Teyie Report

Kenya's Finance Minister Uhuru Kenyatta.

Kenya Budget Speech 2010-2011, Download Full Transcript HERE

NAIROBI, June 10 (Reuters) - East African nations outlined plans on Thursday to boost spending through more domestic and external borrowing, unnerving investors looking for tighter control of the public purse in light of faster economic growth.

In a budget speech presented at the same time as other members of the five-state East African Community, Kenyan finance minister Uhuru Kenyatta projected a deficit of 188 billion Kenya shillings ($2.3 billion), or 6.8 percent of output — and well above analysts’ expectations.

The deficit, which was 6.6 percent in the financial year just ended, is roughly the same as that of South Africa, the continent’s biggest economy, and around half that of heavily indebted eurozone countries such as Greece.

However, analysts said an increase in spending for an economy forecast to grow 4.5 percent this year might shake investors’ faith in the creeping tendency towards fiscal discipline in many frontier African markets.

While Kenya has almost rewritten the textbook in terms of demonstrating successfully its ability to borrow without pressuring interest rates higher, this will take some digesting,” said Razia Khan, head of Africa research at Standard Chartered.

“Given the mood of the moment, the announcement that Kenya will see further fiscal expansion rather than an exit from counter-cyclical policy even as growth recovers may not sit wholly comfortably with all observers,” she said.

The gap between spending and receipts would be financed through domestic borrowing of 105.3 billion shillings and external financing of 82.7 billion, Kenyatta, the son of modern Kenya’s founding father, told parliament.

“Growth in this period will be driven mainly by increased investments in key sectors including agriculture, services, infrastructure, health and education and targeted strategic development interventions,” Kenyatta said. Download the entire transcript HERE

“The government will contain the growth in public debt to a sustainable level to ensure the private sector is not crowded out,” he said.

Neighbouring Tanzania, which has been more reluctant to open up to foreign capital, said spending would jump to 11.6 trillion Tanzanian shillings ($7.9 billion) TZS= from 9.5 trillion last year.

The government would finance its deficit through 2.1 trillion shillings in domestic and external borrowing, Finance Minister Mustafa Mkulo said, another sign that it is serious about following Ghana and Gabon as frontier sub-Saharan nations with sovereign eurobonds.

It will also hive off a stake in National Bank of Commerce as aid revenue to the historical donor-darling drops to 29 percent of official receipts from 33 percent last year.

“Grants and concessional loans from development partners will continue to form a major source of government revenue,” Mkulo said.

Uganda is also facing a donor squeeze as it approaches the start in 2015 of commercial oil production from its Lake Albert fields.

However, with growth forecast at 6.4 percent in 2010/11, Finance Minister Syda Bbumba said government would have little problem lifting spending to 7.55 trillion Ugandan shillings ($3.3 billion) from 6.5 trillion last year.

Uganda, whose high-yielding domestic currency debt has attracted foreign investor interest, has also been linked to a possible eurobond but Bbumba made no mention of it in her budget address.

“Domestic sources are projected to finance about 75 percent of the budget in the coming financial year, while the balance of 25 percent will be provided by our development partners,” she said.

(Reporting by Duncan Miriri in Nairobi, Fumbuka Ng’wanikilala in Dar es Salam and Elias Biryabarema in Kampala; Writing by Ed Cropley; Editing by Ron Askew)

Download the entire transcript HERE