be arrived at through a reduction in expenditure and borrowing, the ministry said in the draft, which was published for the public to offer comments before it is finalised by the government.

"Borrowing from the domestic market has been revised down to Sh168.2 billion from Sh221.5 billion in the budget while external commercial borrowing has been raised to substitute for the lower domestic borrowing," the Treasury said, referring to this fiscal year.

The deficit will fall to 6.9 per cent of GDP in the next financial year before declining to 4.3 per cent in the medium term.

Kenya is building a modern railway from the main port of Mombasa to the capital Nairobi and officials blame the investment for the higher budget deficit.

"Excluding expenditures related to the SGR (standard gauge railway), the deficit declines from 6.3 per cent of GDP in 2015/16 to 4.1 per cent of GDP over the medium term," the Treasury said in the draft policy statement.