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Kenya forecasts fiscal deficit

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Kenya forecasts a fiscal deficit of around 7,5% for the second straight year in 2010/11 because of required spending on infrastructure and a new constitution, it said in a letter to the International Monetary Fund (IMF).

The east African nation also said it now planned to issue a sovereign bond during the 2012/13 fiscal year, although this date could be brought forward if favourable market conditions prevailed.

“Pressing needs for large investment in infrastructure, especially in the energy sector, and the cost of implementing the constitution, will keep the fiscal deficit at around 7,5 % of GDP for a second consecutive year in 2010/11,” the letter of intent released by the IMF late on Wednesday said.

Finance minister Uhuru Kenyatta said in his June budget he expected a fiscal deficit of 6,8% of GDP this year, not including the roll over of both local and foreign debt.

The region’s largest economy said it expected the share of domestic financing to decline to around 60% of total financing in 2011/12 from 70% this fiscal year.

The letter dated January 17 said Kenya planned to issue a delayed sovereign bond in 2012/13.

The country has had plans to issue a debut $500 million eurobond since 2007 but the government postponed the move after a violent post-election crisis rattled investors and put Kenya’s credit rating at risk.

“While we plan to issue a sovereign bond in 2012/13, we will monitor developments in the international capital markets with a view to issue the bond early to take advantage of the favourable interest rates, market conditions permitting,” it said.

External financing will come mainly from concessional external sources, including about $2 billion in project loans in the next two fiscal years, mainly from the World Bank and the African Development Bank, Kenya said.

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